Peter Guest

Source: Helios Closes $900 Million Africa Fund

Private equity firm Helios Investment Partners closed its second Africa-focused fund at $900 million on Monday, as fundraising for the world’s most under-invested continent rebounds after the financial crisis.

An Angolan woman shops in a market in Cabinda.

Helios Investors II L.P. will invest between $25 million to $250 million in a number of deal types, from business formations to leveraged buyouts, and was considerably oversubscribed, the firm said.

The fund’s focus will be “businesses that are core to the functioning of African economies, businesses that are leveraged to the domestic growth of those economies, rather than broader global factors, and then sectors that offer us the scope to make large scale investments and build large scale investments across Africa,” Henry Obi, Helios’ chief operating officer told in an interview.

This is likely to include financial services, power and utilities, fast moving consumer goods and telecommunications, which has been a major driver of investment over the past few years.

Helios will look to build platforms that can expand regionally and build scale, in order to overcome the perennial challenge of exiting private equity deals on the continent, which outside of South Africa and Nigeria has relatively underdeveloped stock exchanges.

“The reason why we built our platform investments to such a scale is to make them sufficiently attractive for exits on one of the larger stock exchanges, maybe Nigeria, South Africa or even London. That’s why there’s a lot of emphasis in our strategies in building up these large scale investments,” Obi said.

However, he added, the environment is getting easier for exits. “There is now a growing a pool of domestic capital formation, which makes it attractive for exits in these markets,” he said.

The fund has made four investments to date, most notably participating in Vitol’s $1 billion acquisition in February of Shell’s downstream businesses in Africa.

With investments in financial services on its radar, Helios did initially look at opportunities in the distressed Nigerian banking sector, where several institutions were nationalized and put up for sale by the government.

“We cast our eye over one of them, but the returns and risk weren’t sufficiently attractive for us,” Obi said.

In March, Carlyle Group, a private equity house with more than $106 billion in assets under management, launched its own sub-Saharan African investment group.

Private equity fundraising focused on Africa hit a peak in 2008, with $2.2 billion raised for investment, according to the Emerging Markets Private Equity Association. That fell away to less than $1 billion in 2009, before rebounding to $1.5 billion in 2010.

While investors have historically shied away from African markets, apart from South Africa or the more industrialized countries north of the Sahara,  a decade of nearly uninterrupted economic growth – albeit from a low base – and an improvement in political stability in key regions of the continent have led some to reassess the continent.

With an estimated billion people, a large youth bulge, a wealth of natural resources and increasingly close economic links with China, India and Brazil, some African economies are experiencing sustained improvements in living standards.

In May, data from the African Development Bank showed that Africa’s consuming class had risen to 300 million individuals, providing a huge opportunity for companies capable of tapping into these often difficult operating environments.

The US retail giant WalMart finally completed a deal for Massmart, a South African retailer with a wider sub-Saharan African footprint, last month, which some analysts have pointed to as a further signal for the region’s potential.