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Aureos Africa Fund targets service sector

Private equity fund Aureos Capital is looking for small, mainly family-run service sector businesses in Africa to invest in and guide through expansion and restructuring.

The Aureos Africa Fund raised $383 million in 2008, just shy of a $400 million target, and has more than $250 million of that yet to deploy.

Among Aureos’s main targets are firms which provide services to bigger companies within the oil, gas, mining, construction and telecoms sectors. It avoids what it says is the high-risk business of financing start-ups, but instead injects money into firms and guides them through expansions toward buy-outs or listings. “We are not talking about MTN or Orange. We are talking about the companies that provide services to them,” said investment executive Kodjo Aziagbe, based in the Senegalese capital Dakar.

The market is there. This is a part of the economy in Africa where capital is lacking.”
Ghana, a key market for the Africa Fund, is due to become an oil producer later this year, a development which Aziagbe expects to open opportunities for firms associated with the petrochemicals sector.

“In Nigeria it is oil and gas that dominates everything … everything related to oil and gas is interesting. Ghana is going to start producing oil and that’s interesting,” he said.

The firm’s $50 million West Africa Fund, an earlier vehicle focused on Ghana, Nigeria and Senegal, was fully invested by 2008. Around $45 million has been returned, and investments remain active in eight of 11 firms in which Aureos took a stake.

Firms in which it has so far invested via the Africa Fund include Ghanaian real estate company Regimanuel Gray, Kenyan food processor Brookside Dairy, and Ciments du Sahel, a Senegalese family-owned cement firm, where more than $10 million of Aureos’ money financed a major capacity expansion.

“Construction is the big sector in Senegal, everything related to building is interesting, because (the country) needs infrastructure,” he said. Across sectors, Aureos says many African firms would benefit from a dose of corporate discipline. We are working with companies which are mainly family-owned, which means the risk is higher compared to normal companies,” Aziagbe said.

“It’s difficult to access credit, they don’t have formal governance in place. This is what we need for the private sector in Africa … to transform family businesses into real corporations.”

Some countries are more investor-friendly than others, with political instability in Guinea and Ivory Coast a major factor.

“As a private investor, you just want to be sure your investment is safe, but it’s not the case if the question of whether the ruling political party decides to nationalise is in the back of your mind,” said Amy Tognisso-Fanny, also an investment executive at Aureos. Once Aureos has chosen a company, Aziagbe said, it is far from a passive investor. “We do take an interest in strategy and direction,” he said. “This is the way for us to add value, and by the time we exit, to exit with value. (You can’t) sit somewhere and pray that God will provide.”


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