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 Aureosâ€™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. â€œWe are not talking about MTN or Orange. We are talking about the companies that provide services to them,â€ 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.â€
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.
â€œIn 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 thatâ€™s interesting,â€ he said.
The firmâ€™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 Aureosâ€™ money financed a major capacity expansion.
â€œConstruction is the big sector in Senegal, everything related to building is interesting, because (the country) needs infrastructure,â€ 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,â€ Aziagbe said.
â€œItâ€™s difficult to access credit, they donâ€™t have formal governance in place. This is what we need for the private sector in Africa … to transform family businesses into real corporations.â€
Some countries are more investor-friendly than others, with political instability in Guinea and Ivory Coast a major factor.
â€œAs a private investor, you just want to be sure your investment is safe, but itâ€™s not the case if the question of whether the ruling political party decides to nationalise is in the back of your mind,â€ 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. â€œWe do take an interest in strategy and direction,â€ he said. â€œThis is the way for us to add value, and by the time we exit, to exit with value. (You canâ€™t) sit somewhere and pray that God will provide.â€