The new scramble for Africa

Starved of opportunities at home, private equity companies are seeking to invest in the continent

With Table Mountain looming spectacularly in the background, rows upon rows of grapes that will end up in kitchens in more than 50 countries are ripening. The De Riviere Farm is expected to export around 450,000 boxes of grapes by 2015, and a further 40,000 cartons of citrus fruit.

This is part of the Afrifresh Group, which owns farms across South Africa and earlier this year took a majority stake in Zimbabwe-listed Ariston Holdings. That deal has expanded the lemons-to-raisins producer into bananas, apples, tea and macadamia nuts.

Afrifresh's rapid growth is down to private equity: Standard Chartered's buyout arm took a 30 per cent stake in the Cape Town-based group in March 2011. As European dealmaking faded in the financial crisis, so private equity splashed the cash in Africa, from technology companies in Ghana on the west coast to shopping centres in Kenya in the east.

Although $44bn (£27.3bn) was spent on mergers and acquisitions across this vast continent in 2010, double the previous year, it's an upcoming private equity fund that perhaps best symbolises Africa's emergence as a centre of corporate activity. Later this year, the Carlyle Group will finally reach "first close" – the point at which private equity can start investing – on its $500m fund that focuses on sub-Saharan Africa.

That might be a relatively small sum for such a huge group, but the fact that one of private equity's most prestigious companies is, partly from its London office, looking at Africa is testament to a 180 degree turnaround in perception. War is no longer rife, consumer spending is soaring, and, from an admittedly low base, sub-Saharan Africa has seven of the world's 10 fastest growing economies.

Lord Malloch Brown, the Europe, Middle East and Africa chairman at FTI Consulting and a minister under Gordon Brown, says: "Politically Africa was seen as a risk, but economics was a great leveller in bringing stability. There is an untold story about the umbilical relationship between Europe, the UK in particular, and Africa. It's a legacy [of colonial times], for example Scotland has extraordinary emotional links with Malawi."

That particular link traces back to South Lanarkshire-born David Livingstone's trek across the country in 1859. More broadly, the UK has advantages of timezone and similarly grounded legal systems.

Warren Hibbert, the managing partner at private equity adviser Asante Capital, says investors are interested in "small, more focused" businesses than in developed markets. "You can't attack Africa like you can Europe, it is far more diverse. You are reliant on partners on the ground," he explains.

As a result, most private equity funds are mid-market, of the order of $200m-500m. The biggest African fund ever raised was the $900m garnered by London-based Helios Investment Partners last year.

However, that record will surely be shattered should Carlyle prove successful. The whole point of private equity is to spot opportunities and few of the major buyout groups will let Carlyle steal a march on them.

Buyout houses eager to spend

It isn't just Warren Buffett who is itching to spend some money. The Sage of Omaha told CNBC last week he was "salivating" to make a big acquisition. Many private equity firms are similarly drooling over what to do with all of their cash.

There is an estimated £37bn of "dry powder" sat in the largest buyout houses, including KKR, BC Partners and Permira.

Depressed equities and better borrowing terms means take-privates, such as the sale of financial software group Misys to Vista Equity Partners, are back on the agenda after a lull. The value of buyouts fell to £8bn last year from £12.1bn, according to British Private Equity and Venture Capital Association figures, but the number of companies invested remained flat – suggesting deal value fell.

New funds are also getting smaller. KKR, a shareholder in Alliance Boots, has raised only $6.2bn in its latest American fund, short of an expected $8bn and less than the blockbuster $18bn it raised six years ago. Fund raisings are also taking longer – typically 18 months where a year might have done before.

British firms also looking further afield. There are plenty of secondary buyouts – where assets are traded with another private equity house. But trade sales to rich corporates, such as Permira's disposal of TV technology firm NDS to Cisco, offer better terms.

James Ashton

20%

The annual growth in mobile phone sales in Africa in each of the past five years

1,400

The number of KFC outlets that Yum Brands plans to have in Africa by 2014, twice as many as in 2010

60

Percentage of the world’s uncultivated arable land in Africa

4

The number of major African wars today down from 12 in the mid-1990s

48

Percentage by which secondary school enrolment in Africa rose between 2000 and 2008

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