Carlyle Upbeat on Africa

The global PE firm continues to see promise in this important emerging market.

The Carlyle Group, the alternative investment firm headquartered in Washington, D.C., is one of the most ubiquitous private capital investors in the world. With its fingers on the pulse of the global investment scene, it is not surprising to learn that Carlyle is firmly entrenched in Africa—and managers like what they see.

The Carlyle Sub-Saharan Africa Fund (CSSAF) was launched in 2011 and closed on $700M in capital commitments in 2013. As its name suggests, the vehicle has a particular focus on sub-Saharan Africa, with Nigeria and South Africa being the cornerstones of investment opportunity, according to Mohamed Wann, a vice president with The Carlyle Group who is based in Lagos. The fund also invests in Nigeria, Kenya, Tanzania, Ghana, Mozambique, Botswana, Zambia, Uganda, and indirectly in Zimbabwe with portfolio companies that do business in the country. That is not to say managers will not consider opportunities in other African locations. It all depends on case-by-case opportunities and risk assessment.

Focusing on financial services, consumer goods, agribusiness, transportation and logistics, and energy, managers plan on completing 10 deals through the fund’s life cycle. Thus far, five transactions have been closed, but as Wann says, it is not the number of deals that is important.

“We are not constrained by the number of deals; we focus on the quality of each transaction,” he says.

CSSAF investments include ETG Group, an industrial-agriculture supply-chain business; J&J Africa, a transportation and logistics company; Traxys Group, a provider of financial and logistical solutions for the metals and mining industry; Ti-Auto, a tire retailer and wholesaler in South Africa; and Diamond Bank, a commercial bank in Nigeria.

In terms of returns, management is aiming for between 2x and 3x during the next five years, with an IRR of 25 percent.

CSSAF managers are particularly attracted to sub-Saharan Africa’s emerging middle class and the needs that come with it. That means a growing consumer-facing market, as well as the need for improved infrastructure. As wealth accumulates, so do the needs for more robust and sophisticated financial services.

“The need for improved banking services will emerge,” Wann says.

CSSAF managers expect the macroeconomic themes in sub-Saharan Africa to remain unchanged for the next five to 10 years. While there may be minor decelerations or accelerations at any given moment, overall the economies should hold steady, and that excites management.

This is good news for private equity investment, because the asset class continues to gain acceptance throughout the business communities. Competition for deals is beginning to heat up, and as Wann says, this is a good thing. As capital infusions continue within sub-Saharan Africa, the best potential portfolio company investments will do well.

“We see a lot of companies with great potential,” Wann explains.