Private Equity Investment Into Africa FMCG A Growing Trend

With consumers spending more on food and drink products and the development of organised retail gathering a head of steam from a very low base, one of the key trends we have picked up on has been the growing deal activity involving private equity as more funds search for returns through stakes or buys in well-positioned food, drink and wider fast-moving consumers goods (FMCG) firms. The latest such example saw the emerging-markets focused Standard Chartered bank's private equity arm take a 13% stake in the Botswana-based food retailer Choppies that is believed to be worth more than US$50mn, according to Reuters.

Choppies is the leading food retailer in Botswana, with more than 100 stores. It also has businesses in South Africa and Zimbabwe and looks well positioned to invest in more store growth and pursue efficiency initiatives with the equity financing on board.

For a long time, many investors were mostly interested in Africa for its resources or, more recently, land. The idea of investing in search of returns from the growing spending power of the end consumer is a relatively new phenomenon outside traditional stalwarts like the beer and soft drinks industries. Given how well many of the region's economies have performed relative to the global economy since 2008, Sub-Saharan Africa's most promising economies are going to provide some great opportunities.

Perhaps the highest profile private equity deal over the last year came in late 2013, when Ghana-based Fan Milk, a market-leading dairy company that has gone from strength to strength over recent years, was acquired by Dubai-based private equity firm The Abraaj Group. The fund assumed 51% majority control, with the France-based food giant Danone assuming the rest with the option of taking majority control going forward. The deal represented one of the largest ever private equity deals involving Africa's fast-moving consumer goods (FMCG) sector, not including those in South Africa.

The UK-based asset manager Silk Invest has also been active over the past few years, having set up a fund that invests exclusively in well-positioned FMCG companies in promising regional economies like Kenya, Ethiopia and Ghana. As an example, it acquired a significant stake in the Ethiopian biscuit company NAS Foods in June 2012 that was expected to help the company scale up its infrastructure with the ultimate aim of widening its sales net. We expect more such deals going forward as more companies come to the attention of investors such as Silk, with the potential for promising returns on investments in the region.

Steady Outlook Across Selected Markets
Selected African Countries Real Private Final Consumption Growth (% change y-o-y) - Historical & Forecast
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Related sectors of this article: Food & Drink, Mass Grocery Retail
Geography: Botswana

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