By Bill Hinchberger
Africa is growing, and African companies need cash to expand. Investors want in on the action, especially given low returns in many other parts of the world these days. But with few stocks and bonds, and scant liquidity for those out there, how do investors get a foothold? And how do African firms access much-needed cash?
Enter private equity — the purchase by a private investor of a share of a company that is not listed on a stock market. The company can take the money from the sale and use it for expansion or other investments. In exchange, the owner gives up some control, as the new partner gets a seat on the board or, in smaller companies, plays an advisory role. Eventually investors make money by selling their shares or receiving dividends.
In Africa, private equity is all the rage. “If you look at all the opportunities,” says David Jeromin, managing partner of the US-based Global Mean Capital, it is like the “nightmare” of someone with attention deficit disorder.
Announcements of new African private equity funds come regularly. In February the African Development Bank (AfDB) announced that it would chip in US$50 million towards a fund of the US-based Carlyle Group, which plans to invest at least $500 million in sub-Saharan Africa. In May, the Brazilian investment bank BTG Pactual launched a $1 billion Africa-focused private equity fund. In the 15 months from January 2011 to March 2012, eight new funds focusing on East and Southern