London - Private equity houses are swapping low-growth buyout deals in Europe and North America for a slice of booming consumer demand in Africa.
They are drawn by a youthful and booming population that could almost double to 2 billion by 2050, some of the fastest growing economies in the world, and an emerging middle class which wants everything from banks and insurance to places to eat out.
That consumer boom is at the heart of Carlyle's deal on Wednesday for a minority stake in Tanzania-based agricultural commodities firm Export Trading Group, one of the world's largest cashew nut traders, which employs more than 7 000 people across 30 African countries.
It's also behind Emerging Capital Partners investment in Nairobi Java House, the largest so-called casual dining restaurant in Kenya, twice the size of its nearest rival. But this is no mega-chain. It has just 14 restaurants.
"Africa is an emerging market in a similar fashion to Asia or Latin America and the story behind it is growth and the emerging middle classes.
"And that's what we are focusing on, ways to tap into that growth," said Marlon Chigwende, managing director and co-head of the Carlyle Sub-Saharan Africa Fund.
Private equity firms and their investors that long shied away from sub-Saharan Africa, worried about losing money on deals in countries in the grip of war and corruption, are changing their views on the risks as democracy takes hold.
And with portfolios focused on Europe and North America scarred by poor returns from deals that firms paid too much for and financed with too much cheap debt, they have been under pressure to find better deals.
But Africa has been slower than some had hoped.
Some $698m of deals have been done in sub-Saharan Africa in 2012 so far, compared with more than $49bn in the United States, according to data from the Emerging Markets Private Equity Association (EMPEA) and PitchBook.
It is also far short of deal totals for seven of the last nine years, EMPEA data shows, reflecting how hard new deals are to find and concerns that underdeveloped equity markets mean that, when the time comes, companies will be hard to sell.
"In the last year, we have had rather more talk than action," said Lord Mark Malloch-Brown, former United Nations deputy secretary general and now chairperson Europe, Middle East and Africa for FTI Consulting. "Africa has edged out Asia and bargain hunting in Europe."
Malloch-Brown is also chair of private equity-backed agribusiness GADCO, based in Ghana.
But that could change as firms eye long-term growth as opposed to short-term opportunism.
The arrival of groups like Carlyle is seen as a vote of confidence in the region's development - from political stability to improving capital markets and increased focus from large corporations that could ultimately buy many companies.
"For the next 30 years, East Africa is going to be rocking," said Ahmed Heikal, chairperson and founder of Citadel Capital.
Deals like Emerging Capital Partners' Nairobi Java House are small and require more capital to build them up rather than to acquire them. The returns from such businesses come from fast growth, at 25% a year, rather than financial engineering.
And those long-term returns are now drawing mainstream Western pension funds and endowments.
International Finance Corporation, a part of the World Bank, said annualised returns from its Africa private equity portfolio of 31 funds were 17.8%, more than 5 percentage points higher than the emerging markets index.
"There is a set of about 500 investors who are looking to make small strategic investments in Africa," said Jonathan Bond, partner at emerging markets private equity firm Actis.
University of Texas Investment Management Company has two investments in firms focused on Africa - Actis and Helios - and based on those results wants to add one or two more, said Lindel Eakman, managing director, private markets investments.
Others hope to make their first step.
"We have been spending a lot of time thinking about (private equity in) Africa and we expect to do something very soon," said John Powers, President and CEO of Stanford Management Company, which manages $25bn in assets for the US University.
As a result, fundraising for sub-Saharan private equity funds could more than double to a record $3bn next year, estimates Antoine Drean, chief executive of Palico, a company that helps private equity firms market their funds to investors.
But it would still lag emerging markets as a whole.
Private equity funds raised for emerging markets, including China and India, increased about ninefold between 2003 and 2011 to nearly $40bn, according to EMPEA.
Africa's industry could grow four times in size before matching that of Brazil, said Hurley Doddy, founder and co-CEO of Emerging Capital Partners.
The arrival of large buyout houses like Carlyle that has set up offices in Johannesburg and Lagos, and KKR which is planning to set up shop in Africa, gives another potential sale route.
"I don't think anyone likes more competition (but) there is a lot of Africa and I do have some companies to sell these guys when they come," Doddy said.
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