Saturday, October 17, 2015

PE & Africa

"In the rich world private equity is often accused of enriching investors at the expense of the firms they buy. In Africa, the reverse seems to hold."

States The Economist in "Climbing aboard the African train".  Private equity like any other for revenue investment looks to maximize value, hopefully both through productivity and top line growth.  Turning a profit is an essential ingredient of all capitalist ventures.  For Africa, it seems to have been a good thing so far:

"Consider the example of Umeme, which runs Uganda’s power-distribution grid. When Actis, a British investment firm, bought a stake, power losses consumed 40% of the electricity generated. By making some simple changes, such as replacing old insulators on its cables and reducing the theft of electricity by dismantling illegal connections, it has cut those losses in half."

Yet, the returns for the PE firms remains in low two digit percentages versus the factors they expect in the emerging markets:

"In the ten years to September 2014, South African private-equity firms, for instance, delivered returns that, although seemingly juicy at 18.5% a year (in local currency), were less than their investors would have earned simply by betting on stockmarkets.

Data on other firms and other countries are sparse, but industry insiders reckon that African deals had annual returns of only about 11% for the decade to 2012."

Read the complete article here.

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