Bankers and Dealmakers Set Their Sights on Africa
One evening in July, Lazard banker Matthieu Pigasse was in Congo’s capital city of Brazzaville trying to catch the last ferry across the Congo River for meetings in Kinshasa. In September, Lazard announced that Pigasse—who has advised on some of France’s biggest deals, including the $50 billion utility merger that created GDF Suez in 2008—will head a team that now numbers a dozen bankers dedicated to mergers in the region. “It is the new frontier,” says Pigasse. “The potential of the M&A market will be big in the coming years.” Banks including Citigroup, Barclays, and Standard Chartered also are expanding their presence in Africa.
Africa has emerged as the world’s second-fastest-growing region, after Asia and ahead of Latin America and Eastern Europe, according to Barclays. The International Monetary Fund forecasts that sub-Saharan African economies will grow 5.7 percent on average this year, and the region is home to nine of the world’s 20 fastest-growing economies. “Being first will be a big advantage,” says Crispin Osborne, who oversees Barclays’s African investment banking operations from London and is planning to hire on-the-ground investment banking staff in East and West Africa this year.
The number of private equity transactions in sub-Saharan Africa jumped 19 percent, to 43 deals, in the first nine months of last year, reports the Emerging Markets Private Equity Association. In China during the period, there were 179 deals, a 17 percent decline, while India saw a 29 percent drop, to 154 deals. In November, Carlyle Group made its first sub-Saharan investment, joining other backers to put $210 million into agricultural supply-chain company Export Trading Group, in Tanzania. “We saw sub-Saharan Africa as being where China was 15 years ago, and we wanted to be one of the first there,” says Genevieve Sangudi, the Lagos (Nigeria)-based managing director for Carlyle’s regional fund.
Many takeovers and private equity investments in Africa have been in natural resources and telecommunications. Interest in the region’s consumer and retail sector has also increased as investors seek to benefit from a rising middle class. “Every corner of the globe wants a consumer play in Africa,” says Brian Smith, who oversees investment banking in sub-Saharan Africa from Johannesburg for JPMorgan Chase.
Big banks are focusing on Africa as they retrench in Latin America, Asia, and the Middle East—areas seen as booming emerging markets only a few years ago. Citigroup announced plans last month to eliminate 11,000 positions in countries from Pakistan to Paraguay, but said its 1,300 employees based in African countries including Nigeria, Uganda, and Kenya wouldn’t be affected.
Still, banks chasing African deals are playing a long game. Investment banking fees in the region totaled about $305 million in 2012, according to research firm Freeman & Co., doubling from a decade ago but still just a third of those paid out in the same period in Italy, which has less than one-tenth the population. Banks also must contend with unstable politics and nascent capital markets—to say nothing of the lack of basics such as dependable roads or electric grids. Lazard’s Pigasse says airline service between African cities is so limited he sometimes needs to return to Paris to fly between African capitals in neighboring countries.
Outside of South Africa, ports, Internet access, and shipping are often unreliable. And although some governments are tackling corruption and boosting transparency, many investors still shy away. “Africa has a lot to do in education, infrastructure, the judicial system,” says James Tidmarsh, a Geneva-based lawyer who raises funds for mining projects in East and Central Africa. “If someone owes you money, you need to be able to get that money back.” Pigasse won’t let that stop him. “Because of the growth prospects,” he says, “we have to be there.”