S. Africa’s Oldest Private Equity Firm Targets East Africa

Ethos Private Equity Ltd., South Africa’s oldest private equity firm, is targeting investments in the continent where oil-driven economic growth and a rising middle class are boosting demand for goods and services.

The Johannesburg-based firm, which said yesterday it raised $800 million for a sixth fund, expects to deploy the cash in the next three to four years in countries such as Kenya and Tanzania, Chief Executive Officer Andre Roux said in a telephone interview from the South African city yesterday.

“In a world starved of growth, sub-Saharan Africa has become an investment bright spot,” Roux said yesterday, referring to economic growth in African countries of between 5 percent and 6 percent. “The consumer is clearly an important area of growth but that’s not just limited to retail, but to industrial services that serve the oil industry.”

Kenya, which announced its first discovery of oil last year, and Tanzania, which has offshore gas reserves, are two countries where growth could mirror that of oil-rich West African nations, Roux said. Ethos will only consider raising more funds after it has spent at least 70 percent of its existing undeployed cash and is also reviewing exits from investments made for the previous fund, Fund V, he said.

‘Big Boost’

“In the medium term the big boost is oil in Kenya and continued exploration for oil in Uganda,” Cavan Osborne, a portfolio manager at Old Mutual Investment Group South Africa, said in a telephone interview from Cape Town today. With African stock markets often being small and illiquid, private-equity firms have a role to play in accessing some of the continent’s growth opportunities, he said.

Sub-Saharan Africa’s gross domestic product will expand 5.7 percent in 2013 as commodity prices rise, making it the second fastest-growing region after developing countries in Asia, the International Monetary Fund said Oct. 9. Kenya, the biggest economy in east Africa, is forecast to grow 5.6 percent in 2013, more than the 5.1 percent estimate for last year, the IMF said.

Ethos has already made two investments with the new Fund VI and is weighing others after exceeding its target of raising $750 million, Roux said. Ethos began raising cash about 24 months ago for the fund and has invested in Waco International Ltd., a building, construction and scaffolding company, and Kevro (Pty) Ltd., a clothing and gifts corporate branding company, he said.

Ethos said in January last year that it bought a 72 percent stake in Kevro for 850 million rand ($108 million). The firm hasn’t publicly disclosed the amount it paid for Waco, Wilkinson said.

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