Africa-focused private equity firm Development Partners International has raised $900m in its third round of funding, closing a deal that will give an important boost to an investment ecosystem hard hit by Covid-19.
DPI’s African Development Partners III Fund exceeded its target of $800m and has secured an extra $250m to co-invest in specific companies.
Runa Alam, co-founder and chief executive of DPI, said the fundraising showed that investors recognised there was money to be made on the continent in investments that also had social impact.
“Our strategy is to invest in companies that are benefiting from an emerging middle class,” she said, arguing that about 300m of Africa’s 1.3bn people met this broad definition.
While she acknowledged that the economic aftershocks from the pandemic had almost certainly dented middle class incomes in Africa, rapid digitalisation meant that companies were finding new ways to connect with consumers. Some were offering “value” propositions for the less well-off, she said.
“We haven’t seen growth in our companies coming down,” she said, referring to revenue at businesses ranging from a pan-African generic drug manufacturer to a Nigerian fast-food chain and a private west African university offering distance-learning.
Abi Mustapha-Maduakor, chief executive of the African Private Equity and Venture Capital Association (AVCA), said: “It’s really great to see when large fund managers are able to close. There are opportunities, particularly in tech-enabled businesses.”
She admitted that the industry had been struggling to raise fresh money in a tough economic environment and at a time when face-to-face meetings between potential investors and new businesses had been difficult.
Private equity funds investing in Africa raised $1.2bn in 2020, down from $3.9bn in 2019, according to AVCA. Its report for the first half of 2021, due to be published this week, will show a fairly flat start to the year with about $500m in final closes.
KKR and Carlyle, which once had big plans for Africa, have scaled back, citing the small number of investment opportunities of the right size.
Souleymane Ba, partner at Helios Investments, which has invested $4bn in African companies since 2004, said: “The market is active but you have to be very specialist and very few general partners in Africa have the experience and the track record.”
Hendrik du Toit, chief executive at Ninety One, an Anglo-South African asset manager, said investor interest in Africa was limited. “Unfortunately most African policymakers have not delivered on the promising ‘Africa Rising’ narrative that did the rounds 10 to 15 years ago,” he said.
Alam said this view was too negative. None of the 23 companies DPI had invested in over 14 years had failed and DPI had consistently been a top quartile performer, she said.
“We give good returns in dollars,” she added. “Despite all the gloom and doom out there about Africa, our macro thesis still holds. There are 1.3bn people, the youngest demographic in the world, which means that, while other regions will have fewer people, Africa is still growing. It is a continent that cannot be ignored.”
The $900m invested in the DPI fund came from pension and sovereign wealth funds, development finance institutions, insurance companies, asset managers, and impact investors, with about half from Europe, a third from the US and the rest from the Middle East and Africa.
In addition to existing investors in DPI, which has $2.8bn in assets under management, some 25 new limited partners (LPs) had invested at least $5m each, Alam said.
Previous DPI investments include Eaton Towers, an African telecoms masts business that was sold to American Towers for $1.85bn, and Mansard, a Nigerian insurer, which was bought by Axa.
