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Private equity slowly finds its place in local firms

By Winsley Masese | February 10th 2015

Private equity funds are slowly gaining acceptance in Kenya as enterprises opt for more attractive and flexible options.

A report by consulting firm Deloitte put Kenya ahead of its East African peers in attracting private equity firms. The company found Kenya attracted 12 of 26 deals recorded in Uganda, Rwanda, Tanzania and Ethiopia between December 2013 and February last year, raking in Sh9.6 billion.

According to the East Africa Private Equity Confidence Survey, a majority of the deals focused on agribusiness, healthcare and the financial sector and targeted small and medium enterprises (SMEs).

Repeat investors

And just last week, fund manager Phatisa, through its African Agriculture Fund (AAF), announced an investment in Kenyan firm General Plastics, though the value of the deal was not disclosed. General Plastics, founded in 1977, manufactures packaging products for the food, beverage and agro-chemical sector in Eastern Africa, and said it plans to use Phatisa’s funds for regional expansion.

In January, solar light distributors M-Kopa also announced it has raised Sh113 million ($12.4 million) in debt and equity in its fourth funding round.

Among the investors was LGT Venture Philanthropy, which first invested in M-Kopa in 2011. Lundin Foundation and Treehouse Investments also participated as repeat investors, and were joined by new investors Blue Haven Initiative.

Launched about two-and-a-half years ago, M-Kopa has installed more than 150,000 residential solar systems in Kenya, Uganda and Tanzania, and now connects 500 new households every day.

The firm seeks to increase the number of homes in the three countries with access to clean, reliable and safe energy.

Solar technology faces two main challenges: the upfront cost is higher than typically used alternatives, like charcoal or kerosene; and any product needs a large distribution network.

M-Kopa has managed to achieve scale with a network of more than 1,000 sales representatives and offers a mobile money financing service.

In late 2014, Amethis Finance announced the acquisition of a 30 per cent stake in Ramco Plexus, a Kenyan group of nine companies that provides services in print, packaging, hardware, office supplies and ICT consulting in East Africa.

The family-owned company, now a conglomerate of 34 subsidiaries across the manufacturing, trade and services sectors, said the new investment would be used to support regional expansion, among other strategies.

The challenges

The Deloitte report, however, noted there would be a lot more growth if human capital deficiencies, a lack of sophistication among portfolio companies and a lack of quality deal flows are addressed.

And with family-owned businesses forming the majority of Kenya’s enterprises, it has proved difficult to attract more private equity over owners’ trust issues and reluctance to cede control. Other reports have also noted issues of poor governance in such businesses, slowing the uptake of private investment.

However, East Africa is an investment destination that cannot be ignored given its rapidly growing middle class and infrastructure investments. It is, therefore, expected to draw more private equity in the near future.

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