“High quality global writing like this one requires investment. Please share this article with others using the link below, do not cut & paste the article.“ The growth story in Africa is compelling. Global funds are realizing they need to have some sort of Africa strategy. Strong growth, a rising middle class and limited competition for deals are driving increased interest. Africa, once seen as terra incognita when it came to private equity, is now a savanna rife with wild game for the private equity hunters. Crucially, it is getting easier to get money out of Africa. There were 40 private equity exits in Africa 2014, the highest in eight years, including the continent's largest ever when Steinhoff agreed to buy retailer Pepkor for around $5.7 billion, providing an exit for private equity firm Brait. According to report by Ernest & Young, investors have clearly indicated that they are almost twice likely to invest in private equity (46% preference) than in real estate (26%), and most likely to allocate capital to private equity compared to other alternative asset classes (infrastructure-10%, natural resources-13%, hedge funds-4%). Private equity groups are stalking for diversified, pan-African companies with high quality, “enlightened” management, but these are thin on the ground, outside of the financial, consumer and telecoms sectors, which last year accounted for about 60 per cent of deals, according to the EMPEA. A lot of people are chasing deals and there is a lot of capital swilling around. But it’s a developing story for private equity because the type of companies they want to invest in don’t really exist [in Africa] as they do in the US or Europe. Hence, there is a lot of liquidity in the market at the moment. The average deal size for the over 13 private equity funds in Africa, for deals which are disclosed, is at USD. 13 million, with private equity funds willing to go no lower than USD. 2 million. However, most SMEs in Africa, which are the drivers of 80% of Africas GDP, are actually in the M part of SMEs, that is, Small enterprises with less than 10 employees, but contributing to 97 percent of businesses volume, and employing more than 80% of the population. The medium-sized enterprises with 10 to 50 employees account for around 2.7 percent of total businesses, and the big businesses, mostly multi nationals, with over 50 employees account for 0.4 percent of all enterprises nationwide. Africa is greatly lacking in medium-sized businesses. Seventy percent of the country's 2.4 million businesses have only one or two employees. But less than 0.1 percent – only 784 businesses – employ between 45 to 49 people. Further, of the over 3,100 companies in Africa that generate over $50 million, roughly 42% are in South Africa, and a further 37% in three countries, namely, Nigeria, Egypt, and Kenya. The relative lack of companies of scale may also preclude Africa from spiriting away capital global firms might commit to other emerging markets. Africa has just over 26,000 private companies compared to Asia’s 220,000, and North America and Europe’s close to 1 million companies. Given the relative paucity of suitable ready-made companies to buy, the private equity industry instead needs to work with and “nurture” family-run businesses. However, the PE funds are using a red ocean strategy, competition for few businesses which are well established in the medium sized bracket, and large bracket, whereas the greatest growth is in the small market sector has the highest potential for emergent growth. The hunger resulting from the fierce competition for deals should lead the PE firms to adopt a blue ocean strategy and roam beyond their normal hunting grounds in search of new investments in small and medium enterprises which will need tens to hundreds of thousands of dollars. Such investments of course will require working with local partners, and hence, the added benefit of localization, reduced costs of sending the European, American and Asian partners, and more focus on close combat management strategy. In addition, the funds seeks to be as ‘hands-on’ as possible, helping its companies improve governance, transparency, operational efficiency and human resources. Of course, this means more management costs, and lower returns of the funds. But Africa is an emerging economy, and hence, the returns are great. Of the private equity fund mix, 73 per cent of the capital came from European and North American investors, with global institutional investors, pension funds, sovereign wealth funds and development finance institutions participating in the fund-raising, the statement added. The others are coming from local funds, and Middle Eastern and Asian funds. Russia contributes to less than 1% of the foreign equity investment in Africa, and this is indirect. Private Equity investment activity, as a % of GDP, in South Africa is highest in Africa, at 0.23%. The average private equity investment in Africa as % of Africa’s GDP is 0.04%. This compares with the UK of 1.15% and the US of 1.06%. Israel remains the highest percentage at 2.01%, while the average in Europe and North America is at 1.42% of GDP. This means that while there was only USD. 13.96 billion Out of a total approximated value of USD. 1.51 trillion Invested in private equity, the West and Europe took the Lion’s share of 47%, followed by Eastern Europe and Russia at 27%, Asia at 21%, and Middle East, buoyed by Israel, at 4.5%. The gap clearly exists because African focused PE funds are targeting the front end of the herd, where they are few, instead of the belly, where we have the majority of the companies though at lower ticket requirements. This is the need for platforms like GoBigHub.com, which seek to connect African entrepreneurs to local investors, targeting individuals and institutions willing to put in as little as USD. 5,000, opto a maximum of USD. 500,000, per deal. GoBigHub does deal generation, preliminary due diligence, immediate post-acquisition, ongoing value addition, and operational and exit strategy advise, for both individual, and institutional investors. ………………………………………………………………………. The Team Leader’s Profile, Ojijo Pascal Ojijo Pascal, a lawyer, author of 49 books, public speaker, consultant, entrepreneur, investor, poet, pianist, speaker of 19 languages, and Inua Kijana Fellow, is the Founder & Lead at GoBigHub, a for profit social enterprise with a 10 year target of being in 1,000 African cities, connecting local entrepreneurs to local investors. GoBigHub believes that the solution to Africa’s poverty, unemployment, and low productivity, lies in (1) connecting local entrepreneurs to local investors to access affordable capital; (2) connecting start up entrepreneurs to successful entrepreneurs for business mentorship; (3) private equity investment in scalable youth and women enterprises at maximum of USD. 5,000 per ticket; (4) sensitizing individuals, with special focus on youth and women, to form business and investment clubs to leverage on social capital; and (5) promoting world employers day (BigBossDay), where employees thank employers for their initiative and creativity in offering them opportunity to build their careers and earn a living. GoBigHub is leading the move away from grants, promoting trade, not aid. GoBigHub charges 5% of the successful deals arranged. Ojijo is privately a consultant in communications (public speaking, strategic planning, and writing); an expert lawyer (ICT law, financial services law, law firm management, and legal rhetoric); a public speaker and coach on financial literacy and personal branding; and a consultant in collective investment schemes (investment companies, investment clubs, provident funds, and cooperatives). To aid in his consultancy, Ojijo is a best-selling author of 49 books; owner/inventor of financial literacy board game, ChapChap; a software for investment clubs and cooperatives, GoSacco. Over a period of 9 years, Ojijo has worked with a broad scope of clientele including Ministry Of Foreign Affairs Cooperative; National Environmental Management Authority(Uganda); Kawanda National Agriculture Research Organization; Gender Ministry (Uganda); Nsamizi Institute(Mpigi-Uganda); 4Cs-Kenya; CREDO-Kenya; KHRC-Kenya; Foundation for Human Rights; Africa Youth Development Link; Technoserve; AIESEC; AYDL; UMYDF; CCEDU; FOWODE; PEDN; and over 20 investment clubs, over 50 individual clients, at least 15 cooperatives; and several other universities, companies, and individuals on various areas of expertise. He offers advisory support in legal and or strategic areas in various boards of various investment clubs, cooperatives, Bank of Uganda Financial Literacy Advisory Group, Uganda Financial Literacy Sharing Group (FLISG), and Competitiveness Secretariat of Uganda Ministry of Finance supported Investment Clubs Association of Uganda-ICAU. M: +256776100059. E: ojijo@gobighub.com