Buyout Opportunities On The Rise In Africa’s Family-Owned Businesses
Opportunity for investors to buy stakes in family-owned businesses in Africa is on the rise as private equity firms chase for large deals on the continent, South African law firm Bowman Gilfillan has said.
Family-owned businesses are companies in which one family own more than 50 percent stake. In Africa family businesses account for nearly 85 percent of firms and they remain the essential backbone to most economies.
While many of them remain tightly held by the controlling families who prefer not to list on the local stocks markets, they pack a lot of potential for investors seeking to buy into small and medium sized companies that can be transformed into private equity targets.
“There seems to be a view that people are battling to find deals. The deals are there but not as big as South Africa. It is smaller deals and many of these companies are family businesses,” John Bellew, the head of private equity at Bowman Gilfillan, told BDlive.
“A lot of capital that has been raised is looking for bigger transactions. That creates a gap for people that specialize in the mid-market. If you are successfully invested in a mid-market deal and if you have managed to grow that company … you can sell it as a bigger company.”
As family businesses grow bigger challenges like sibling feuds and succession politics usually crop up like in the case of leading Kenyan supermarket chain Tusky’s.
In some cases management of the business becomes difficult for the founder’s’ children and they decide to let in partners with more knowledge on how to run the business in exchange of a minority stake.
These weakness in family-owned businesses are opportunities for private investors, especially where the is no long-term growth plan, proper governance structures and industry best practices.
According to Kurt Davies, “Inter-generational issues, including differences in thinking and leadership successions, create a void for crafty and innovative investors to build multi-facet management teams that fairly allocate power and leverage the strengths of siblings.”
Though Africa in general attracts a smaller proportion of global private equity money, Deloitte’s 2015 Africa Private Equity Confidence Survey showed that “interest has grown buoyed by oil and gas discoveries and a growing consumer class”.
Research by the African Private Equity and Venture Capital Association showed that $8.1 billion worth of private equity deals were made in Africa last year, second only to the $8.3 billion of deals concluded in 2007.
According to Bellew, Nigeria in West Africa and Kenya and Ethiopia in East Africa are the leading investment destinations with capital being allocated for the infrastructure, fast moving consumer goods, agribusiness and real estate sectors.