The Carlyle Group (Nasdaq: CG) made a bold investment when it acquired the South African tire company Tiger Automotive in 2014. The acquisition signaled Carlyle’s interest in the rapidly developing African market, but it wasn’t the first time the firm had dabbled in African business. Only two days before, the company announced that it had acquired an 18 percent stake in Nigeria’s Diamond Bank for $147 million.
Both deals gave investors a vote of confidence in a promising but uncertain region. Africa is still a risk for investors, but it’s becoming less so for companies that want to stay globally competitive. Firms from France, the U.K., the Netherlands, China and India are already on the ground in Africa, creating fierce competition. American companies like Carlyle took note of the rising investment trend and are now making their own moves into Africa’s markets. Here are five of the most noteworthy deals of the past year that reflect growing opportunities in the region:
1. Emerging Capital Partners and Nairobi Java House: Washington, D.C.-based investment firm ECP purchased a majority stake in the café chain Nairobi Java House after its executives discovered the restaurant’s coffee and breakfast sandwiches. ECP saw potential for the chain’s growth in Kenya, thanks to rising disposable income in the country. The firm also based its investment on regional expansion opportunities, given Kenya’s place in the East African Community. As stability increases in the surrounding countries, Nairobi Java House has the potential to expand into neighboring markets.
2. Coca-Cola and SABMiller: Multinational Coca-Cola merged with SABMiller in 12 east and southern African countries to create the largest soft drink bottling operation on the continent. Coca-Cola also acquired 20 SABMiller drink lines, including the Appletiser brand, to capitalize on the region’s rising middle class and growing appetite for nonalcoholic drinks.
Carbonated soft drinks make up 60 percent of the commercial beverage market in Nigeria, which illustrates the vast opportunities in the region. PepsiCo and Al-Marai are investing $525 million in Egypt alone. As the disposable income of the populations in Sub-Saharan Africa continue to increase, the demand for such products will follow suit.
3. AXA and Assur Africa Holdings: The French investment firm Axa entered Nigeria’s retail insurance market in 2014 when it purchased Assur Africa Holdings — which held a 77 percent stake in Mansard Insurance — for $246 million. Axa is working with the World Bank to expand its insurance investments in Africa and other developing markets.
Axa’s Nigeria deal exemplifies the potential for growth in the insurance market. Penetration levels are low, with Nigeria at 0.6 percent and Kenya at 3.4 percent. But those rates will rise along with middle-class income levels, and multinationals should look to these untapped markets for future growth.
4. H.B. Fuller and Continental Products: The Minnesota-based industrial adhesives company H.B. Fuller acquired Kenya’s Continental Products Ltd. Continental’s 2014 sales were projected to stand at roughly $2.6 million last year. The two companies worked together for several years, with Continental acting as H.B. Fuller’s sales agent in Africa before the deal. H.B. Fuller wants to increase its influence in the east and central African construction industry. Its entry into the Kenyan market places it at the industrial and commercial hub of East Africa, the third fastest-growing economic block globally so far this year.
5. Kirusa and Saya Mobile: The American mobile applications firm Kirusa tapped into Africa’s high-potential mobile market when it acquired Saya Mobile, a Ghanaian chat application.Kirusa gained control of Saya’s technology, workforce and intellectual property.Mobile phone-based innovations have been fulcrums of economic growth and development in Africa. The Ghanaian company reportedly gained millions of users in 30 countries within just three years.
The deals listed here represent the small tip of a large iceberg. Market openings abound in Africa. Fast-moving consumer goods manufacturers have a particular advantage in countries with a rapidly growing middle class. Although Africa still poses infrastructure challenges, bureaucratic hurdles, and financial risk, the continent is bursting with opportunity. Investors should take note of any successful African companies that could invigorate their business on a global scale.
Konstantin Makarov is the managing partner of StratLink Africa.
In more recent transactions in Africa, in April, the Abraaj Group closed a $990 million fund to invest in Sub-Saharan businesses. Before that, the private equity firm invested in Nairobi hospital the African Health Fund. For more on deals in Africa, see 10 Emerging Markets to Watch.