Dealmakers Dreaming of African Riches Move Bankers to Next China
2013-01-17 22:00:00.3 GMT
By Matthew Campbell, Aaron Kirchfeld and Chris V. Nicholson
Jan. 18 (Bloomberg) -- In his ten-year career as a banker at Lazard Ltd., Matthieu Pigasse has advised on some of Frances biggest deals, including the $50 billion utility merger that created GDF Suez in 2008. Yet one humid evening last July, he could be found in Congos capital city of Brazzaville, hoping to catch the last ferry across the river for meetings in Kinshasa.
In September, Lazard announced that Pigasse, who lives in Paris, would head up a team that now numbers more than a dozen bankers dedicated to mergers in the region based in the French capital. He now spends about a third of his time criss-crossing Africa.
It is the new frontier, says Pigasse, 44. The potential of the M&A market will be big in the coming years. It is not huge now, but we believe because of the growth prospects we have to be there.
Banks including Citigroup Inc., Barclays Plc and Standard Chartered Plc are also gradually expanding their presence in the region, the worlds second-fastest growing area after Asia, according to the International Monetary Fund. While the numbers are modest, the expansion is coming while banks are paring workers across Europe, the U.S. and emerging countries.
Being first will be a big advantage, said Crispin Osborne, who oversees Barclayss African investment banking operations from London and is planning to hire on-the-ground investment-banking staff in East and West Africa this year.
You simply cant ignore the fact that urbanization and economic growth will determine the long-term outlook.
Largest Deal
Takeovers and private-equity investments in Africa have so far focused on natural resources and telecommunications, reflecting a continent rich in commodities and fast to adopt mobile technology. The regions largest deal ever remains Bharti Airtel Ltd.s $10 billion acquisition of the African mobile assets of Kuwaits Zain in 2010.
Interest in the regions consumer and retail sector has also surged as investors look to benefit from a rising middle class. Wal-Mart Stores Inc., the worlds largest retailer, paid
16.5 billion rand ($2.42 billion) for a 51 percent stake in Johannesburg-based Massmart last year.
Every corner of the globe wants a consumer play in Africa, said Brian Smith, who oversees investment banking in Sub-Saharan Africa from Johannesburg for JPMorgan Chase & Co., which has advised on deals from Wal-Marts acquisition of Massmart to providing the financing facility to Ethiopian Airlines to purchase Boeing 787 planes.
Rapid Urbanization
With 52 cities with a population of more than 1 million, more than Europe and the U.S. combined, and 738 million mobile phone users, theres undoubtedly growth to be tapped.
Urbanization is starting to take place pretty rapidly across the continent, driving consumer demand, according to Nicholas Young, who runs Citis African operations from Johannesburg.
Bankers increased focus on Africa is taking place even as they retrench in emerging markets in Latin America, Asia and the Middle East, where once-rapid growth is slowing. Citigroup announced plans last month to eliminate 11,000 positions in countries from Pakistan to Paraguay even as it said its 1,300- employee African operations, which include Nigeria, Uganda and Kenya, wouldnt be affected. In December, Barclays agreed to a
$2.1 billion deal to increase its stake in Absa Group Ltd. and combine its African operations with the Johannesburg-based lender.
Africans Returning
The continents growth has drawn attention from expatriate African bankers in hubs like New York and London. We constantly get a flood of good CVs that come to us, including from a lot of Africans whove worked abroad and see opportunity at home, said Axel Smeulders, who heads African M&A for Standard Chartered. The firm has about 15 M&A bankers based in Lagos and Johannesburg.
Even so, banks chasing African deals are playing a very long game. Investment banking fees in the region totaled about
$305 million in 2012, according to researcher Freeman & Co., doubling since a decade ago but still just a third of those paid out in the same period in Italy, which has less than one-tenth the population. Deal volume in 24 sub-Saharan African countries tracked by Bloomberg rose 12 percent to $35.4 billion last year from 2011, escaping the global decline in M&A.
Bankers enthusiasm is tempered by the challenges of operating in a region with unstable politics and nascent capital markets -- to say nothing of basics like unreliable roads or electric grids.
Traffic Nightmare
In Lagos, Nigerias commercial capital of 20 million people, the 18-mile drive to the airport can take two hours on a good day. When Citis Young was getting ready to welcome then- Chief Executive Officer Vikram Pandit to the city for the first time in 2010, an oil tanker flipped over on the highway, leaving the firms welcoming party to make a six-hour journey through winding backstreets to pick him up, Young said in an interview.
Africa has a lot to do in education, infrastructure, the judicial system, said James Tidmarsh, a Geneva-based lawyer who raises funds for mining projects in east and central Africa.
If someone owes you money, you need to be able to get that money back.
To buyout firms, those needs represent deals waiting to happen. Private-equity transactions in Sub-Saharan Africa jumped by 19 percent to 43 deals in the first nine months of last year, compared to a decline of 17 percent in China to 179 transactions, according to the Emerging Markets Private Equity Association.
Like China
The Washington, D.C.-based Carlyle Group LP established a nine-person team based in Lagos and Johannesburg for Sub-Saharan Africa last year. In November, Carlyle made its first sub- Saharan investment, joining other backers to put $210 million into agricultural supply-chain company Export Trading Group, based in Tanzania.
We saw sub-Saharan Africa as being where China was 15 years ago, and we wanted to be one of the first there, said Genevieve Sangudi, the Lagos-based managing director for Carlyles regional fund.
Private-equity firm KKR & Co. has hired Kayode Akinola in London from Helios Investment Partners, a private-equity firm focused on Africa, to lead the firms push into the continent.
Its indisputable that if Africa needs one thing, its patient capital and the deep industry sector expertise and experience to put that capital to work, said Akinola.
Pigasse recalled how observers skeptical about Brazil, India, Russia, and China were eventually proven wrong, and says the same will hold true for Africa.
Two, three, four years from now, it will become a very important market, he said.
--With assistance from Larry Reibstein in New York. Editors:
Larry Reibstein, Chris V. Nicholson
To contact the reporters on this story:
Matthew Campbell in London at or mcampbell39@bloomberg.net; Aaron Kirchfeld in London at or akirchfeld@bloomberg.net; Chris V. Nicholson in Paris at or cnicholson22@bloomberg.net
To contact the editor responsible for this story:
Jacqueline Simmons at or jackiem@bloomberg.net
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