In the history of private equity, you can count on one hand the number of firms that have raised a $1 billion pool of capital to invest in Africa. Earlier this month, that very short list got a little bit longer. A London-based firm called Development Partners International closed its third flagship Africa fund on $900 million, with another $250 million in co-investment capital taking DPI’s total stockpile to $1.15 billion.
Plenty of firms have tried and failed to build a business with buyouts and growth investments in Africa. DPI is one of the few that seems to have real staying power, with some $2 billion in capital raised across three funds and a 14-year track record of canvassing the continent for deals.
The wide spread of smartphones across Africa is creating opportunities for tech companies—and for investors.
And with its new fund, the firm’s ambitions have never been greater. I recently caught up with Runa Alam, DPI’s CEO and cofounder, to learn a little more about its plans for all that cash.
“We’re very excited,” she said. “We think this is an excellent time to invest in Africa.”
Why? Let’s run through a few factors driving Alam’s optimism.
There is a smaller population of companies that make sense for private equity investment in Africa than in more mature markets like Europe or the U.S. But the number of firms pursuing big-ticket deals there is even smaller. The last fund focused on the continent to reach a similar size to DPI’s new effort came in 2015, a $1.1 billion vehicle from Helios Investment Partners, another leading player in the region. Alam says that six-year gap between major funds has created a “dearth of money,” which in turn means that DPI might be able to pounce on some attractive valuations.
Investors could also be poised to benefit from Africa’s impressive response to COVID-19. Fears that the pandemic would ravage the continent have proved mostly unfounded, allowing the African economy to outpace many others. In terms of financial growth, Alam described it as the second-strongest region in the world over the past two years, behind emerging Asia.
That brings us to the themes most central to DPI’s thesis. Africa has the youngest population in the world, with an average age under 20. It also has a rapidly emerging middle class. Those two trends create a confluence that can be highly attractive to the fintech companies, consumer products companies and other businesses dotting DPI’s portfolio: A whole generation of young, tech-savvy consumers flocking to urban centers with some spending money at their disposal.
“What you really have when you’re talking about the middle class, you’ve got a person who has either recently moved to the city or lives in a city and has discretionary income,” Alam said. “And essentially, they need goods and services that we take for granted living in the U.K. and the U.S.”
Investors in other regions have already benefited (or are now benefiting) from similar evolutions. But Alma believes that, in Africa, the processes of digitization and urbanization will be accelerated. She pointed to the cellular revolution in Africa as a precedent. Mobile phones came to other regions first. So when it was Africa’s turn, the continent’s companies and consumers were able to learn from others’ mistakes.
“Africans could look at other parts of the world to see what was done right and wrong,” Alam said. “The growth was much faster in Africa than any other place, and I suspect digitization will leapfrog. It will be the same.”
Africa is, of course, an enormous continent comprising 54 countries, dozens of distinct regions and religions and a vast multitude of humanity. To talk about “Africa” as some coherent whole always feels a bit reductionist. But in the context of private equity investing, it might be the best option. Historically, there simply hasn’t been enough activity in any one country or region for a distinct investing ecosystem to develop.
It’s also probably the best way to describe DPI’s mandate. Various trends and forces mean the firm is often more active in some geographies than others—it largely avoided North Africa during the Arab Spring, for instance—but it chases deals everywhere. And it does so with a boots-on-the-ground approach, employing investors from all across the continent to follow local markets in the countries they know best.
“From day one, we created a team that was going to be pan-African,” Alam said. “We have people from Egypt, Morocco, Tunisia, Senegal, Nigeria. Then you go to the southern area: Zambia, Zimbabwe, South Africa. You get the picture.”
Alam has seen significant growth in Africa’s investment ecosystem during her 14 years at the helm of DPI. She also believes there’s plenty of growing left to do. This might not be the last time the firm raises a new fund to back the emerging generation of companies that’s driving digitization and urbanization forward in cities across the world’s second-largest continent.
“There is a long way to go,” she said. “I think we will be investing along these themes for 10 to 15 years.”