Private equity fund acquires stake in Brookside

Private equity fund Aureos Capital, has invested unspecified amount of money in Brookside Dairy, using part of the finances recently raised from European and American investors.

The firm announced this week that it had raised about Sh28 billion under its Aureos Africa Fund.

“We have invested in a market leader in milk production in East Africa with one of the largest and most modern milk processing facilities in the region,” it said in a statement.

Brookside Dairies marketing manager Peter Wasonga confirmed that Aureos had invested in the firm and that the money was used to acquire Spin Knit Dairies and finance the ongoing expansion that has so far spread to nine countries in the region.

Aureos Africa Fund has invested in the company through its Acacia Fund subsidiary, which is also a private equity fund. Aureos Capital specialises in investing in mid-sized businesses across emerging markets.

The company said it had also invested in “a leading provider of business software and technology solutions with offices in Kenya, Uganda and Rwanda.”

Sev Vettivetpillai, CEO of Aureos Advisers Ltd said the fund-raising was successful considering the weak fund-raising environment for private equity over the last two years.

The success could be indicative of the earlier forecasts that investors in developed markets would be keen to diversify their investments into emerging markets, whose returns are better and have not been hard hit by easing the global financial crisis.

“Many institutional investors are becoming aware that they have little or no exposure to what is becoming an increasingly robust and vibrant part of the global economy. As with many other emerging markets.

“African economies have grown steadily throughout the global downturn and unlike the western economies they have not had to saddle themselves with large public sector deficits to achieve that out-performance,” said Vettivetpillai.

The interest to invest in Africa is expected to be maintained by favourable economic growth forecasts by groups like International Monetary Fund, which said Africa will grow beyond the 1.7 per cent it registered in 2009.

The IMF forecasts an average real per capita GDP growth of 4 per cent for Africa in 2010 compared to an average of just 1.1 per cent for advanced economies.

Aureos Africa Fund said investments in the continent will be buoyed by the fact that Governments in Africa now pursue prudent fiscal and monetary policies, and legislative reforms continue to make Africa a far more welcoming environment both for foreign direct investment and for local entrepreneurs.

The Aureos Africa Fund targets initial investments of up to Sh74 million with a focus on businesses that have strong potential to expand on a pan-African basis within two to three years via “buy and build” plans.

“The focus is on returns generated from growth as opposed to leveraging and financial engineering,” said the fund.

Davinder Sikand, Regional Managing Partner of Aureos Africa said the response from investors is that they see the fund as a better vehicle for investing in the continent without having to pay the kind of multiples needed to invest in the larger stock market listed companies.

“Our strong performance in Africa has been based on adding value to our investments by offering day-to-day and strategic help to the businesses we invest in. We have a very strong local presence,” he said.

The fund said its focus on small and medium-sized businesses is due to their becoming increasingly important players in domestic and regional markets across Africa.

Other companies the fund has invested in include a biscuit manufacturer and an insurance company in Nigeria, a cement maker in Senegal and a provider of building management, security and business software in Southern Africa, among others.