Out of Africa: KKR Disbands African Private-Equity Team

KKR & Co.


KKR -0.35%

has disbanded its Africa deal team because it couldn’t find enough big companies to buy.

Four KKR executives and an adviser who explored African opportunities have left the firm, according to KKR and former staff. The departures come less than four years after the New York-based firm made its only investment on the continent in Afriflora, the world’s largest rose farm, in Ethiopia.

KKR’s withdrawal illustrates the challenges facing large Western private-equity firms, which have tried to do business in Africa using their traditional buyout approach. This typically involves investing hundreds of millions of dollars at a time in companies to improve performance, with the expectation of selling them within five years for a higher price.

However, Africa has relatively few large companies to invest in, KKR said.

“To invest our funds we need deal-flow of a certain size. It was especially the deal-size that wasn’t coming through,” Ludo Bammens, a spokesman for KKR, said about Africa. “There was enough deal-flow at a smaller level.”

A worker at Afriflora, an Ethiopian flower company that KKR invested in.



Photo:

AFRIFLORA

KKR deal maker Kayode Akinola, who led the $200 million investment in Afriflora in 2014, left KKR earlier this year. Two more employees hired to chase African investments also left this year, with one joining an Africa-focused firm in November. Dominique Lafont, a senior adviser for Africa, also stopped working with KKR this year. A fourth KKR executive who pursued African and European deals left in late 2015.

KKR never opened an office in Africa and the money it used to invest in Afriflora came from a $6.1 billion fund raised mainly to buy European companies. The fund aimed to invest hundreds of millions of dollars at a time in companies. Because KKR didn’t have a dedicated Africa fund, the African deal team had to compete with French, German and other European deals that were being pitched to the firm’s investment committee, Mr. Bammens said. The rejection of proposed deals frustrated at least one member of the Africa team, a person familiar with the situation said. KKR will continue to consider African opportunities, a person familiar with the firm said.

At the time of the Afriflora investment,

Johannes Huth,

KKR’s European head, said the deal reflected “the long-term commitment of our firm to the wider African region. We look forward to making further investments across the continent.”

The African buyout market is tiny compared with the U.S. The 88 buyout deals struck in sub-Saharan Africa last year were worth a combined $2 billion, according to data provider Preqin Ltd. By contrast, the 2,135 buyouts in North America were worth a combined $187 billion in 2016.

Some of America’s biggest private equity investors such as KKR and Blackstone Group are planning to plow billions of dollars into projects in Ethiopia. How will this affect ordinary Ethiopians who earn on average $470 a year? (March 2015)

Despite its smaller size, a number of U.S. private-equity firms have tried to expand in Africa in recent years on a quest for new opportunities in less competitive markets. As well as KKR,

Blackstone Group


BX -0.60%

has focused mainly on energy and infrastructure investments on the continent, and

Carlyle Group

raised a $698 million fund dedicated to Africa in 2014.

However, the firms have sometimes struggled to make their African investments pay off.

Last year, Bain Capital lost control of South African retailer Edcon Holdings Ltd. to lenders in a debt-for-equity swap. Blackstone has taken longer than expected to sell its stake in a Ugandan dam. Shares in Nigeria’s Diamond Bank PLC have fallen almost 80% since Carlyle Group said it bought a $147 million stake in 2014. Atlas Mara Ltd., a vehicle set up by former Barclays PLC Chief Executive

Bob Diamond

to invest in African banks, has also stumbled with its investments.

For some, investing in Africa has required a different approach.

TPG, a Fort Worth, Texas-based firm known for multibillion-dollar U.S. buyouts, is investing in small African companies though its growth fund, which it uses to make smaller investments in fast-growing companies. It has acquired stakes in a Moroccan school operator and a Kenyan agricultural data analytics company.

“The most interesting investments in Africa involve building businesses in partnership with entrepreneurs,” Bill McGlashan, managing partner of TPG’s growth fund, said in an interview. “In most cases, these are new businesses that are being created,” he said. “The continent is not an environment where buyout opportunities of mature businesses are prevalent.”

Write to Simon Clark at simon.clark@wsj.com and Ed Ballard at ed.ballard@wsj.com

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