Johannesburg -
LeapFrog Investments plans to raise $800 million for its latest fund as the
private-equity firm seeks stakes in African banks, insurance brokers and
payment companies to tap into rising demand among low-income consumers.
Overseas Private
Investment Corporation, the Washington-based development financing unit of the
US government, has approved an investment of as much as $200 million in the
fund, the buyout company’s third, said Karima Olokun-Ola, a partner at LeapFrog
in London. Billionaire George Soros invested in LeapFrog’s first fund through
his Soros Economic Development Fund because the financial-services market is
under-served, she said.
LeapFrog is
betting there’s greater scope for investments among companies that target
Africa’s emerging consumers because there are more than four times as many the
size of the continent’s middle class. New regulations requiring insurance
companies in Kenya to hold more cash will create buy-out opportunities, while
the continent’s largest population in Nigeria and more sophisticated consumers
in Ghana make those markets attractive, Olokun-Ola said.
“We are speaking
to insurance companies, ones that are looking for capital and those ones with
sufficient capital but are looking to take advantage of consolidation and grow
market share” in Kenya, she said by phone from Nairobi last week. “We’re
looking at payment companies because it’s becoming a popular tool that just offers
much cheaper ways of doing business” across the continent.
Impact investing
The company’s
previous fund, the $400 million LeapFrog Financial Inclusion Fund II, still has
some money to spend, Olokun-Ola said. It also has a $350 million joint
venture with Newark-based Prudential Financial, which is focused on similar
assets, she said. The company’s first fund raised $135 million.
Kenya has 49
insurers, five re-insurers and almost 200 brokers in a country where about 3
percent of the population has cover, according to the Association of Kenya
Insurers. The market is also overbanked, with 41 lenders serving 44 million
people, creating opportunities for mergers and takeovers because of new
interest-rate caps that are squeezing profit margins, according to
Nairobi-based Cytonn Investments Management, which oversees 73 billion shillings
($716 million)
Emerging
consumers earn between $2 and $10 a day and make up about two-thirds of
Africa’s population of more than 1.2 billion people, while the continent’s
middle class is less than 15 percent, she said.
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Olokun-Ola
couldn’t say how much Soros invested and his fund didn’t immediately reply to
e-mailed requests for comment. While OPIC has agreed to support LeapFrog’s fund
it hasn’t made any commitments, the company said in an e-mail. The fund forms
part of OPIC’s efforts to support investments into high-growth companies that
reach low-income consumers.
LeapFrog’s
investments average $30 million and generate internal rates of return of 25
percent, or three times the money invested, Olokun-Ola said. The company has
made two sales so far out of eight investments in its first fund, and both have
met targets, she said. The Prudential vehicle has a larger mandate and may
invest as much as $200 million in one company, she said.
A third of the
company’s new fund will be invested in health-care delivery and health
insurance, Olokun-Ola said, describing it as the next step beyond
financial services to help low-income Africans.
BLOOMBERG