October 4, 2018

Phatisa has announced the first close for its second generation fund, the Phatisa Food Fund 2 (PFF 2), at $121.5 million.

Phatisa, a sector-focused African private equity firm with the mission of feeding and housing the continent, announced in March of 2017 that it is targeting US$300 million for Phatisa Food Fund II (PFF)– a successor to the firm’s debut African Agriculture Fund (AAF) which closed in 2013 at US$246 million.

PFF’s predecessor, the African Agriculture Fund (AAF), was launched in 2009 as a coordinated effort by a consortium of European and African financial institutions to develop a fund that would have a positive impact on agriculture and food production in Africa through a pan-African approach. After gaining investments from a wide field of multinational limited partners, the fund saw a final close in 2013 at US$246 million.

From this capital pool, AAF pursued management buy-outs and buy-ins, acquisitions, early stage minority and majority stake investments, expansions, and outgrower and smallholder scheme development investments of between US$5 million and US$24 million within three subsectors of the agriculture and food sectors:

Primary agriculture – including greenfield projects, dairy and livestock production, aquaculture, ranching, fruit and vegetable production, and edible oils.

Secondary agriculture – including wheat, corn and sugar milling and refining, soybean processing, production of animal feeds, branded foods and beverages, and packing.

Tertiary agriculture – including logistics, storage, seeds, subcontracting, inputs, crop protection, fertilizers, and finance.

PFF 2 will carry forward Phatisa’s core focus on investments along the African food value chain, and will consider buy-outs and expansion transactions of between US$15 million and US$25 million in support of mechanization, inputs, poultry and meat production, food processing and manufacturing, logistics, aggregation, and distribution across sub-Saharan Africa.

Considering the strong interest Phatisa has seen from institutional investors, Phatisa said that it will continue with rolling closings, and is targeting a final close at $300 million by the middle of next year.

“We are delighted to achieve this milestone,” said Stuart Bradley, joint managing partner with Phatisa. “Re-investments from our first Fund account for 88 percent of commitments, demonstrating strong support from AAF investors. We continue to attract the private sector, with a 70:30 split between commercial investors and development finance institutions at first close. With this round, we have now raised more than US$400 million for the African food and housing sectors.”

A combination of macro factors are aligning in the sub-Saharan region indicating positive opportunities for investment along the agriculture and food value chains in the region, and across the African continent.

Africa is positioned to play a key role in increasing global agricultural output, according to the Africa Agribusiness Insights Survey 2017-2018 released by PricewaterhouseCoopers (PwC). Agribusiness is the driving force behind 65 percent of employment on the continent, and 75 percent of its domestic trade. Overall, Africa is seeing a growth rate of 5 percent per year, which PwC said could result in Africa’s GDP tripling by as soon as 2030. And if the rate remains sustained, Africa’s GDP could outpace that of Asia by 2050.

Underlying this is a working age population between 15 and 64 that is on pace to outnumber the same age group for the rest of the world combined by 2035. Furthermore, the International Monetary Fund (IMF) noted that sub-Saharan Africa is on pace to be home to the world’s top labor force, as its population booms from 800 million in 2010 to 3.7 billion by 2100. Over that time period, sub-Saharan Africa is expected to contribute 100 percent of the expected increase of two billion global workers.

Additionally, as oil and commodity prices decline, oil-rich African nations, once dependent on capital resulting from high oil prices in recent years, are now looking for ways to diversify their economies, and are turning to agriculture as a reliable inflation hedge with a low correlation to traditional asset classes.

As the first private equity fund on the continent dedicated to the agriculture and food value chains, Phatisa has positioned itself since its launch in 2011 to capitalize upon these trends.

With AAF fully invested in a portfolio of eight companies and one subsidiary fund investment, and with a footprint in 21 countries, Phatisa is also partnering with TechnoServe, a non-profit operating in 29 countries, to raise a second technical assistance facility (TAF) to work in conjunction with PFF 2. Working to link people with information, capital, and markets, TechnoServe is partnering with Phatisa to build upon lessons learned and TAF’s success in AAF, to use blended finance to increase development impacts.

-Lynda Kiernan