South Africa’s Secha Capital is in the process of raising a USD 50mn fund, which will primarily invest in its home market but has the discretion to seek opportunities in other SADC countries: Zambia, Namibia, Mozambique, Botswana, Lesotho and Eswatini.
The second fund builds on the firm’s first proof of concept fund, which invested in ten companies. And this second one plans to invest in 10-15 South African small and growing businesses (SBGs) that operate in ‘boring’ sectors such as FMCG, agribusiness, healthcare (medical devices, diagnostics), business-enabling services and light manufacturing. The ten-year fund plans to take significant equity stakes in these businesses and, in South Africa, aims to commit an average of USD 750k in each company and up to USD 2.5mn in three to four platforms.
Another investor comes onboard
So far investments to the tune of USD 20mn have been secured, which includes a USD 10mn commitment from “Africa’s largest financial services company,” said Secha Capital’s Managing Director Brendan Mullen in an interview. And while the name was not disclosed, Mullen did explain that the rationale for its investment lay in the firm’s ability to create pipelines for mid-market funds hungry for deal flow—a sort of “discovery fund,” he added.
And it is in building these pipelines Secha focuses its attention. By writing small impactful cheques, the self-described micro private equity firm is able to grow businesses to a size that attracts the interest of not only larger PE firms but strategic buyers. And this is working as not only is one of its portfolio companies Hair Town finalising a deal with a private equity fund (set to complete this month) other companies in its portfolio are on investors’ radars.
News of record-breaking commitments into Africa’s tech/venture capital space has filled column inches in recent years, even creating a separate data-publishing industry dedicated to ever-growing raises. But what receives little coverage is the limited availability of financing for traditional SMEs; companies that would benefit from better access to funds and a ‘click and mortar’ approach to facilitate growth.
This lack of SME financing was discussed on various panels at the recent AFSIC – Investing in Africa 2022 conference with panellists stating that with a USD 100mn war chest they would focus on SMEs—either by efficiently financing them across multiple markets or investing directly in the mid-market to back businesses that are profitable and successful. One panellist went on to say that Africa is the only place on earth with billion-dollar uncontested markets and remains partly so because it is very fragmented.
A case in point is Africa’s haircare market which by its very nature is fragmented and informal and because of this, accurate figures about its size are hard to come by. Those that are available differ widely or do not differentiate between segments—though a 2014 Reuters article estimated the value of the dry hair market at USD 6bn.
What we can attest to, however, is more recorded market activity. In recent years, we have covered the planned listing of BeautyClick, which trades under the name Africanhair PLC, on the Nairobi Stock Exchange; Enygma Ventures’ investment in Brown & Ayo and Godrej Consumer Product’s stake increases and company buyouts—making it one of the few companies where its growth in the dry-haircare segment can be tracked over a period of years. This includes Darling Group Holdings, Kinky (a South African company bought in 2008 for a reported $33mn) and Frika (also South African), which it bought in 2015.
Secha Capital has not been left out from this growing interest
Two other hair companies in its portfolio Wukina and nativechild (which has grown 100x since the PE firm’s 2017 investment) regularly receive approaches—Wukina from a PE fund while nativechild has received four investment offers from strategic investors and larger private equity funds.