South African private equity firm Harith General Partners plans to buy a 46% stake in larger rival Mergence Investment Managers.
The acquisition will help the two companies deploy their combined R59 billion ($3.1 billion) in assets to back infrastructure projects and other investments in Africa, Harith’s chief executive officer Sipho Makhubela said in an interview with Bloomberg. Makhubela didn’t disclose financial details of the transaction. Shandurwa, a wholly women-owned firm, will also buy 5 percent of Mergence.
“The numbers currently don’t stack up well for Africa when it comes to the investment needed for its growing infrastructure needs,” said Makhubela.
“This is why we did this deal, to grow Mergence as a financial services business, with a bias towards infrastructure assets.”
Africa’s infrastructure needs are massive but cash-strapped governments on the continent are constrained in their capacity to finance projects. According to the African Development Bank $170 billion a year is needed to build roads, power plants and ports on the continent where about 600 million people don’t have access to electricity and 800 million people lack basic sanitation.
The deal will help Mergence invest in sectors such as clean energy, water and digital and social infrastructure, said Makhubela, while expanding Mergence’s financial services business to other African countries.
Mergence is an asset manager that focuses on listed and unlisted markets, that include offerings such as equities, infrastructure, debt and private equity funds. Harith — founded in 2006 — has invested in infrastructure projects in eight African countries, including the largest wind farm in Africa, and is in the process of investing in South African Airways.
“The continent’s urbanisation, growing and youthful population, mobility, natural resources, telecommunication and digital advances, as well as its intra-continental and regional trade will spur significant economic growth,” Makhubela said. “Investing in the infrastructure to enable it all makes good business sense.”
Growth in sub-Saharan Africa’s gross domestic product is forecast to accelerate to 4% next year from 3.3% projected for 2023, the International Monetary Fund said in a report titled Light on the Horizon?
The deal also meets the needs of Regulation 28 of the Pension Funds Act, which governs the way managers of pension funds invest in various asset classes, helping retirement funds to diversify their portfolios, Makhubela said.