EXEO partners Norfund to inject $17m into African flower grower

The firm is betting on consolidation of the global horticulture market with the second deal of its follow-on fund, which it is currently raising.

Pan-African private equity firm EXEO Capital has teamed with Norfund, a Norwegian developmental financial institution, to make a $17 million investment into Marginpar Flower Group.

Marginpar is a holding that includes businesses devoted to the growing and marketing of summer flowers from Kenya and Ethiopia.

Capital for EXEO’s investment came from its Agri-Vie Fund II, which reached a $100 million first close in February 2017 after securing commitments from investors in Africa, North America and Europe. Chief executive Herman Marais told Agri Investor that EXEO expects to reach a final close on $175 million for Agri-Vie Fund II in the second half of 2018.

The fund is focused on processed foods, dairy, proteins, condiments, beverages and ingredient investments in Africa and export countries. EXEO made its first investment from the vehicle in February, when it backed TerraSan, an aquaculture company operating off the south and west coasts of South Africa.

Colorful niche

Marginpar contains two summer flower production units in Kenya (Carzan Flower and Kariki), one in Ethiopia (Marginpar Ethiopia) and Marginpar BV, a platform in Holland focused on marketing and distribution efforts.

Distinct from the rose bulbs that often form the center of a bouquet, the summer flowers produced by Marginpar are those used to add color and volume, according to Marais. Growing such niche categories of flowers is often very difficult and requires special skill, he said.

“There are certain exclusive breeder and growing relationships that add an element of barrier to entry – not in all categories but in certain of the categories – which made the prospect more attractive.”

Marais added that Norfund, which is an investor in Fund II, had shown appetite for investments supporting the regional flower sector, which EXEO knew well through Fund I investments.

Under one roof

The Norfund co-investment will enable consolidation of different business units under the Marginpar Group, Marais said, adding that it reflects a wave of concentration that has swept the global flower industry. He noted this was the driver behind recent deals in Ecuador, another important flower market, and that it probably also played a role in KKR’s December sale of a majority stake in Ethiopian rose producer Afriflora to Sun European Partners.

Marais observed that, over the past decade, more flower producers have established direct supply relationships with retailers. While in Europe, for example, the route-to-market used to be almost exclusively via Holland’s flower market, the introduction of e-commerce and other direct paths has led to fragmentation, he said.

“For important producing regions like East Africa – particularly Kenya and Ethiopia – to position themselves competitively for the future, it makes sense to get in step with this consolidation trend.”

East Africa’s advantages as a production area in the global market, according to Marais, include both lower labor costs and a climate that is conducive to outdoor growing and thus saves on construction costs.

“There is a huge future for the flower trade, which has established itself over centuries, and in terms of aspirational markets, is not going to go out of fashion anytime soon,” he added, mentioning Eastern Europe and China as particularly important growth markets.