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Phatisa sells stake in Meridian Group as fundraising for second Food Fund continues

The Africa-focused firm says it has identified $200m of opportunities for Phatisa Food Fund 2, with some transactions at the due diligence stage.

Africa-focused private equity manager Phatisa has sold its controlling stake in agricultural inputs business Meridian Group as it continues to raise capital for its second Food Fund.

The firm made its investment in Meridian in 2014 through its African Agriculture Fund, which reached a final close of $246 million in mid-2013 and is now fully deployed. The Meridian sale is the third of the fund’s eight assets to be realized. Phatisa’s deal partner for southern Africa, Rinolan Moodley, told Agri Investor it expects to achieve a fourth before the end of 2019.

The enterprise value of the Meridian sale was $140 million. Moodley declined to disclose further financial details other than to say that the deal was “among the largest private agribusiness deals” ever done in Africa.

The exit delivered a more than 2x multiple on invested capital and a 20 percent internal rate of return, with further proceeds expected from the disposal of non-core assets that were carved out from the business, Moodley added.

With regard to the timing of the sale of Meridian, which distributes approximately 500,000 tonnes of fertilizer across Malawi, Mozambique, Zambia and Zimbabwe, Moodley said that Phatisa had invested in the company with a view to exiting the business after five years.

“We invested growth capital in Meridian in 2014 with the aim to develop its networks, geographic footprint, corporate governance and quality of product in order to positively impact food security within the African continent, while driving superior returns for our investors,” he said.

“Exit was targeted for the end of 2018 or the beginning of 2019 and the exit route was most likely to be a trade sale to one of the major players looking for a well-run asset and access to emerging markets.”

The business has been sold to Ma’aden, a Saudi Arabia-listed resources company.

‘Truly compelling’

Phatisa announced in October 2018 that it had reached a first close on $121.5 million for its Food Fund 2, a vehicle targeting $300 million for investments in Africa’s food value chain with a focus on inputs, mechanization, logistics and FMCG. PFF2 is a 10-year closed-ended fund with a five-year investment period, according to a Q4 2017 fundraising presentation seen by Agri Investor.

The firm has a pipeline of more than $200 million of potential opportunities across eastern, western and southern Africa for the fund, joint managing partner Stuart Bradley said, with some transactions now at the due diligence stage. “We aim to announce the first PFF2 investment by end of Q3 2019,” he said.

Phatisa plans to continue with rolling closes for PFF2 this year thanks to appetite from investors. “We envisage a further significant close or two over the next few months. All current indications suggest the $300 million target should be achieved by the end of 2019,” Bradley said.

The fund’s first close had a 70:30 split between commercial investors and development finance institutions.

“We continue our efforts to widen the spectrum of potential investors willing to commit private capital to Africa – particularly US and European impact vehicles of institutional investors and family offices – by increasing awareness of impact investing in Africa and demonstrating the quality of our value proposition,” Bradley said.

He added that Phatisa believes the case for investing in agribusiness and food in Africa is “truly compelling.”

“The sector stands to benefit from the combination of African and global growth drivers. Anticipating a scenario of increasing scarcity of resources and food security, investors should recognize Africa as having the greatest potential – in terms of food production – to meet the exponential needs of the world’s population,” he said.

“Sector-wise, these trends suggest the need for significant agri-food investments in inputs and mechanization, processing, logistics, market infrastructure and distribution networks.”

As a result, Bradley said, Phatisa is now seeing more generalist private equity funds increasingly investing in agribusinesses, with a particular focus on agricultural inputs and food processing.

Phatisa hired Eugene Stals as chief investment officer in November 2018 to lead the firm’s food-focused regional deal teams and fund investment strategies, and to assist in identifying value-creation opportunities.