SPEAR Capital
SPEAR Capital is a Norwegian-backed private equity firm making an impact in Southern Africa. The fund was started on the principle of developing companies through partnerships with leading entrepreneurs and supporting them through a combination of financial support and operational expertise. Martin Soderberg, one of the partners in the firm, has more than 20 years of experience in Africa, having worked in more than 30 countries, across the continent.
Why invest in Southern Africa?
There are several African-focused investment funds around; however, there are only a few exclusively focused on Southern Africa like SPEAR. Since the late 90’s, Martin has worked in Zimbabwe and South Africa giving the firm an edge in these two countries. An additional advantage comes from the fact that most of the SPEAR team members are based in Zimbabwe and South Africa, where their network is strong.
- SPEAR’s first fund was intended to be focused on Sub-Saharan Africa but the team then realised that the continent is too diverse and requires focus. East Africa is an attractive hub too for many companies and investment funds, but this also makes competition fierce and too much focus on one region. SPEAR has; therefore, narrowed down its geographical focus to a few select countries in Southern Africa based on: (1) English language, (2) team experience, (3) attractive demographics, (4) rapid urbanization, (5) rising middle class and (6) consistency in legal systems. SPEAR also aims to invest in companies that do or intend to expand and distribute their products and/or services to the whole Southern Africa region.
The key success factors when it comes to investing in the African market are according to Martin; focus and discipline, where each country has its own challenges and opportunities.
- In Europe, we tend to generalize around Africa, but countries on this continent are as diverse as anywhere else. For example, Zimbabwe and Zambia are neighbours but both countries are still very different, the same applies to Malawi. Having local knowledge and local partners is key for success. SPEAR’s philosophy is also built on finding the right management teams and promotors, who we believe we can work with over time and share the same ambitions.
Managing Partner of SPEAR Capital, Martin Soderberg
Opportunites and advice
- There are always good opportunities in South Africa (“SA”) based on its size and sophistication. Although South Africa’s capital markets are the most developed in the region, offering companies access to funding, we still come across more opportunities in that country, compared to the rest of the region.
Another interesting country Martin mentioned is Zimbabwe; however, the market has been neglected for many years due to its perceived political risk and liquidity problems. Zimbabwe has a unique and well-educated population as well as a thriving business sector in need of investor funds. Despite its challenges, Zimbabwe has good companies that have mastered the challenging economic environment over the last few years.
- SPEAR has two investments in Zimbabwe and hoping to do more this year. Zambia has fewer opportunities with Malawi even less, owing to the dominance of its agricultural sector on the economy and a relatively small business community. The region will always have exciting opportunities as it has many growing companies being hamstrung by limited local funding.
There are several challenges when investing in the African market, but according to Martin it is important to work with people you trust and be patient. It takes time to understand the market and conditions change regularly. As a result, the ability to adjust and not panic is important. One should not expect everything to be stable because that is simply not the case.
- Companies that have proven to be resilient over time demonstrate an ability to handle instability - a key factor to consider as an investment opportunity. Election time is always unpredictable and although mostly peaceful, it does affect our target countries on a regular basis. To become successful in Africa, accept these conditions and adjust accordingly.
Implications due to the pandemic
Like most of NABA’s member companies, Covid-19 has affected SPEAR’s investments. Martin believes that the pandemic has had a significant impact on all target markets and portfolio companies, but with different implications.
- Most companies have done satisfactorily well during this time but have all felt a reduction in revenue due to a general drop in disposable income because of Government enforced lockdowns. While some companies are doing well more than others, the consequences of COVID-19 are being felt in all sectors. We have one company that has been severely hit by the disruption in the supply chain for its raw material supply. Nonetheless, we see most of our companies starting to show positive signs of recovery from the pandemic.
Learn more about Spear Capital here
