September 2016

THE AFRICA SPECIAL 2016 A special supplement The best regions for deals Searching for a health breakthrough Big beasts: The billion-dollar funds Plugging the power gap ...and more

Sponsors: 8 Miles Actis Ethos Private Equity

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Into the promised land ISSN 1474–8800 SEPTEMBER 2016 Senior Editor, Private Equity Toby Mitchenall, Tel: +44 207 566 5447 [email protected]

GRAEME KERR EDITOR'S LETTER

Special Projects Editor Graeme Kerr, Tel: +44 203 862 7491 [email protected] Americas Editor, Private Equity Marine Cole, Tel: +1 212 633 1455 [email protected] News Editor Nicole Idar Lee, Tel: +44 207 566 5463 [email protected] Senior Reporter Isobel Markham, Tel: +44 207 167 2032 [email protected] Asia Reporter Carmela Mendoza, Tel: +852 2153 3148 [email protected] Staff Writer Annabelle Ju, Tel: +1 646 380 6194 [email protected] Contributors Vicky Meek Siddharth Podder Nathan Williams Production Editor Mike Simlett, Tel: +44 20 7566 5457 [email protected] Production and Design Manager Miriam Vysna, Tel: +44 20 7566 5433 [email protected] Head of Advertising Alistair Robinson Tel: +44 20 7566 5454 [email protected] Subscriptions and Reprints Andre Anderson, +1 646 545 6296 [email protected] Adrian Przyborowski, +44 207 566 5476 [email protected] Sigi Fung, +852 2153 3140 [email protected] For subscription information visit www.privateequityinternational.com. Group Managing Editor Amanda Janis, Tel: +44 207 566 4270 [email protected] Editorial Director Philip Borel, Tel: +44 207 566 5434 [email protected] Director of Research & Analytics Dan Gunner, [email protected] Publishing Director Paul McLean, [email protected] Chief Executive Tim McLoughlin, [email protected] Managing Director — Americas Colm Gilmore, [email protected] Managing Director — Asia Chris Petersen, [email protected]

s e pt e m b e r 2016

The Africa rising story is a familiar tale. A vast continent, bountiful natural resources, rapid urbanisation and a nascent private equity market that offers big opportunities to those brave enough to take the plunge. With an emerging middle class of aspirational consumers it’s all too easy to paint a picture of untold potential riches at the end of this particular African rainbow. If only investing in Africa was that straightforward. The scene that emerges from this PEI Africa Special for 2016 suggests a far more nuanced narrative than some of the more bullish projections traditionally suggest. The macro headwinds – the punishing fall in commodity prices coupled with currency devaluations – have hit private equity investors hard. In a sobering article on p. 12, Isobel Markham describes how lacklustre growth and stormy economic conditions have caused investor enthusiasm to wane. Fundraising is down and the big investors are having to re-evaluate their positions amid the uncertainty. The need for due diligence, made difficult by the lack of a verifiable track record, has become a key issue, investors say. The leading pension funds are still willing to invest in Africa, but expect a risk premium, says Christian Kvorning, investment director at Danish pension giant PKA. Or as Brian Lim, a partner at fund-of-funds investor Pantheon, puts it: “Whether African PE has delivered or not is ultimately [down to] returns.” th e africa s pecial 2 0 1 6

So far, so sobering. But as our keynote interviews demonstrate, it is possible to invest profitably in Africa provided you have the expertise on the ground and the necessary know-how. Natalie Kolbe, head of private equity at Actis, which has a string of successful African investments, says the key lies in having deep knowledge of the differing markets (p. 8), while the CEO of Ethos Private Equity Stuart MacKenzie describes on p. 16 how innovation is the key to growth. That’s a theme echoed on p. 24 by Doug Agble, the co-founder of 8 Miles, which has made six investments in Africa by taking a bespoke approach to identifying gaps in specific sectors. The truth, perhaps, is that there is no simple model or straightforward story for success in African private equity. For the first time in this supplement, we’ve compiled a regional guide to African private equity (see p. 19), which clearly demonstrates the dramatic variations across the continent ranging from the health and education sectors in Egypt to tech deals in Nigeria. The fact is that opportunities do abound in Africa. It’s just a case of knowing where to look for them. And that is perhaps where the skill of investing in this intriguingly diverse continent really lies. Enjoy the supplement.

Graeme Kerr

e: [email protected]

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CONTENTS

THE AFRICA SPECIAL 2016 4

Navigating rougher seas It may be a tough time for the continent, but that can make it a great time to invest

16 Keynote Interview: Ethos Private Equity More than 30 years after it was founded, Ethos Private Equity is still a pioneering force. CEO Stuart MacKenzie discusses the firm’s latest endeavours

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Snapshot of Africa This year’s biggest stories in African private equity

8

Keynote Interview: Actis Success in Africa requires deep knowledge of its different markets and boots on the ground to hunt out the right partners, says Actis head of private equity Natalie Kolbe

11 LP Perspective The New York State Common Retirement Fund’s head of private equity Brian Hughes explains the role Africa plays in the fund’s portfolio 12 Proceeding with caution After the excitement of the last few years, investor enthusiasm has begun to wane in the face of macro headwinds and lacklustre growth 14 Searching for a medical breakthrough Healthcare presents some unique investment challenges, but a nimble strategy can capitalise on the sector’s sturdy growth story

19 Regional heat map: the best places for deals Our area guide explores which countries offer the best opportunities 24 Keynote Interview: 8 Miles Helping founder-owned businesses progress to the next level requires an intensive hands-on approach, says 8 Miles co-founder Doug Agble 27 Plugging Africa’s power gap The energy sector offers plenty of opportunities for private investors, but the lack of bankable projects remains a challenge

32 The challenge facing Africa’s agri sector Better regulation is needed to realise the continent’s potential to become a major agribusiness player, writes Juraj Neuwirth of law firm Norton Rose Fulbright

Private Equity International is published 10 times a year by PEI.

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30 The big beasts prowling the block Strong fundraising over the last two years has produced a brace of billion-dollar funds targeting Africa

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ISSN 1474–8800

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8 Miles

HANDS ON INVESTMENT IN AFRICA 8 Miles is a private equity firm focused exclusively on making private equity investments in Africa. We invest in consumer-driven businesses and service providers with strong growth prospects. A core part of our strategy is active ownership – actively participating in transforming businesses in which we invest.

www.8miles.com

T +44 20 7068 9999 E [email protected]

8 Miles LLP 5th Floor, 55 Strand, London WC2N 5LR

OVERVIEW

INVESTMENT CHALLENGES

Navigating rougher seas It may be a tough time for the continent, but some argue that makes it a great time to invest — and prove strong returns can be made. Isobel Markham reports There are two things playing on the minds of those investing in Africa at the moment, be they limited partner or fund manager: currency devaluation and commodity prices. “Private equity activity is invariably linked with the macro performance of every economy we operate in,” says Jacob Kholi, partner and head of sub-Saharan African investments at The Abraaj Group. “What is going on in Nigeria [for example] is definitely having an impact on what we are doing in that country. Clearly we have companies that operate in that economy that have to buy foreign exchange, for instance, and the difficulty in accessing it impacts activities.” So far in 2016 fundraising certainly hasn’t been the success story of years past; just $1.2 billion has been raised by six funds so far this year, compared with $3.7 billion by nine funds in 2015 and $3.7 billion by

16 funds in 2014, according to PEI data. This is partly because some of the continent’s major players – Abraaj, Development Partners International, Helios Investment Partners, The Carlyle Group – raised in those previous years, buoying the fundraising figures. Between them, Abraaj, DPI and Helios accounted for $2.8 billion of the capital raised last year. However, there are other established faces struggling to make headway with their fundraisings due to the onslaught of macro challenges. African Capital Alliance is still seeking commitments for its fourth fund, a 2014-vintage targeting $600 million, and Emerging Capital Partners is still on the road with its fourth fund, a 2013-vintage targeting $750 million. Fundraising, then, is not an easy story for African fund managers. The prevailing “Africa rising” narrative that has been bolstering optimism for the last few years has

PEAKS AND TROUGHS

Year-on-year capital raised by sub-Saharan Africa-focused PE funds $bn

No 26 21 19 16

15 13

11 9 6

3.44

1.85

4.26

2.96

1.45

1.83

3.74

3.67

1.17

2008

2009

2010

2011

2012

2013

2014

2015

2016 YTD

Capital raised

Number of funds closed

Source: PEI Research & Analytics

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Fertile environment: opportunities abound but macro headwinds threaten returns

given way to concerns about the sustainability of the market and the lack of track record. While currency volatility may also be a challenge for existing holdings, now is a good time to put money to work. “In the midst of all these challenges there are some fantastic opportunities. It allows us to look carefully and select the right target,” Kholi says. A more pressured environment helps to make private equity a more attractive option for corporate owners and founders. “Commodity price reductions and depreciation of currencies has caused a real tightening of liquidity in the region,” says Alykhan Nathoo, a partner at Helios. “The public equity markets have been largely shut as an avenue to raise capital and the debt markets have been really constrained as banks are nursing losses to the commodity sector. Also, international banks have started to withdraw more generally from Africa and other emerging markets, s ept ember 2 016

OVERVIEW

more due to regulatory reasons. What this has meant is private equity has been one of the last resorts for capital raising.” The result for fund managers is better pricing and more opportunities, with Nathoo going as far as to say Helios is seeing more dealflow than ever before. “From a private equity standpoint, it’s been a really fertile environment,” he says. “We’ve also seen higher quality businesses that we weren’t able to access historically because there was no pressure to sell them.” Ponmile Osibo, research manager at the African Private Equity and Venture Capital Association, says for the most part commodity prices have not had a direct effect on GPs. However, “it has thrown up some opportunities where the market dynamic has shifted”. One such example is Helios’s acquisition, alongside energy commodities trader Vitol, of a 60 percent stake in Nigerian energy group Oando’s downstream operations, which includes 400 service stations s e pt e m b e r 2016

and more than 600,000 barrels of storage and terminal capacity. “The real catalysts for that transaction were debt obligations that needed to be resolved at the holding company, and therefore providing an opportunity to invest in the Oando downstream business,” Nathoo says. The macro headwinds have also had an effect on competition, adds Kholi. “It’s limited the level and scale of competition for deals in Nigeria,” he says, adding that some investors are taking a blanket ‘waitand-see’ approach, while others are valuing businesses below market to account for the ongoing challenges. “There are not too many investors chasing the deals, which then gives an advantage to those investors who are entrenched on the ground.” Better entry prices can, of course, have a negative impact on exit prospects. Although 2015 was a record year for private equity exits across Africa – with 44 portfolio companies successfully offloaded – average hold periods have increased as firms wait for the right time to sell amid macroeconomic uncertainty. The average hold period in 2015 was 6.1 years, up from five years in 2014 and a low of 3.9 years in 2008 and 2009, according to data from the AVCA and EY. “We’ve heard about disparity in pricing between the buyer and the seller because they’re pegging to two different values. Some GPs have [held back] on pulling the trigger on deals,” says Osibo. “Even though 2015 was a very strong year for exits with a record number of African PE exits, [GPs] have held back on some exits in the first half of 2016 because pricing has been in flux and reduced interest from trade buyers for some assets.” Investors hunting for strong returns are not able to just rely on buying at the bottom of the cycle. For one thing, nobody knows if we’re there yet. As well as negotiating th e africa s pecial 2 0 1 6

attractive entry prices, dealmakers need to give serious consideration to identifying long-term trends and spreading risk. “We look out for companies with the potential to grow cross-border, and therefore spread their risk,” Kholi says, using Abraaj’s 2013 investment in Fan Milk International alongside Danone as an example. A manufacturer and distributor of frozen dairy and non-dairy products, Fan Milk operates across six West African countries. “You also have to focus on what we call defensive sectors, or sectors that in addition to being defensive usually fit into basic necessities, like food, water, healthcare, education. Some of these grow at 25-30 percent per annum.” Osibo adds: “When you look at education and healthcare, there is significant unmet demand for investment in these sectors. In a number of countries the government and the private sector are unable to meet the demand created by a young population and increasing urbanisation.” Abraaj also uses creative structures to help it overcome some of the challenges related to currency. “The fund would typically provide a guarantee to a local bank to provide funding to the company in local currency thereby [removing] the exchange rate impact,” Kholi says. However managers seek to address or circumvent the macro challenges, successfully navigating these stormier seas is vital to ensure the long-term sustainability of the private equity industry in Africa. “This is what we’ve learned in the other regions where we work. Even if we’re not in a GP, we want absolutely everybody to do well because in these very nascent markets, one bad story coming out impacts absolutely everybody who’s fundraising,” says Anne Fossemalle, director of the equity funds team at development finance institution European Bank for Reconstruction and Development. “So far, it’s looking quite good.” n

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NEWS ROUND-UP

THE YEAR SO FAR

Snapshot of Africa Some of 2016’s biggest stories in African private equity as reported by Private Equity International and our sister titles

SENEGAL Proparco backs Meridiam’s solar farm West Africa’s largest solar facility, backed by French fund manager Meridiam Infrastructure, has secured €34.5 million from Proparco, the private investment arm of France’s development agency. The plant, whose cost is estimated at 28 billion CFA francs ($48 million; €43 million), is located north-west of Dakar, the Senegalese capital. It will add 30MW to the country’s grid once completed, with the power sold under a 25-year purchase agreement. The project is the first to be backed by Meridiam’s Africa Fund, for which the firm has now raised €300 million.

GHANA LeapFrog launches $350m fund with Prudential LeapFrog Investments will manage a $350 million separate account for Prudential Financial Incorporated (PFI) targeting investments in life insurance companies in Ghana, Kenya and Nigeria. LeapFrog partner Stephen Bowey told PEI that the fund will seek investments with a deal size of up to $200 million. “We tend to look at smaller, growth-cap businesses, but this fund is more about looking for established, larger-sized companies and making larger-sized deals,” Bowey said. LeapFrog invests in financial services businesses in South Africa, Kenya, Ghana, Nigeria, India, Sri Lanka, Indonesia and the Philippines.

ANGOLA Quantum Global invests in Angolan plantation Swiss private equity firm Quantum Global has leased 80,000 hectares in Angola’s Planalto region to develop a large-scale forestry plantation. The firm closed its QG Africa Timber Fund, dedicated to timber investments in sub-Saharan Africa, on $250 million, it said last year. The fund is part of a mandate from the $5 billion Angolan sovereign wealth fund The Fundo Soberano de Angola. It is not clear whether this latest investment is from the Africa Timber Fund.

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KENYA Kenya pushes private equity Kenya’s Retirement Benefits Authority, which oversees the establishment and management of local pension schemes, is encouraging local pension funds to invest in private equity through training and educational initiatives. Local institutions can now invest up to 10 percent of their portfolio’s value into private equity following a change to investment guidelines last year. Despite the change, local funds still invest less than two percent in the asset class, RBA chief executive officer Edward Odundo said: “It’s very, very low. We need to do a lot of financial education.”

GABON GEF makes final investment from Africa forestry fund Alternative investment management firm the Global Environment Fund has made its eighth and final investment from its Africa Sustainable Forestry Fund. It made a coinvestment in Compagnie des Bois du Gabon with the Grantham Foundation for the Protection of the Environment. GEF are also raising an African Sustainable Forestry Fund II, and could hold a first close later this year. The first African Sustainable Forestry Fund is now fully deployed, except for some funding held in reserve for follow-on investments. CBG manages 568,543 hectares of tropical forest near the southern coast of Gabon.

SOUTH AFRICA Investec Africa Fund II attracts US investors Investec Asset Management’s second Africa fund closed in February on $295 million, almost double the size of its previous vehicle and included US investors for the first time. African investors accounted for 44 percent in Investec Africa Private Equity Fund 2, Europeans for 41 percent and US investors for 15 percent. The fund has already made three investments to date, in South African mobile transacting technology provider wiGroup, South African consumer debt management company IDM and a further investment into mobile towers company IHS, in which the firm first invested in 2011, it said in a statement.

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NEWS ROUND-UP

TUNISIA Abraaj exits pharma group Unimed after IPO The Abraaj Group has exited its remaining stake in Tunisian pharmaceutical group Unimed through a record listing on the Tunis Stock Exchange. The IPO in May was the first in 2016 on the Tunisian stock market, and was priced at 11.8 Tunisian dinars per share, giving Unimed a market capitalisation of 300 million dinars ($150 million; €131 million). It was 32.6 times oversubscribed, a record for the Tunisian exchange, and also the first pharma IPO in the country since 2007.

EGYPT Abraaj stages second North Africa healthcare IPO The Abraaj Group launched its second initial public offering of a North African healthcare company in a month, listing Cleopatra Hospital Company in June on the Egyptian Exchange. The firm raised 360 million Egyptian pounds ($40.5 million; €36 million) through the offering. Abraaj retains an 80 percent stake in the company, which it said is the biggest private hospital group in Egypt. The proceeds of the IPO will be used to fuel future growth.

ETHIOPIA 8 Miles invests in Ethiopian beef exporter Pan-African private equity firm 8 Miles has bought a minority stake in vertically integrated Ethiopian beef producer Verde Beef Processing. The latest investment will fund the company’s expansion plans to “grow more than tenfold from its current base of 6,000 animals,” according to a statement from 8 Miles. The Londonbased firm said Verde Beef, founded with $4 million in seed funding from investment firm Verdant Frontiers two years ago, is actively exporting beef as demand from the Middle East, Africa and Asia climbs.

TANZANIA SEAF-backed ACPL expands feed protein operation into Africa SEAF India-backed Abhay Cotex Private Limited has created a joint venture with a seed and oil company, Afrisian Group, to expand the company’s animal feed operations into Tanzania. The company chose Tanzania because of its strong dependence on soybean imports. Afrisian’s customer base in the Middle East, Asia and sub-Saharan Africa creates an opportunity for the venture to alleviate import dependence for the East African nation while also serving ACPL’s existing customer base in India.

SOUTH AFRICA Old Mutual increases agri investments Africa’s largest private sector investment manager, Old Mutual Investment, is increasing its equity stake in UFF African Agri Investments, a partnership between Old Mutual Investments and South African firm Futuregrowth, to 49 percent. “The increase is general across several funds,” said joint managing director and cofounder at UFF African Agri Duncan Vink. “We are actively marketing a pan-African agri fund based in Mauritius, as well as a number of in-country funds where we mainly target local African investors.” These include the Futuregrowth Agri Fund III and two open-ended Old Mutual African Agricultural funds.

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ETHIOPIA 54 Capital invests $42m in Ethiopia’s leading pharma group Africa-focused private equity firm 54 Capital has made its first foray into Ethiopia’s pharmaceutical market through a $42 million investment in Addis Pharmaceutical Factory. The initial investment in the country’s leading pharmaceutical manufacturer will amount to $30 million, with the option to inject a further $12 million into initiatives designed to improve production capacity and increase the number of products. The firm is seeking World Health Organisation certification at a time when the Ethiopian government is targeting the sector for significant growth.

MADAGASCAR Adenia buys stake in pharma group Opham African mid-market private equity firm Adenia Partners has taken a stake in Madagascar’s leading pharmaceutical products wholesaler Opham. The investment was a co-investment from its third fund, alongside Dutch development finance group FMO and an undisclosed family office, the firm said. Terms of the deal were not revealed. FMO and the family office were investors in Adenia’s fund vehicle, Adenia Capital III, which closed on €96 million in 2012.

SOUTH AFRICA First National Bank plays down agri debt concerns First National Bank, the biggest holder of agri debt in South Africa with its owner FirstRand bank, has told PEI that it is not seriously concerned about growing debt levels amongst agribusinesses in South Africa. It played down worries that drought could damage the country’s agriculture industry and said it could restructure debt for affected businesses. Agribusinesses in South Africa have reached their highest historical debt levels, with farmers now owing 125 billion rand ($7.5 billion; €6.9 billion) to South African banks and facing average debt levels of 46 percent, according to First National Bank.

Contributing titles: Private Equity International, Private Funds Management, Secondaries Investor, Infrastructure Investor, Private Healthcare Investor and Agri Investor

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INDIA ROUNDTABLE KEYNOTE INTERVIEW: ACTIS

MARKET INTELLIGENCE

The ever-changing continent Africa may offer a wealth of opportunity to investors, but success requires deep knowledge of its different markets and boots on the ground to hunt out the right partners, says Actis head of private equity Natalie Kolbe

With seven decades of investing in Africa behind it, Actis has seen a great deal of change across the continent. Yet while different challenges have emerged, the firm retains its focus on investing behind the themes of a swelling middle class, rapid urbanisation and a growing and youthful population. In addition to its private equity activities, Actis also invests in energy through its global infrastructure fund and recently raised its third real estate fund for Africa – Actis Africa Real Estate Fund 3 – which reached a $500 million final close in June, comfortably above its $400 million target. Private Equity International caught up with Actis partner and co-head of private equity Natalie Kolbe at the firm’s Johannesburg office to find out the opportunities on offer. As an investor in African countries for decades now, Actis must have seen significant changes. What do you consider

as

the

most

important

developments over the last few years?

Kolbe: the key is to take a long-term perspective in Africa

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If there is one thing about Africa, it’s that it is never constant. New challenges and opportunities spring up every year. If we look back 20 years, however, the most important changes are the rise of democracy and the increased stability of governments. There has been a significant improvement in the political climate and that has led to better governance and reduced corruption. Borders have opened up and technology has allowed the continent to become much more connected. This has allowed a rapid growth of the middle class, with higher disposable incomes, and the highest private equity international

rate of urbanisation in the world. By 2035, more than 50 percent of Africa’s population will live in urban areas. This brings tremendous opportunity as it gives easier access to the continent’s new consumers, creates the need for real estate in the form of offices and shopping malls and requires solutions to strains around infrastructure, particularly energy. What kinds of opportunity are you seeing now?

Much of the opportunity comes from rapidly growing economies – the World Bank estimates average GDP growth of 4.5 percent across Africa for 2017-18, with some countries showing much higher growth. Africa also has the fastest growing population in the world – in 2034, the continent is expected to have the largest working age population globally, with 1.1 billion people, according to the McKinsey Global Institute. This is creating demand for healthcare, education, financial services, consumer goods and services, real estate and infrastructure. This plays into our investment themes. For example, we’ve recently invested in Mundiapolis University in Morocco, which offers 38 degree courses and high rate of employability – 93 percent of graduates are in employment within 12 months. And in financial services, older systems are being leapfrogged – much as we saw with mobile telephony bypassing the need for fixed lines. So we may see mobile payments supersede credit cards. In addition, as the emerging middle class grows, many people are accessing financial services products for the first time, from bank accounts, to insurance and pensions. Our s ept ember 2 016

KEYNOTE INTERVIEW: ACTIS

Macro issues don’t scare us away; it’s often the reverse as we see dislocations in markets providing opportunity

may choose to sit on the sidelines we can spot good investment prospects. When Egypt was going through political turmoil, for example, we continued investing there and our investment in CIB bank proved highly successful as we managed to continue growing the business even through times of civil unrest before selling in 2014. What do you think it takes to be successful in Africa?

recent investment in Nigerian pension fund administrator Sigma is an example of how we are tapping into this opportunity. And what about challenges?

There are three key trends that we are keeping a close eye on. The first of these is the currency impact – there is a lot of volatility right now and we have to manage exchange rate risks. The second is access to foreign currency. This determines which markets we can invest in as we need to be able to take US dollars out of a country when we exit. There have been some improvements in some markets in this regard – for example, Nigeria’s recent decision to float its currency is a step in the right direction. And finally, we keep an eye on commodity prices. We don’t invest in commodities, but the movement in prices affects both stock markets and consumer spending. But we take a long-term perspective. This means that macro issues don’t scare us away; it’s often the reverse as we see dislocations in markets providing opportunity. We understand the dynamics in the different markets so while other investors s e pt e m b e r 2016

You really need people on the ground who understand the markets, who know the partners they want to do business with and who can build good relationships with those partners. It’s very hard to make it work if you operate a fly-in, fly-out model because you need to understand counterparty risk and you really need to know the right people – from the entrepreneurs to the regulators. At Actis, our people in Africa are Africans. We were born and live in these countries, we went to school and university here and so we know the business environment inside out. That allows us to build up proprietary dealflow, develop angles on deals and navigate constantly changing markets. Roadblocks are often thrown in our path in Africa, yet we know how to get round these barriers. We also have a relationship with regulators, so we often know what’s coming up in terms of changes and reforms.

just as in more developed markets. These businesses have all been through the crisis, have regrouped and can now show two or more years of growth. These companies are now starting to be exited and this will show through in the exit figures. But we are also seeing the development of a variety of exit routes, with private equity buyers, multinational strategic buyers, local trade buyers and public markets all showing increasing interest. So far, our exits in Africa have been fairly evenly spread across these four routes, although we’d expect public markets to become more of a theme for Africa’s private equity exit scene in general. What trends do you think will be important in Africa in the near and medium term?

One thing to look out for will be the direction of commodity prices because these underpin the growth of many African economies. If, for example, the oil price increases, we will see a boom in countries like Nigeria and Angola. That said, the consumer theme will continue to be important regardless of commodity price volatility. Over the medium term, the increasing democratisation of Africa will create further opportunity as new markets open up. We are very confident and excited that the prospects look good for the continent. n

Exits are now starting to come through, with 2015 a record year, according to recent AVCA/EY statistics. What are you seeing?

There were a lot of deals completed in Africa in the pre-crisis era of 2005 to 2007, th e africa s pecial 2 0 1 6

Natalie Kolbe joined Actis in 2003, having started her career at Investec Bank and then Thebe Securities. Based in the Johannesburg office, she is a partner and head of private equity at Actis. Her recent deals for Actis include Sigma Pensions in Nigeria and Coricraft, a South African furniture maker.

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INDIA ROUNDTABLE COMPANY PROFILE: ACTIS KEYNOTE INTERVIEW: ACTIS

ACTIS

65+

Years heritage

US$6.3bn**

Funds under management

US$9bn** Capital raised since inception

12

Offices

200+ Employees

100

Investment professionals

44

Countries invested across all three asset classes

c. 70

Current portfolio companies

Actis is a leading investor in growth markets, delivering consistent competitive returns, responsibly. It has a growing portfolio of investments across Asia, Africa and Latin America and US$6.3 billion** funds under management today.

Sigma Pensions (“Sigma”): a leading Nigerian Pension Fund Administrator ($62 million, November 2016)

The firm invests through insights gained from trusted relationships and local knowledge, deep sector expertise and an unparalleled heritage, set within a culture of active ownership.

Lekela Power: a pan-African renewable energy generation platform ($1.9 billion, February 2015)

Applying developed market disciplines to growth markets, an established team of 100 investment professionals in 10 countries identify investment opportunities in response to two trends: rising domestic consumption and the need for sustained investment in infrastructure across private equity, energy and real estate asset classes. Actis is a signatory to the United Nations Principles for Responsible Investment (UNPRI), an investor initiative developed by the UNEP FI and the UN Global Compact. Actis targets consistent superior returns across asset classes over the long term, bringing financial and social benefits to investors, consumers and communities. It calls this the positive power of capital. In 2015 Actis was voted ‘Private Equity Firm of the Year in Africa’ by Private Equity International (PEI), ‘African Infrastructure Fund Manager of the Year’ by Infrastructure Investor. In 2016 Actis reached final closing on its third opportunistic private real estate fund, Actis Africa Real Estate Fund 3 (“ARE3”) with commitments totalling more than $500 million, comfortably exceeding its original $400 million target. ARE3 is the largest opportunistic private real estate fund targeting subSaharan Africa raised in the market to date. INVESTMENT HIGHLIGHTS INCLUDE: Mundiapolis University (“Mundiapolis”): a top ranking private university in Morocco (May 2016) Food Lovers Market: the largest independent food retail group in Africa ($54 million, December 2015)

Coricraft Group, one of South Africa’s leading home furnishings retailers (September 2015)

Ostro Energy: an Indian renewable energy platform ($230 million, February 2015) Genesis Group (Genesis): Brazil’s largest grain testing and inspection business ($45 million, December 2014) Integrated Diagnostics Holdings (“IDH”): Egypt’s largest private sector healthcare diagnostics service provider ($113 million, December 2014) Université Centrale Group: a leading provider of private tertiary education in Tunisia ($50 million, December 2014) Tekkie Town: South Africa’s leading independent sports and lifestyle shoe retailer ($65 million, November 2014) IT’sSEG: Buy and build insurance brokerage platform in Brazil ($100 million, November 2014) Zuma Energía: Mexican energy platform ($250 million, September 2014) Société Nationale d’Electricité (SONEL): Cameroon’s national integrated utility ($202 million, June 2014) Credit Services Holdings (CSH): A pan-African buy-and-build credit services business ($100 million, April 2014) Upstream: the leading emerging markets mobile monetisation company (April 2014) Symbiotec PharmalabLimited: an Indian leading specialist producer of steroid- hormone active pharmaceutical ingredients (APIs) ($48 million, October 2013)

www.act.is

* as at 31 December 2015 ** as at 31 March 2016

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LP PERSPECTIVE

NEW YORK STATE COMMON RETIREMENT FUND

Growing commitment, smaller funds The US public pension fund’s head of private equity Brian Hughes explains to Isobel Markham the role Africa plays in the fund’s portfolio and how his team selects managers At the African Private Equity and Venture Capital Association’s annual conference in London last year, New York State Common Retirement Fund chief investment officer Vicki Fuller announced the $180 billion pension plan’s intention to invest up to 3 percent of its assets – or around $5 billion – in Africa in the next five years. The pension fund’s private equity programme currently stands at around $14 billion, of which the majority is invested in the US and Europe, with an allocation of around 10 percent to Asia. Its nascent emerging markets programme includes two commitments to sub-Saharan Africa funds made last year: $100 million to Helios Investments III and $85 million to ACA’s fourth fund, which is in market targeting $600 million. Brian Hughes, who heads the private equity programme at NYSCRF, says the pension fund is looking to grow its exposure to emerging markets. “The job of private equity is to add incremental return to the portfolio in a world of very low yields and low returns,” he says. “We are looking globally to enhance that return. We have an actuarial target of 7 percent a year; that’s pretty difficult to do these days, and private equity helps achieve that target.” Having made two commitments to funds at the larger end of the sub-Saharan Africa market, Hughes says it will likely concentrate on smaller funds for subsequent commitments. “We may need the help of a fund of funds or a separately managed account,” he says. “The problem that we have is with a very small staff and a lot of capital that we need to invest each year. We have to make s e pt e m b e r 2016

One of the reasons that the broader US public pension fund community hasn’t wholeheartedly bought into the Africa growth story is the lack of reliable track record Brian Hughes

AFRICAN AMBITION

NYSCRF's commitment to the continent

$5bn 2015-2020

$85m 2015

$100m 2015

Source: New York State Common Retirement Fund

th e africa s pecial 2 0 1 6

sizeable commitments, and in emerging markets generally there are a lot of funds that are just too small for us to target directly.” The pension fund researched sub-Saharan Africa for several years before making those commitments in 2015, dedicating a team member to carrying out due diligence on the funds and developing NYSCRF’s expertise on Africa. One of the reasons that the broader US public pension fund community hasn’t wholeheartedly bought into the Africa growth story is the lack of reliable track record, which makes it tricky to diligence managers. “Although some of our diligence was focused on the opportunity in Africa, and sub-Saharan Africa in particular, the quality of the management team was paramount,” Hughes says. “In the case of ACA and Helios, we believed the management team was of great quality. For instance, the Helios team had prior experience at TPG; we are also an investor with TPG on a global basis, so certainly that gave us some confidence.” Macroeconomic headwinds and geopolitical risks are also cause for concern. Hughes says that the fund “understand[s] the risks” of investing in the region and keeps a keen eye on any developments, but that “it’s a very large market” with “substantial opportunity”. “In general in emerging markets, the calculation that is driving the interest is the development of the consumer society, the development of the middle class, and we think that will drive the economy in future years as it does in the US currently.” n

11

LP PERSPECTIVE

INVESTMENT STRATEGY

Proceeding with caution After the excitement of the last few years, investor enthusiasm for Africa has begun to wane in the face of macro headwinds and lacklustre growth, writes Isobel Markham When Private Equity International began working on last year’s annual Africa Special, investor excitement for the region was palpable. In the first six months of the year $2.87 billion had been raised for subSaharan Africa funds as investors gradually began to swap their notebooks for their cheque books. This year, the mood is noticeably chillier. “The emerging markets have been rocked by negative headlines,” says Brian Lim, a partner at fund of funds investor Pantheon. “Macro-economic statistics in many of these emerging markets, including many African countries, have deteriorated, in some cases significantly, so I think investors are naturally a little more cautious these days. There is a perception of being in the eye of the storm and being extracautious in deploying capital there.” According to the International Monetary Fund, growth across sub-Saharan Africa fell to 3.5 percent in 2015, its lowest level in 15 years, and it is expected to slip further to around 3 percent in 2016.

12

Although Lim points out that with fewer big-name funds in market in 2016 investor sentiment has not really been tested, he expects fundraising is “probably tougher than it was a few years ago at the peak of demand or interest in African PE”. Like many investors, PKA AIP, the dedicated alternative investment arm of €35.1 billion Danish pension fund PKA, is not compelled to stick to geographical “buckets” when deploying capital, but looks to invest in buyout funds of between $500 million and $2 billion, regardless of location. PKA has around DKr42 billion ($6.2 billion; €5.7 billion) invested in private equity and a further DKr5.2 billion in infrastructure funds, according to PEI data. On the private equity side, measured by commitments in its first programme, which ran from 2012 to 2015, 54 percent of PKA’s commitments were to the US and Canada, 19 percent to Europe, 15 percent to global funds, 4 percent to Asia, 4 percent to Australia and 4 percent to Africa. private equity international

Its exposure to Africa includes a $75 million commitment to the $990 million Abraaj Africa Fund III and a commitment to agriculture specialist SilverStreet Capital’s Silverlands Fund. “The first thing is: forget the macro,” says PKA investment director Christian Kvorning. “We don’t necessarily equate high GDP growth rates – which Africa obviously has – or positive demographics, or any sort of macro trends with a positive or a negative PE investment landscape.” For PKA, investments are not “topdown exercises that are driven by macro

Whether African PE has delivered or not, is ultimately [down to] the returns Brian Lim s ept ember 2 016

Africa: plenty of promise, but still waiting on returns

events, GDP numbers, birth rates, inflation rates or the emerging middle class”, Kvorning says. “We look at it bottom-up and ask ourselves questions such as: who are the good managers? Do they put money in their own funds? Are they experienced? Do they have good investment strategies? Are they differentiated? Can they explain to us what they’re doing? Are the fees reasonable? If we find affirmative answers to these questions, then we are less concerned about whether the investment is in a developed or emerging market. Our investment mandate is global.” One thing remains clear: investors are still expecting a risk premium from African funds. “We understand that we’re taking more risk than we would be in the US, [so] we do expect a stronger return than you would from a typical US private equity fund,” says Brian Hughes, head of private equity at NewYork State Common Retirement Fund. s e pt e m b e r 2016

“In developed markets – for instance Europe, China, developed Asia generally – our experience has been there’s less of a risk premium, so you’re going to emerging markets in search of that premium.” Kvorning agrees that due to issues such as currency volatility, political instability and liquidity issues, the pension fund would be expecting a risk premium. “At a very high level, a PE fund in Northern Europe or the US would have to, at a very minimum, do a 2x gross over the life of the fund,” he says. “Depending on the industry, the size of the fund, the country and the investment strategy and what kind of companies [it targets], I would say an African manager would have to [target] at least a 3x during the investment period.” Macro stories aside – be they positive or negative – a key issue for investors considering making their first commitments to the continent remains the lack of verifiable track record which, Lim says, is “merely a function of the capital that’s gone into the ground”. th e africa s pecial 2 0 1 6

“More [capital] needs to come out for more investors to get more confidence that this is a sustainable, institutional market that is ready to support more capital coming in and support more GPs being funded,” he says. “That has to be the main determinant of whether the market has been successful or not. Whether African PE has delivered or not, is ultimately [down to] the returns.” Anne Fossemalle, director of the equity funds team at development finance institution European Bank for Reconstruction and Development, which invests across North Africa, agrees that track record is a stumbling block. “It’s an underserved region, so these portfolios should do well,” she says. “The difficulty is you don’t have a proven trackrecord you can look at, but I would say every single one of these GPs that will be coming back to market has a nice story that they can tell, so hopefully they will be able to attract money.” n

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SECTOR FOCUS

HEALTHCARE

Searching for a medical breakthrough Limited financial infrastructure, government centralisation and longer waits on returns make for unique investment challenges, writes Nathan Williams. But a nimble strategy can capitalise on the sector’s sturdy growth story The gap between the needs and investment in African healthcare is a wide one – and, so far, both public and private sources have struggled to bridge it. Since the African Union’s 54 member states pledged to spend 15 percent of GDP on healthcare in 2001, only six have met this goal, according to the United Nations. However, a UN report notes there are “more private actors with the capacity to invest in healthcare” than ever before. This hints at a key issue: the continent is yet to find a way to unlock private investment at scale – the IFC estimates Africa needs $30 billion in new investment over the next decade – despite the availability of capital. “There has been a mismatch between available capital and investment opportunities,” says Felix Olale, co-head and Africa investment team leader at impact investor LeapFrog, which this year established a six-strong healthcare team to invest in sub-Saharan Africa. “A traditional private equity approach is not always the most appropriate way to finance healthcare deals in Africa, which are earlier stage, have a longer gestation period and require longer to realise returns. A hospital investment might require a seven- or eight-year holding period, but most private equity firms would be looking to achieve returns within five to six years.” Africa’s early stage of development, and the historical evolution of its healthcare market, also deter private capital. “It’s a hard market in which to deploy capital simply because it’s a nascent market for corporate health chains. It is dominated

14

by old non-profits or individual doctorowned practices,” says David Easton, direct investment manager at UK development finance institution CDC Group. Khawar Mann, managing director at Dubai-based investor The Abraaj Group, has seen his firm invest in The Nairobi Women’s Hospital in Kenya and has been particularly active in North Africa, buying and rolling up hospitals in Egypt and Tunisia. “Sub-Saharan Africa comprises less than 1.5 percent of the global healthcare market and 40 percent of that is in South Africa, which does make it a challenging market for firms who don’t have the correct infrastructure in the region to source opportunities,” he says. In this environment, finding creative ways to access opportunities in the current structure of Africa’s hospital-centric market will be critical to deploying capital, say investors. “Healthcare opportunities require additional thought towards how the entire health system works, and the value chains that realise profitability and scale.The best deals are the ones that can stand on their own, but within the context of a portfolio of deals that work synergistically to enable scale – for example, investing in a hospital chain, but tying this up with a diagnostics platform and a retail distribution platform,” says Olale.

$30bn

New investment needed in African healthcare over next decade, according to the IFC private equity international

Youseff Haider, partner and managing director at emerging markets investor TVM Capital, says government-run hospitals have developed as “the centre of gravity for the healthcare market”. “It’s where you go for your diagnostics tests, IVF, to have your appendix removed. The opportunity in developing markets is the ecosystem around the hospitals, creating standalone facilities with lower capex, higher margins, better value-based competencies and greater ability to scale. Whatever you can take out of hospitals and make standalone you can do at a lower cost and with better outcomes.” Achieving scale and delivering growth organically, without relying on debt, is also vital to putting money to work effectively. “A lot of healthcare opportunities in Africa are early-stage – so it’s less about financial engineering and corporate finance and more about about flexible sources of financing coupled with operational capabilities and skills to extract value,” says Olale. FINDING HUMAN CAPITAL

Jonathan Louw, managing director at Abraaj, which closed its third sub-Saharan fund just shy of $1 billion in April 2015, says the lesson “is that it’s all about scale and bringing world class expertise to these markets”. “As an investor you have to have a mindset that is able to deliver unlevered growth – because leverage is not that readily available – and to train people. Bringing in the right human capital is key,” he adds. Finding and training the right people for Africa’s unique healthcare needs is one of s ept ember 2 016

SECTOR FOCUS

Healthcare provision: Africa remains a nascent market for corporate health chains

DOCTORS’ ORDERS

Three recent African healthcare deals

1

Abraaj launches IPO for Cleopatra Hospital Company

The listing of Egypt’s largest private hospital group in June raised 360 million Egyptian pounds ($40.5 million; €36 million) for The Abraaj Group and marks the group’s second North African healthcare flotation.

2

54 Capital invests $42m in Ethiopian pharma company

Africa-focused private equity firm 54 Capital made an initial investment of $30 million in Ethiopia’s leading pharmaceuticals manufacturer, Addis Pharmaceutical Factory, in January with an option to inject a further $12 million to scale up production.

3

Adenia buys stake in Opham

Adenia’s investment in Madagascar’s leading pharmaceutical products wholesaler in May was a co-investment from its €96 million third fund, Adenia Capital III, alongside Dutch development finance group FMO and an undisclosed family office. n

the most pressing challenges for investors, with sub-Saharan Africa facing a deficit of 2.4 million doctors and nurses, according to the World Health Organisation. “The health worker deficit is large and a traditional solution does not exist,” says Olale. “When people say, ‘You need to develop 500 medical schools and develop s e pt e m b e r 2016

hundreds of thousands of doctors’ as a solution – that’s just not going to happen. Africa needs health workers with different capabilities to those being produced by traditional medical schools. Ethiopia provides one good example. In a five-year period they were able to train over 50,000 community health workers and as a result saw th e africa s pecial 2 0 1 6

a dramatic drop in child mortality and an improvement in maternal health.” Given their global networks and portfolios, private equity firms are in a strong position to bring skills and talent from abroad to underserved markets like Africa. “In every one of our investments we have clinical partners in the West as a matter of principle to help attract the skills to build human capital,” says Haidar. Mann at Abraaj, which last year acquired Indian hospital operator CARE Hospitals, adds: “We spend a lot of time thinking about the human capital issue. There are challenges in traditional disciplines such as HR, finance, procurement and distribution and we have sought to address this by leveraging our presence in the Indian healthcare market, especially around knowledge, training and skills development.” The trend toward leveraging the skill set of the Indian diaspora is increasingly common, says Florent de Boissieu, chief financial officer at Madagascar-based subSaharan Africa investor Adenia Partners, which backed Madagascan pharmacy chain Opham this year. “You see many export directors with big brand experience working in Africa,” he says. “At Opham we have two Indian pharmacists who are our market leads for generic products.” From people skills to deal structures, scale and unlevered growth, private equity firms will need to show creativity to overcome the challenges of investing in African healthcare and deliver much-needed capital. And this creativity will be increasingly needed as population growth and urbanisation leads to lifestyle changes and a rise in chronic diseases. But it is this mix of lifestyle changes, urbanisation and population demographics which mean African healthcare has an enduring upside. “It is resilient to political crisis or economic downturns. Even in bad times it is a sector that grows,” says de Boissieu. n

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INDIA ROUNDTABLE ETHOS PRIVATE EQUITY KEYNOTE INTERVIEW: ACTIS

STRATEGY

The changemakers More than 30 years after it was founded, Ethos Private Equity is still a pioneering force in the industry in South Africa. CEO Stuart MacKenzie discusses the firm’s latest endeavours

André Roux broke new ground for private equity in South Africa when he founded Ethos Private Equity in 1984. Working initially with local investors, in 1996 he raised the firm’s third fund, its first to include international LPs. That moment was an inflection point for the firm and in the maturity of the South African industry. Today the firm has reached another defining moment as it broadens its product offering from a single-fund model to three strategies and launches a listed permanent capital vehicle to support its upcoming fundraisings, Ethos chief executive officer Stuart MacKenzie tells Private Equity International. There’s been a lot of developments at Ethos this year — what has been behind this?

MacKenzie: Ethos’s diversification strategy is driven by a long-term growth agenda

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The genesis was looking at our business and asking “where’s the next five to 10 years of growth going to come from for Ethos?” Growth in our firm had come from raising larger and larger successor funds, and we realised that growing our funds from where we are today is going to be more challenging.We were also mindful that with the size of funds we have today we’re able to buy companies that are squarely in our sweet spot. So it was really a growth agenda that drove us to look at a diversification strategy. Within that we didn’t want to go too far away from what we’re comfortable with. We’ve always had in the back of our minds to go back to the size of deals we were doing in Funds III and IV. We see a number of deals a year through our origination processes that we don’t do because they’re too small, not because we don’t like them. private equity international

Mezzanine also is a space we’d looked at many times over the years. What catalysed this was there was a highly successful team out there looking to raise a new mezzanine fund. It’s a team we’re very familiar with, we’ve worked with them on both sides of the table, and being able to plug them into Ethos’s institutional platform accelerates a mezzanine strategy for us and for them. Is there high demand for mezzanine in South Africa?

As a product set, we see a greater and greater opportunity for mezzanine for a whole host of reasons. In South Africa, the tightening of banking regulations means there’s an increasing need for mezzanine in funding transactions. In sub-Saharan Africa a number of the deals that we see are actually better suited to a mezzanine product that has a self-liquidating programme with an equity-like return as opposed to trying to realise a minority stake in a high-growth business where you’re partnering with entrepreneurs who don’t want to exit at that point in time. How does Ethos Capital play into the new strategies?

We realised that fundraising cycles could potentially be a constraint on diversifying our product strategies. We felt having a permanent source of capital to seed these various strategies would become increasingly important. And so we started to evolve the thinking around a JSE-listed vehicle and investigate whether there would be appetite for something like that. The more we looked at it, the more convinced we became that it was actually an s ept ember 2 016

KEYNOTE INTERVIEW: ETHOS PRIVATE EQUITY

ideal solution to somewhat de-risking the fundraising cycle uncertainty. We had to find innovative solutions to a number of issues principally around protecting investor interests while setting the vehicle up to trade at a premium valuation. Key to achieving these objectives has been to ensure that Ethos Capital is independently managed, with its own independent investment committee headed by senior executives (with track records in the financial services industry and private equity specifically), making sure that the fee structure aligns interests between the manager and investors, and making sure there was a clear strategy to manage cash in the vehicle so as not to have a cash drag. As we solved these problems, Ethos Capital came into life. A listed vehicle comes with a higher burden

of

transparency

and

reporting. Was that a concern?

We have spent a lot of time thinking about reporting and how we’re going to achieve a balance between transparency and ensuring we don’t over promise our ability to ultimately realise the returns our investors are looking for. That balance, we think is capable of being met. It does obviously put us more in the public domain than we’re used to, and is going to require some new skills, but I think that’s got to be, in the long run, good for the asset class and good for us. There’s still quite a lot of misconceptions about private equity as a model and how we do what we do and generate the returns we generate. Demystifying that is ultimately going to be good for the industry in South Africa and good for investors. We realise s e pt e m b e r 2016

it’s going to take time and ultimately it’s going to take delivery, and we’re prepared and excited to walk that road. The mezzanine platform was created by bringing in an external team. Do you anticipate doing the same with other teams?

That model could have a broader application going forward whereby teams who are looking to raise a second or even a third fund that are struggling with building the institutional platform that’s required these days might find it easier to do that under a broader umbrella, with an institution that’s already built a platform. We want to prove out the model with the mezzanine and mid-market teams and then I think we’ll certainly be on the lookout for other opportunities in that vein. We’re very cognisant of what we’re good at and what we know, and the further away we drift from that, the more important it will be for us to bring in expertise to manage those asset classes. But certainly we would be open to looking at infrastructure or real estate.

There’s still quite a lot of misconceptions about private equity as a model and how we do what we do and generate the returns we generate. Demystifying that is ultimately going to be good for the industry

How is Ethos working to remain at the forefront of the private equity industry in South Africa?

We do challenge ourselves to innovate and constantly evolve to meet the needs of our investors and portfolio companies. This drive for agility and innovation was set by our founder and is core to Ethos’s culture. Volatile, unpredictable, uncertain markets require you to always be looking at your next horizon of growth and ensuring that you build capacity to execute. n th e africa s pecial 2 0 1 6

Stuart MacKenzie joined Ethos Private Equity in 1998 and became chief executive officer in 2014. In addition, his roles at Ethos have included being responsible for the investment programme of the Technology Fund and leading the firm’s investment process and talent management functions. Prior to joining Ethos, he spent two years at JP Morgan Chase Bank NA.

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INDIA ROUNDTABLE COMPANY PROFILE: ETHOS KEYNOTE INTERVIEW: ACTIS

AN ALTERNATIVE ADVANTAGE Ethos is an investment firm managing private equity and credit investments in South Africa and selectively in sub-Saharan Africa. With 32 years’ history, the firm has an unparalleled record of successful, sustainable investing across economic and political cycles.

32+

Years history

1984 First buyout

1992

First public-to-private deal

1994

First BEE deal

1996

First international fund raising

104

Investments

91 Exits

www.ethos.co.za

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Ethos was instrumental in establishing the asset class in the region, concluding the first buyout (1984); first public-to-private deal (1992); first BEE deal (1994); and first international fund raising (1996). The firm is currently investing Fund VI with around 8.4 billion rand ($800m) in commitments; one of the largest pools of third-party capital in Africa. Ethos specialises in control and joint-control acquisitions and expansion capital, in medium-to-large businesses. To date, Ethos has made 104 investments and exited 91. Building better businesses has been Ethos’s purpose for 32 years; we apply this philosophy to ourselves as much as we do to our investments. Following significant investment in the firm, Ethos intends to pursue a growth vision evolving from being the leading private equity manager in South Africa to become the leading alternative asset manager in sub-Saharan Africa. Hence, Ethos will be launching new products into the market – the first being a mid-market fund, followed by a mezzanine offering. In parallel, we have chosen to raise capital from the listed market (to supplement our traditional LP investor base). This listed vehicle — Ethos Capital — will provide investors with a unique opportunity to invest (and co-invest) into Ethos funds while giving stockholders access to a diverse portfolio of unlisted assets actively managed by Ethos. Ethos seeks to leverage its understanding of the South African and sub-Saharan African markets to target small to mid-sized companies best positioned to benefit from the region’s unique growth dynamics. As an active investor, Ethos Private Equity has

private equity international

capitalised on its experience of owning businesses across a variety of investment, economic and political cycles to maximise value post-investment and generate superior returns. Ethos is independently owned and managed by our investment professionals. As a management-driven firm, Ethos’s interests are aligned with its stakeholders. The existing partners have a combined 176 years of private equity experience, of which 155 has been at Ethos Private Equity. KEY STRENGTHS Ethos’s long-term success has been a result of institutionalising a set of core competencies which underpin our investment approach. This approach has been refined to provide a flexible strategy, tailored to investing within the South African and other sub-Saharan African markets. Growth is a central principle of Ethos’s strategy: value is added by actively transforming the strategy, operations and finances of investee businesses, making them “best-inclass”. Through pioneering thought leadership, creativity and innovation, Ethos has developed a long track record of sustainable, superior investor returns. Ethos’s value proposition includes: • an established track record and excellence in investing; • a commitment to and alignment with fund investors; • a unified, high-performance culture and commitment to transformation; • its broad origination platform and business networks; • a consistent, disciplined investment process; • its local presence, commitment to, and focus on, sub-Saharan Africa; • a flexible, innovative approach to transactions; • adding value to, and influencing the strategy of, investee companies; • the ability to drive value creation through the investment cycle and optimise exits.

s ept ember 2 016

REGIONAL GUIDE

The heat map Africa provides a vast range of investment possibilities for private equity funds, but where offers the best opportunities? Graeme Kerr explores the options

EXIT ACTIVITY IN AFRICA 2007-15

16% 11%

Regional share of exits

2007-13 2014-15 North Africa exits

Source: EY/AVCA

28% 16% 10%

14%

2007-13 2014-15 West Africa exits 2007-13 2014-15 East Africa exits

2%

0%

2007-13 2014-15 Central Africa exits

RECORD EXIT LEVELS The number of exits by private equity firms hit a high in 2015

TOP COUNTRIES FOR EXITS 2014-15 South Africa

2011

30

40% 14%

Egypt 2012

34

11%

7%

Nigeria 2013

39

2014

39

2007-13 2014-15 Southern Africa exits (excluding South Africa)

10% Kenya

42%

40%

10% Other

2015 Source: EY/AVCA

s e pt e m b e r 2016

44

30% Source: EY/AVCA

th e africa s pecial 2 0 1 6

2007-13 2014-15 South Africa exits

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REGIONAL GUIDE

Southern Africa South Africa, the continent’s most developed economy, has long led the way in Southern Africa, buoyed by its growing middle class. But deal volumes in the region have been trending downwards since 2012 due in part to slower growth in the country and lower commodity prices, according to the African Private Equity and Venture Capital Association. Overall, Southern Africa’s share of deal activity in Africa declined from 37 percent in 2007-10 to 31 percent in 2011-14.

PRIVATE EQUITY DEALS IN SOUTHERN AFRICA

1%