Going together, making money, doing good and growing in Africa

On the Eurostar to Paris

I am on the 0935 high-speed Eurostar train from London to Paris to support the Dentons Paris office for its Invest in Africa event at the Medef Centre on 22 May. As I fire up the laptop to finish off this month’s article, I wonder whether I will ever sit on a high-speed train in Africa....

Private equity as a force for good in Africa

As my past writings may have alluded to, private equity is a space that I am passionate about. I love the idea that you can use money, expertise and relationships to grow businesses - surely capitalism at its most raw. However PE has had its share of detractors.

For example, in the US, critics say that PE makes money the wrong way - buying “target companies”, making people redundant, piling on debt and selling the remnants in tidied up boxes  - which by then are doomed to fail. To make matters worse, PE  firms get tax breaks, paying 15 percent on profits instead of 35 percent.

But the industry and its defenders say it is a strong creator of jobs and value, and a vital source of ambitious and diversified returns for pension funds, university endowments and other investment pools that serve ordinary people.

Africa is at a different stage of growth to the developed world and growth capital is what Africa needs and PE provides. Africa needs all forms of capital so PE capital in Africa has been welcome and has not had much of the criticism (at least so far!!) that PE has had in the developed world.

A plug for AVCA

So PE in Africa is different to PE in the developed world. And this difference is epitomized by AVCA (African Private Equity and Venture Capital Association) - the pan-African industry body that promotes and enables private investment in Africa. I got involved in AVCA when Dentons became a member a few years ago. Its mission statement is that:

"AVCA plays an important role as a champion and effective change agent for the industry, educating, equipping and connecting members and stakeholders with independent industry research, best practice training programmes and exceptional networking opportunities."

I have been involved with many trade organizations and business clubs, and I think that the key to success for a club is creating the right inclusive environment and making members feel that they are part of a family. AVCA seems to have found the formula for this.

Africa PE is young and fun

The Africa PE industry is still young and this youthfulness comes through in its members and their attitudes. The attitude that I like the most is that, whilst there is obviously competition between PE houses, advisers, funders and other professionals, there is still a sense of camaraderie and cooperation with all involved. I think Runa Alam (DPI) hit the nail on the head when she opened the AVCA conference by quoting the African proverb:

"If you want to go quickly go alone; if you want to go far, go together"

This diverse membership is united by a common purpose: to contribute to Africa and be part of the Africa growth story. That’s what excites me about working on the continent compared to other regions. And perhaps overlaying all of this is that the Africa PE industry knows how to have fun.

I met Robbie Brozin (the founder of Nandos from South Africa) recently and heard him talk about how he grew Nandos from one small restaurant to the global chicken piri-piri giant of today. An inspiring story. He had some great one-liners about doing business and the one that stuck was:

"My vision was always to have fun and make money and if you are not happy in your job you should just….do something else!!!"

AVCA in 2014 into 2015

After AVCA 2014, Nicholas Plant (Head of PE at Dentons) and I produced an article on the key points from that conference. Click here to read the article.

An excerpt of this with an update from 2015 is set out below:

Click here to view table.

AVCA 2015 - not a conference but an industry gathering

There were so many key points at AVCA that it has been difficult to choose which ones to highlight. In addition, I had meetings midway through the conference so I missed some of it including (by all accounts) a great presentation by Miles Morland of Blakeney Capital. Reports of his more memorable quotes can be found on Twitter including the following controversial one:

"I would rather trust a Nigerian on a handshake than an American on a signed contract. "

My notes and key takeaways from AVCA 2015 are set out below:

Click here to view table.

So where to for PE in Africa?

Of course, PE in Africa is not all a bed of roses. There will always be the good, the bad and the ugly in all parts of the world. It’s being able to see beyond the hype and the myths that is key.

Ultimately what is driving growth and PE in Africa is that what Africa wants is what the world wants. Africans have the same aspirations as anyone else. What is needed is the investment to match these aspirations, which is where the opportunity is.

The good news from AVCA is that the overall outlook for PE in Africa is positive but the question is whether this can be sustained to match the ambitions of Africans. Finishing on a positive note .....

"We always believe in Africa, [that] our investments can make money there" - Johnny el Hachem, CEO, Edmond de Rothschild

Growth needs investment, which needs stability, leadership and the right economic and regulatory framework and policies. That’s the challenge for Africa.

This article was first published in the February 2015 edition of Financial Nigeria magazine, a monthly development and finance journal. For subscription, please complete online subscription form atwww.financialnigeria.com/journal