Agegelabs

I was fortunate to have attended the talk by Babatunde Soyoye, co-founder of Helios Investment Partners today at Clifford Chance’s office in Canary Wharf. He spoke about the impact of the credit crisis on private equity activity in Africa. I have put together a summary of the talk based on my interpretation below. Hopefully someone will find it useful.

Impact of Credit Crunch

• Valuations appear to be more reasonable however execution is taking much longer. Sellers are hopeful that the markets will return and continue to delay sale processes
• Talent pool to recruit from is much bigger today. In the past, it was difficult to attract talent and even if you could attract them – you probably couldn’t afford to pay them. The credit crunch has changed that balance positively
• Post-Lehman, companies with balance sheet constraints are seeking asset sales – it seems logical assets for sale are usually those in Africa – significant opportunities to capture value
• Growth is still commodity-linked in most African countries. With price of most commodities taking a hit – GDP growth expected to slow across the continent
• Overall the credit crunch has had less of an impact on Africa as a whole compared to other regions [time will tell]

On Private equity model in Africa

• Private equity activity in Africa is less about “financial engineering” (i.e. using debt to generate huge returns like private equity houses in the US and Europe).
• The Private equity business model in Africa is about identifying unique opportunities, creating profitable companies and executing as quick as you can! Essentially first to market takes a big chunk!
• Relatively cheap financing is still available in Africa if aligned to infrastructure – IFC and AFD are standing by to finance the “right projects”
• Access to financing in Nigeria is harder today compared to 3 years ago given the issues that Nigerian banks are currently facing
• Banks in Francophone countries (e.g. Côte d’Ivoire) have tons of cash but the regulatory framework restricts how the cash can be deployed
• Challenging to depend on local weathy individuals for funds
• Pension funds remain small players in the Private equity in Africa. Only a number of countries (e.g Kenya, South Africa and Ghana) have pension funds which have asset allocation for private equity. In Nigeria, pension funds are banned from investing in private equity (really!)

On Exits

• Strategic buyers are “tight”. Currently focused on internal development and regaining financial flexibility – not buying assets
• Recapitalisation is harder to implement
• The IPO markets across continent remain open (particularly South Africa, Kenya, Ghana and Nigeria) – obvious exit route for companies of scale and profitable growth