Private Equity in Africa

1
Private Equity in Africa

• A Case Study

• Presented by William JimersonManaging Director,
  The Africa Millennium Fund

2
Contents

• What is Private Equity in Africa?
• The Role of Private Equity in Capital Market
  Development
• What are Private Equity Investors Looking For?
• Case Study A nuts and bolts discussion of how to
  source, structure, and exit a Private Equity Deal
  in Africa
• Conclusion

3
Africa is a New Frontier for Private Equity
Investment

• There is currently an estimated 2 billion of
  private equity capital dedicated to the
  Sub-Saharan Africa Market. With over 1 billion
  targeted for South Africa alone
• Though there is plenty of opportunityMost
  transactions lack the proper Core Values for
  success
• Private Equity is an essential element in the
  development of efficient Capital Markets

4
The Essentials
5
Investors Seek Value-Core Values

• Value Identification
• Value Creation
• Value Maintenance
• Value Realization

6
Investment Process
Deal Rejected
Sourcing Opportunities Investment
Banks Commercial Banks Development
Institutions Local Governments Local
Entrepreneurs Law Firms Global Corporates
Evaluation and Due Diligence Business
Review Industry and Competitor Analysis Financial
Review Valuation Capital Structure Risk
Assessment Return Analysis Exit Alternatives
Preliminary Evaluation Funds Criteria Macro-Review
"Core Values"
Deal Rejected
Monitoring and Value Creation Setting performance
timetable Project implementation Contract
negotiations Capital structuring Customer pricing
agreements Board representation
Liquidity and Exit Strategy Cash Flow Strategic
Sales Public Market Listings Shareholder Puts
Investment Committee
Deal Rejected
7
Key Investment Themes by Sector
ENERGY
TELECOM

FINANCIAL SERVICES
TRANSPORT/ WATER/SANITATION/ ENVIRONMENT
AGRIBUSINESS PROCESSING
8
Structuring

• Transactions must be structured to accommodate
  investor and operator/company goals
• Instruments include
• Common Stock
• Equity Linked Units
• Shotguns (Puts and Calls)
• Liquidity is the KEY!

9
Case Study

• Source of Funds
• Common 20 MM(Div. Yield 4)
• Pref 10 (Non-cash)
• 5 Yr. Put to Mgmt with 25 ROI
• 50 MM Bank Line of Credit
• 50 MM Vendor Financing

• Use of Funds
• Earnings Expansion (increase subsidiary
  ownership)
• Technology Upgrade(Vendor)
• Acquisition of New Markets

10
Exit Strategies - Defined at the Outset
INVESTMENT STRATEGY
EXIT MECHANISM
Asset aggregation-Build Scale
STRATEGIC BUYERS
Cash is King
SELF- LIQUIDATION
PUBLIC MARKET LISTING
Identify appropriate operational-Buyout Partners
11
Close

• Though nascent, Private Equity is key to capital
  market development in Africa
• There are a few Core Values that drive private
  equity investment
• It all comes down to Value Realization!