ASCENT RIFT VALLEY FUND

Transcription

1 ASCENT RIFT VALLEY FUND INTRODUCTION TO PRIVATE EQUITY by Mr. David Owino 21 st April, 2018

2 What is Private Equity? Alternative Investments / Alternative Investment is an asset class that comprises assets that are not one of the conventional investment types such as stocks, bond or cash. / These include real estate, private equity (venture capital, management buyouts & buy-ins), natural resources and hedge funds. Private Equity (PE) / Private equity is medium- to long-term capital provided in return for equity in private companies, or that engages in buyouts of public companies, resulting in the delisting of public equity. / The capital can be utilised to fund new technology, make acquisitions, expand working capital or buy out a founder. Investee Companies / Companies invested in by private equity funds are referred to as investee companies. / Typical companies are high growth companies in a growing industry with founders either seeking to cash out, expand or bolster and solidify the balance sheet. 2

3 History of Private Equity Big transactions take place in the form of LBOs with low interest rate environment that boosted credit. Expansion capital sought after. Cementing of the idea in Africa with the likes ECP coming in and CDC demerging to Actis and Aureos. Launch of PE houses in West Africa and Helios Marks the boom years of PE with over 2,000 transactions and KKR s acquisition of RJR Nabisco for $31Bn. PE spreads to Europe present ARDC is set up in 1946 and this marks the rise of professionally managed private equity investments. This was a publicly traded and closed-end investment company with a view to offer a private-sector financing for new and small businesses. Tech boom with the likes of Yahoo! And Amazon being backed by PE, Microsoft and Apple who were backed earlier become big entities. 3 Rapid recovery by PE post the financial crisis with boom in PE fund raising and investment. Increased interest by institutional investors in SSA in the asset class 1 st time Pension fund money in PE.

4 Where is PE at? / From its beginnings as an institutional investment medium in the late 1970 s, private equity has grown to an asset class with over $2.8 trillion under management globally as at January

5 Typical Investors Foundations Fund of Funds Development Finance Institutions Individuals/Family Offices / While the first institutional private equity investors tended to be endowments, foundations, high net-worth individuals, foundations and private ERISA plans, by the mid-1990 s public pension funds had become the dominant participants in the market, together with development finance institutions and sovereign wealth funds. Pension Funds Invest as Limited Partners in PE Funds Sovereign wealth funds / Institutional investors tend to allocate to private equity as it allows them to generate investment returns from the actual creation of value through development and growth of new companies, as opposed to trading value or interest value that is often the basis of returns from investments in public equities and bonds. 5

6 How does it work? PE Manager (General Partner) Carried Interest Fee 8 2 Investors (Limited partners e.g. pension funds, funds of funds, foundations, HNWIs, DFIs) Capital Commitment 1 Interest 5 PE Fund (LLC or LLP) Co-investment Investments Interest Capital Capital 6 Investee Companies 6

7 Continued... How does it work? Typical PE Allocation by Pension Plans / A 5% allocation to alternative investments is the minimum size that will have an impact on the level of returns and diversification of the total fund. An allocation of 10% or more provides a more meaningful and measurable impact. / Corporate pension funds typically have 8-15% allocations, and foundations and endowments often have 10-30% allocations. / In general, allocations tend to grow the longer an organisation has experience investing and tend to stabilise at higher levels for those institutions with longer liability structures (e.g. pension funds). / Unconstrained asset allocation models generate very high allocations to alternative investments because of the low correlations with other asset classes and the unique risk/return attributes. 7

8 Continued... How does it work? The business model Amount Committed ($m) $4.0 Actual Cash Outflow ($m) -$1.9 Investment % of Commitment 90% Annual dividend on invested $ 13.0% Exit Return multiple 2.5 Number of Deals 10 Investment Period years 5 Investment per Deal ($m) $0.4 Net IRR 20% Year (all numbers Jan 1st of year) Total Capital Called Annual -$0.72 -$0.72 -$0.72 -$0.72 -$0.72 $0.00 $0.00 $0.00 $0.00 $0.00 $9.00 Total Capital Called -$0.72 -$1.44 -$2.16 -$2.88 -$3.60 -$3.60 -$3.60 -$3.60 -$3.60 -$3.60 $9.00 Returned Dividend Annual $0.00 $0.09 $0.19 $0.28 $0.33 $0.37 $0.33 $0.28 $0.19 $0.09 $2.15 Exit Investments Annual Total Exits Exit Investment money $0.00 $0.00 $0.00 $0.90 $0.90 $0.90 $0.90 $1.80 $1.80 $1.80 $9.00 Annual Investor Cashflow -$0.7 -$0.6 -$0.5 $0.5 $0.5 $1.3 $1.2 $2.1 $2.0 $1.9 $7.55 Cumulative Investor Cashflow -$0.7 -$1.3 -$1.9 -$1.4 -$0.9 $0.4 $1.6 $3.7 $5.7 $7.6 8

9 Continued... How does it work? The business model $10.0 Annual Investor Cashflow Business Model $8.0 $6.0 $4.0 $2.0 $0.0 -$2.0 $2.1 $2.0 $1.9 $1.3 $1.2 $0.5 $ $0.7 -$0.6 -$ $4.0 -$6.0 -$8.0 -$10.0 9

10 Continued... How does it work? The business model $10.0 Cumulative Investor Cashflow/J-Curve HARVEST PERIOD ARVF I current position on the J-curve $8.0 $7.6 $6.0 $5.7 $4.0 $2.0 $0.0 -$2.0 -$4.0 $3.7 $1.6 $ $0.7 -$1.3 -$1.4 -$0.9 -$1.9 INVESTMENT PERIOD 10

11 Where is PE at in the developed world? 11

12 Performance of Private Equity Comparisons made between private equity and listed equities should be viewed in context, as private equity is an illiquid asset class where investors are committed over a longer period of time, whereas public equities are more liquid. Using the modified public market equivalent (mpme) metric developed by Cambridge Associates, which replicates the timing and size of PE cash flows (both purchases and sales) as if they had been invested in public equities, it is possible to make apples-to-apples comparisons between PE and public equity returns. Looking at the 10-year period ending in June 2017, US buyout funds in aggregate returned 9.7% vs. a 7.9% return for the S&P 500 indexed using mpme. Funds in developed Europe returned 8.7% vs. 3.6% for the MSCI Europe, and Asia-Pacific buyout and growth funds posted 10.5% vs. 4.5% for the MSCI AC Asia Pacific. Looking forward, the broad consensus of economists and forecasters assumes that PE s outperformance will continue over the next decade and beyond. For Sub-Saharan Africa the jury is still out as PE is nascent and just about to complete its first definitive cycle. However, Centum Investment Company Limited, a local PE firm has managed to book returns of greater than 35% in its most recent exits (UAP and Platinum Credit). 12

13 Continued... Performance of Private Equity 13

14 Private Equity in East Africa There are quite a number of players based in Nairobi Fund Size Category of Market Number of Funds in Category < $ 10 million Venture Capital 3 $ million Venture Capital & SMEs 6 $ million SMEs & Small Cap 5 $ million Mid Cap 7 $ billion Mid Cap & Large Cap 3 > $ 1 billion Large Cap 4 14

15 Private Equity in East Africa There are quite a number of players based in Nairobi Name Geographical Focus Size $Mn Actis Emerging Markets >5,000 ECP Pan Africa >2,000 Helios Pan Africa >1,000 Aureos/Abraaj Pan Africa >1,000 AfricInvest Pan Africa >1,000 Grofin Pan African >500 Kuramo Pan African 300 Catalyst Eastern Africa 103 Novastar Ventures East Africa 80 Kibo East Africa 80 Ascent East Africa + Ethiopia 70 Fanisi East Africa 50 TBL Mirror Fund Kenya 25 15

16 Recent PE Transactions The above companies have been used for illustrative purposes only 16

17 OUR ENTERPRISE CHAMPIONS ARVF Portfolio companies MEDPHARM CHIMS AFRICAN QUEEN UNIVERSAL PLASTICS KISUMU CONCRETE ALLIED CHEMICALS GUARDIAN AUTO SPRINGS 17

18 A GROWING PORTFOLIO (1/2) With A Focus On The East African Consumer UNIVERSAL PLASTICS May 2017 ALLIED CHEMICALS March 2017 KISUMU CONCRETE February 2017 AFRICAN QUEEN January 2016 Background Largest plastic crate manufacturer in Ethiopia / Proprietary deal Sole Ethiopian producer of key inputs for the soap & detergent industry / Proprietary deal Largest construction material producer in Western Kenya / Proprietary deal Uganda s leading FMCG distributor / Proprietary deal / Family company looking for partial exit and growth support / Family company looking for partial exit and growth support / Family company looking for partial exit and growth support / Family company looking for partial exit and growth support Investment thesis / Strong growth in under-penetrated beverage market / Strong market position with est. 70% market share / Rapid growth (50% CAGR over 5 years) / First mover position with no local competition / Fast-growing construction sector in Kenya (13% p.a.) / Strong position due to localised market and valueadd products / Largest distribution network operating 7 depots / Scalable business with diverse supplier and customer base Value addition / Unlock growth through capacity management and product diversification / ESG management to continue attracting multinational customers / Succession planning for MD / Product and geographic expansion within and outside current facilities / Support strong growth with adequate backbone (finance, HR, governance, ESG) / Rationalise products through margin analysis / Improve reach-out to market by creating sales and delivery network / Expand regional footprint / Improve ESG management / Increase number of principals / Expand partnership with current principals for additional opportunities / Improve sales operations and warehousing 18

19 A GROWING PORTFOLIO (2/2) With A Focus On The East African Consumer CHIMS August 2015 MEDPHARM February 2015 GUARDIAN HEALTH May 2017 AUTO SPRINGS January 2018 Background Uganda s largest mobile money agent network / Intermediated deal Ethiopia s leading medical diagnostics laboratory / Proprietary deal A leading Ugandan retail pharmacy chain / Proprietary deal Leading manufacturer of commercial vehicle parts in Kenya / Proprietary deal / Founder looking for partial exit and growth support / Founder looking for growth support / Founder looking for working capital and growth support / Family company looking for partial exit Investment thesis / Highly scalable business / Well-positioned as largest agent for Uganda s largest mobile money provider MTN / Largest, most advanced, and only internationally accredited lab in Ethiopia / Growth through effective hub-and-spoke model / 3 rd largest retail pharmacy chain in Uganda / Ability to grow rapidly in consolidating market / Leading producer of leaf springs and only in-country wiring harness producer / Strong relationships with key players in the market Value addition / Optimize cash utilization in the business using float management software / Improve market coverage and outlet profitability / Roll-out additional services across outlet network / Strengthen organisational structure / Introduce new tests and services incl. wellness testing and pathology / Geographic expansion throughout Ethiopia incl. ~120 referral hospital partnerships / Strengthening of inventory and financial management / Exclusive contracts with international suppliers / Optimise earnings through data-driven approach / Outlet growth / Increase same-store earnings through new products and partnerships (incl. Chims and African Queen) / Business development with current as well new customers (e.g. spare parts) / Improve operational processes to ensure quality consistency and efficiency / Strengthen support functions and management structure 19

20 TRACK RECORD OF PORTFOLIO ARVF I Portfolio Companies Company Sector Country Invest. date Invest cost Realised proceeds Unrealised value Fair Value Multiple of Cost Gross IRR Medpharm Healthcare Ethiopia Feb-15 $2,427,185 $600,000 $2,000,000 $2,181, x 7% Chims Fin Services Uganda Aug-15 $1,528,599 $0 $1,528,599 $458, x -41% African Queen Distribution Uganda Jan-16 $4,101,242 $0 $4,101,242 $5,810, x 20% Kisumu Concrete Manufacturing Kenya Feb-17 $3,751,999 $0 $3,751,999 $3,761, x N/A Allied Manufacturing Ethiopia Mar-17 $6,553,398 $0 $6,553,398 $6,615, x N/A Universal Manufacturing Ethiopia May-17 $6,966,990 $0 $6,966,990 $7,073, x N/A Guardian Healthcare Uganda May-17 $1,412,621 $0 $1,412,621 $1,419, x N/A Auto Springs Manufacturing Kenya Feb-18 $2,300,000 $0 $2,300,000 $2,300, x N/A Total ARVF I Until Feb-18 $29,042,034 $600,000 $28,614,849 $29,620, x 0% 20

21 Ascent Rift Valley Fund Q and A 21

22 DISCLAIMER This confidential presentation (this Presentation ) is being provided to prospective investors for assistance only and is not intended to, and prospective investors must not take it to be, the sole basis for an investment decision. Prospective investors should not construe the contents of this Presentation to be investment, legal or tax advice. This Presentation has been furnished on a confidential basis solely for the information of the person to whom it has been delivered and each such person, by accepting delivery of this Presentation, agrees not to divulge the contents hereof to any person other than a legal, business, investment, or tax advisor in connection with obtaining the advice of such persons with respect to this offering. Each person accepting this document hereby agrees to return it to Ascent Capital Africa Ltd ( Ascent ) promptly following any request. The information set forth in this Presentation does not purport to be complete and is subject to and qualified in its entirety by reference to, the private placement memorandum for the offering, the subscription agreement and the shareholders and other relevant agreements. Copies of the shareholders agreement, the private placement memorandum and the subscription agreement will be provided to prospective investors and each prospective investor and its advisors should carefully review these documents. The information contained in this Presentation has been compiled from sources believed to be reliable by the management of the fund. However, each recipient of this Presentation should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the fund in question (the Interests ) and should consult its own legal counsel and financial, accounting, regulatory and tax advisors to determine the consequences of such an investment. The Interests described in this Presentation are suitable only for sophisticated investors for whom an investment in the Interests constitutes only a small part of such investors investment program and who fully understand, are willing to assume, and who have the financial resources necessary to withstand, the risks involved in the specialized investment program in which the fund will engage. Prospective investors should carefully review this Presentation, understand the risks and conflicts of interest set forth herein, and make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the Interests. Prospective investors should carefully review the risk factors set forth in the private placement memorandum. There will be no public market for and therefore limited liquidity in the Interests. Prospective investors should review the transfer restrictions contained in the shareholders agreement and be aware that they may be required to bear the financial risks of an investment in the Interests for an indefinite period of time. No assurance can be given that the fund s investment objectives will be achieved. The market analysis and projections presented in this Presentation represents the subjective views of Ascent. Ascent s current estimates of future performance are based on a number of assumptions that Ascent believes are reasonable, but there can be no assurance that such estimates are correct. The projections included herein and in the private placement memorandum have been provided to assist prospective investors in evaluating an investment in the fund, but should not be relied upon as a representation of future financial results. The information supplied herein is for illustrative purposes only and is not necessarily indicative of future results of the fund or its investments. Each prospective investor is invited to meet with a representative of the fund to discuss with, ask questions of, and receive answers from such representative concerning the terms and conditions of this offering, and to obtain additional information to the extent such representative possesses such information or can acquire it without unreasonable effort or expense, in order to verify the information contained herein. Prospective investors should direct any inquiries to Lucas Kranck at l.kranck@ascent-africa.com,

23 David Owino