Bulls n Bears Entrepreneurship Zone :: Due Diligence: AfricInvest fund head shares why he shies away from turnarounds

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Pan-African mid-cap focused private equity firm AfricInvest recently
announced the €194m final close of its Maghreb Private Equity Fund IV, which
targets investments in North Africa. AfricInvest was founded in 1994 and
currently has around US$1.5bn of assets under management across 18 funds.

In an interview with Africa Private Equity News, Brahim El Jaî, who heads
up the firm’s new North African fund, shares some of the investment lessons
he’s learnt, discusses why he is no fan of turnaround investments, and
reveals the one deal he wishes he invested in. Here are slightly edited
excerpts.


What is it you look for in an investment?


*         First and foremost, a strong management team

*         Sector and sub-sector attractiveness in a macro- and
micro-economic context

*         High barriers to entry, a leading market position, and a superior
competitive edge (know-how, efficient use of resources, proprietary
solutions/services, etc.)

*         A unique business model, viability and profitability with the
ability to scale locally, regionally, and eventually continentally via
organic and inorganic avenues


Describe the greatest investment lesson you’ve learnt.


We have realised over 130 transactions since our inception. While our core
business remains focused on growth capital with influential minority
positions, we have structured almost all types of operations imaginable,
going from startups to restructuring as well as majority deals. All the
success we have enjoyed up until now, as much as the failures, taught us
time and time again that the key to success is based on the quality of the
management teams that we partner up with.

I’d also like to mention the lessons learnt from investing in turnaround
situations. And while they are important deals to do, and they provide great
value to economies and corporate ecosystems, they are not suited for a
private equity fund structure which has a strict time limit and focuses on
internal rate of return (IRR).


Please expand on why you say turnaround investments (the financial recovery
of a company that has been performing poorly for an extended time) are not
suitable for private equity in Africa?


We have invested in some turnarounds, especially here in Morocco and
Tunisia. However, we’ve arrived at the conclusion that these investments
need more of an operational approach than a private equity approach. When
you buy a company in a difficult situation, you need to manage it and you
need to be there every day. Even if you have your management team, you need
to provide a lot of support.

This is completely different from the companies we normally support and
finance. Usually our investments are in mature companies with good
managements teams – we just come in and add what they require. In the case
of a turnaround, the investor has to deal with every aspect of the business.
This implies a lot of time from our teams and we don’t necessarily have all
the expertise in house.


Name the one deal you wish you invested in.


Saham Insurance, which is a unique success story within our continent. It
is an entrepreneurial journey that started up all the way in North Africa,
in Morocco, with the acquisition of a mid-sized insurance company followed
by its merger with a second mid-sized insurance company. Saham relied
heavily on a proactive M&A strategy throughout the African continent, which
led to its presence across more than 20 countries.

The company then became an ideal target for Sanlam, one of the leading
insurance players in South Africa. The buyout by Sanlam in 2018 led to the
creation of the first fully pan-African insurance group, becoming the
intersection of two entrepreneurial journeys that started on both ends of
the continent.—Howemadeitinafrica 



Brahim El Jaî

 

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