Entrepreneurship Zone: 06 January 2020: Aruwa Capital on why it invested in Nigerian personal hygiene products manufacturer Wemy Industries

[Bulls n Bears]

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Aruwa Capital Management is a female-founded and -led private equity company
focused on West Africa (specifically Nigeria and Ghana). It announced the
launch of its first co-investment vehicle of $20 million in October this
year, stating that it hopes to execute four to five investments averaging
between $1 million and $5 million.

At the same time, Aruwa announced its first investment in Wemy Industries
Limited, a Nigerian manufacturer of personal hygiene products. The financial
details of the deal remain undisclosed. This first investment sets the scene
for the company's investment strategy of a clear and unapologetic gender
lens. Investment objectives include searching for companies that provide
goods that improve the lives of women or provide employment opportunities to
women.

To understand the decision-making behind the deal, Jeanette Clark spoke to
founding and managing partner of Aruwa, Adesuwa Okunbo Rhodes.


Why did you choose Wemy Industries Limited as your first investment?


We are very bullish about Wemy's growth prospects, locally and regionally.
It also ties in with all of the investment objectives at Aruwa, for example
investing for socio-economic development impact and in companies that
provide goods that improve the lives of women.

There is very strong medium- to long-term demand for Wemy's diversified
range of personal hygiene products. These products include baby diapers,
sanitary pads, baby wipes, maternity pads, underlay hospital pads and adult
diapers.

With the rapidly growing population across the West African region and
increased usage levels across its product segments due to urbanisation, Wemy
is uniquely placed to take advantage of this strong demand over the short-,
medium- and long-term. A baby is born every five seconds in Nigeria, with
more babies born each year in Nigeria than the whole of Western Europe.
Additionally, per capita usage of personal hygiene products is significantly
lower in West Africa compared to their emerging and developed market
counterparts, indicating room for growth.

Wemy's Dr. Brown's and Nightingale brands are household names in Nigeria.
There is strong brand loyalty and affinity, particularly because of Wemy's
mix of affordable pricing and the products' high-quality. It also has an
extensive distribution network, due to its presence in the country for the
last 40 years. The company has a diversified product mix cross its six
production lines, which leads to economies of scale and effective sourcing
of raw materials.

The business has proven to be very resilient, despite market shocks.
Following the recession in Nigeria in 2015, many manufacturing companies
didn't survive due to the foreign exchange shortage and the difficulty in
sourcing raw materials. Wemy, however, will have revenue this year that will
be 200% higher than last year, following the re-introduction of Wemy's Dr.
Brown's baby diaper range earlier this year. The company not only survived,
it is thriving.

In addition, in line with Aruwa's gender lens investing strategy, 80% of the
company's products have a positive effect on women - from improved hygiene
for menstruating teenage girls in rural areas in Northern Nigeria to
improved maternal health across the country.


When the deal was announced Aruwa stated that Wemy Industries is set for the
next stage of its growth trajectory. Where do you see this growth coming
from?


The company has significant brand equity and an extensive distribution
network in Nigeria. We expect significant growth locally due to the lack of
competition, and also due to increasing population growth and usage levels
in Nigeria because of urbanisation. To our knowledge, Wemy also has the only
adult diaper manufacturing machine in the whole of West Africa, thus we see
a huge opportunity to export that line to other parts of West Africa. This
provides a natural hedge to our investment.


Wemy will implement an action plan to improve the representation of women in
its workforce, including at the most senior levels. Is this a condition of
all your investments?


Yes. In line with our Invest, Operate and Empower-model, we employ active,
hands-on involvement in investee companies to support internal financial
control, operational improvements in processes and decision-making tools. We
also incorporate an operational and financial action plan in all of our
investments and, as part of this, we implement our gender lens principles.
This looks at the gender balance within the workforce, senior management,
the board and the value chain. We will strive to improve these gender
metrics throughout our investment period by influencing the methods used for
hiring, promoting and retaining women within the workforce and across the
value chain.

We believe this will help to improve the profitability of the companies as
it has been proven that gender-balanced teams help to increase returns. In
addition to the financial benefit, our gender lens investing approach helps
to promote women's economic empowerment at various levels of the company
which has a huge multiplier effect for families, communities and economies
due to the active role women play in society.


Explain your investment criteria.


For every investment, there has to be a sound investment case. This will
enable us to meet the target returns for Aruwa and our investors of, at
least, a 3x money multiple. In addition to the financial return, we look for
investments that will have a developmental impact. We aim to make
investments whereby the capital we provide is transformative to the
business, helping to create new jobs, scale the companies, generate taxes as
well as export revenues and, ultimately, fuel economic growth. We also make
investments that help to empower women across all levels of society, either
through the goods or services the company provides and/or through the
workforce and supply chain.

In addition to our targeted financial return, every investment has to be in
line with two of the United Nation's Sustainable Development Goals - SDG 8
(Good Jobs and Economic Growth) and SDG 5 (Gender Equality).

Due to our hands-on operational approach, we have been in discussions with
Wemy for the last three years, working with them to restructure their
balance sheet, access concessionary funding, optimise their power solution
and getting them ready for this next stage of growth.

Our co-investors are typically family offices and they prefer not to invest
in blind pools. So our strategy has been to have opportunities already
identified, with due diligence done. This approach has been welcomed by our
co-investors as they have some visibility on our portfolio upfront, unlike a
traditional private equity fund.


You say that Aruwa is a co-investment vehicle?


We are an investment company with Aruwa and its investors as shareholders.
It's called a co-investment vehicle because our investors co-invest with
Aruwa's management company. We invested into Wemy as one vehicle, they did
not have to secure another funder.


What is the exit strategy for your investments?


Due to our vehicle structure (an investment company), there are no typical
private equity fund constraints around having to exit within a certain time
frame. Our capital is patient. We would look to maximise the return on our
investment at exit and ensure the objectives we set out at the start of the
investment in terms of our socio-economic impact and gender lens investing
outcomes are achieved.


What does your current pipeline look like?


We have a generalist sector focus. Our current investment pipeline comprises
companies in the consumer goods, healthcare, non-banking financial services
and B2B services sectors.-Howwemadeitinafrica



Adesuwa Okunbo Rhodes, managing partner of Aruwa Capital Management

 

 

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