Bloomberg BRIEF
July 8 2015
For full article click here
Q & A
Buy Consumer Businesses; Currency and Execution Risk Main Concern, Says ECP
Consumer-focused industries provide the most attractive investment opportunities in Africa, says Hurley Doddy, managing director, founding partner and co-CEO of private equity firm Emerging Capital Partners, which has been investing exclusively in Africa for more than 15 years. It has more than $2 billion in assets under management. He spoke to Bloomberg Brief reporter Hema Parmar on June 11 and July 6. His comments have been edited and condensed.
Q: What sectors do you look at?
A: Our focus is on domestic-facing industries, not so much the mining and extractive or export-oriented industries. We are growth equity investors. We’re investing to help companies expand their businesses. We’ve done a dozen deals in telecoms starting back in 2000 when the cellphone boom first started in Africa. We have a very big investment in the leading tower company called IHS and also into cable TV and high-speed Internet. We have a controlling position in the leading restaurant chain in Eastern Africa called Java House. When we took over that business it was just in Nairobi, in fact, it was originally called Nairobi Java House. We’ve since helped it expand into five cities across Kenya as well as into neighboring Uganda and we’re looking to continue that rollout. We have been big investors in East Africa, in Kenya, Uganda and Tanzania.
Q: What else have you invested in?
A: We have a controlled position in a company called Eranove. It is a utility
company. It operates the electricity and the water system in Cote D’Ivoire and the water system in Senegal. As the economy is growing, more and more people are getting on the grid and there’s good demand for it.
Q: What about geographical exposure?
A: Infrastructure needs are across the board. With the consumer businesses, in North Africa you’ve typically got a higher GDP. We had an investment in a company called SAH, which is a Tunisian company. It was a market leader in diapers and feminine hygiene products and we invested there to help it start producing in Algeria. Disposable diapers are something you’ll see first in North Africa with the slightly higher GDP per capita. But it will follow at some point into sub-Saharan Africa as well. You would already find big banks in Northern Africa and in South Africa. But across the center of Africa would be a more interesting place to look for financial services transactions.
Q: What’s the biggest risk in Africa?
A: It’s really execution risk. It’s a question of the management team being able to manage high rates of growth in their own countries and neighboring countries. So being able to get your systems up fast enough and hire new people.
Q: How do you handle risks like recent oil prices and currency swings?
A: Recently our biggest concern has been the swing between the dollar and the euro, which is the thing that’s really moved around a lot. Part of that is diversification. So our most recent fund, for instance, has exposure to 25 different countries. One advantage of a more domestic-focused investment strategy is it’s more insulated from what’s going on in the rest of the world. It’s less affected if Chinese demand for copper goes down or if the Greeks decide to leave the euro, it doesn’t really affect the fundamental process of malls being built and those malls needing anchor restaurants, for instance.
Q: What’s the size of companies you invest in?
A: We invest an average of about $50 million into companies. Most are relatively capital-intensive areas. Certainly by U.S. standards, they’re not large-cap. We would be seen in the African context as writing big checks to larger companies.
Q: Who are your investors?
A: We have a number of African investors including African insurance companies and pension funds. We’ve got some sovereign wealth funds, high net worth individuals, European pension funds and development finance institutions. The African Development Bank has been a big investor with us along with Proparco and IFC [International Finance Corporation] and OPIC [Overseas Private Investment Corporation].