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Analysis > Interviews

ECP: No lack of opportunity in Africa

Anna Lyudvig
July 7, 2016, midnight
48

Word count: 1109

For Emerging Capital Partners’ (ECP) co-Founder, Managing Director and co-Chief Executive Hurley Doddy, there is no lack of opportunity in Africa and no oversupply of capital. With 16 years of experience investing in Africa, the Pan-African private equity firm has raised over $2bn for investment across the African continent, has made 62 investments and completed 39 exits. 

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For Emerging Capital Partners’ (ECP) co-Founder, Managing Director and co-Chief Executive Hurley Doddy, there is no lack of opportunity in Africa and no oversupply of capital. With 16 years of experience investing in Africa, the Pan-African private equity firm has raised over $2bn for investment across the African continent, has made 62 investments and completed 39 exits. 

The $613m Africa Fund III is one of the largest funds ever raised for investment across the African continent, and is the seventh fund managed by ECP. Doddy says that the investment period for ECP’s latest fund ended last year. The fund made eight investments and one divestment – a west and central African insurance group NSIA Participations through the sale of its equity stake to a consortium made up of National Bank of Canada and Amethis Finance.

“We are considering an exit this year, but our big years are probably 2017 and 2018,” says Doddy.

ECP invests in companies that operate in business environments characterized by limited competition or in sectors in which Africa has a comparative advantage or an unmet need. ECP’s typical ticket size is between $40m and $100m. 

According to Doddy, the average deal size in the latest ECP fund was at $70m. He explains that it’s a “very good size” for several reasons: “There is a bit less competition at that size. It’s bigger than a lot of the medium sized African funds can do, but it’s small enough so we don’t run into international funds too much. But more importantly it’s a good size in terms of exit options.” 

“If you have $70 or $80m you can double or triple that, and then you’re talking about an operation that is big enough to interest strategic buyers. And also you have listing options both domestically and internationally,” he adds. 

“That’s something ECP has done well – our ability to exit. We’ve got 36 exits already and a number of our current portfolio companies are going to see both a good interest from strategics as well as the possibility to list them,” he stresses.

Investors’ appetite and opportunities

For Doddy, the opportunities in Africa remain where they’ve been in the past. He says that it’s obviously a few difficult quarters for Nigeria: “Until the currency situation sorts itself out, it’s hard to put a lot of the money in there. It is also a slow time in South Africa.” 

He adds that East Africa has been going quite nicely: “All our recent investments have been there and we’ve been happy with the level of growth. Francophone West Africa is another area of particular strength for ECP.”

“We are always actively looking at opportunities and co-investment opportunities,” says Doddy. He gives an example of ECP portfolio company IHS Towers: “We are big investors in IHS and we have quite a number of co-investors in that investment.”

“We’ve done quite a good amount of co-investment activity from our Fund III with a variety of both new and existing investors,” he adds. Doddy mentions that one of the segments that look at co-investment opportunities are family offices as “they act quite fast on that”. “There’s a growing interest from DFIs and sovereign wealth funds as well,” he adds.

When asked about US investors investing in Africa, Doddy says: “The level of interest remains good. The actual dollars committed are lower than they should be given the size of the investment pool in the US. It’s taking a while for US investors who don’t know Africa very well to get comfortable with it.”

There’s some uncertainty in Africa, but pretty good growth, says Doddy, adding that there are a couple of things in favor of Africa investment: “Interest rates are very low in the US, so people are looking to invest in Africa for that reason. On the other hand, the US market is much more driven by consultants and long term track record.”

He adds that “the sizes are pretty big, so investors can’t put $20m into a fund, because it just wouldn’t move the needle for them”. “It’s a combination between their interest and the size, but I think it’s a growing interest,” he says.

“People want to see a premium for going into emerging markets and see a premium for going into Africa. Lack of correlation is an interesting idea for some investors, but most of them are looking just at absolute returns,” adds Doddy.

Challenges and what’s next for ECP

According to Doddy, there is also no lack of challenges in Africa. He points to macro factors, adding that currency depreciation can be a challenge. He says, however, that it can be answered “through diversification and through proper selection of the companies”. 

Doddy adds: “I think currency depreciation affects more the running of the company and making sure that they are funded.”

On the divestment front, Doddy says: “It’s typically not exciting to sell immediately after a big dip, because the level of uncertainty is going to be higher. It’s always easier to sell in a calmer market. When we decide to sell, we normally have some type of a window of around 18 months to decide when is a good time to exit.”

Speaking of other challenges in African private equity, Doddy says: “Just managing the growth and having companies that are growing very quickly across multiple countries is certainly a challenge. Finding good proprietary deals can be a challenge. It’s not just enough to have money because other people have money.”

He believes that it’s still a difficult environment for new fund managers to get started: “Africa has always been a challenging environment and it hasn’t got any easier. Businesses are a bit less matured than international businesses, so you have less teams spinning out, because their second level guys aren’t experienced enough,” he says.

In a longer term, he thinks that in African private equity there will be more type of funds such as mezzanine, real estate, and clean energy: “There will be slow but steady increase in the variety of funds that are raised.”

When asked about future plans for the company, Doddy says: “We have over a dozen portfolio companies and that keeps us busy.”

“We’re very focused on our current portfolio and exiting that. In terms of our model, we’re not looking to do much different from what we’ve done in the past. Over the years we’ve got a network of offices across Africa. We have a good team of people on the ground, who are in the position to find us some good investments and help our current investments to become more valuable,” he concludes.

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