The Africonomist: Is the new fund focused on any particular country or countries in Africa?
Bucknor: No. In fact, the more companies we find that have a presence in multiple countries, the better. We think that many of the opportunities in Africa involve cross-country, regional diversification players.
In terms of sectors, do you have a particular focus?
No, we’re looking for any sector that shows strong growth potential in Africa.
Would you consider any form of investment, such as management buyouts?
We’re looking for significant minority stakes, with a minimum investment size of about $30 million (USD). We may do a controlled investment but that is always more complicated. We don’t exclude buyouts, but that is also dependent on the availability of debt leverage, which is hard to come by in the current environment.
Do you like to invest alone or go in with other private equity investors?
We prefer to lead, but invariably, the best deals are always looked at by other people.
Do you go into any investment with an exit strategy in mind?
Typically, private equity funds would hold their investments 5 to 7 years on average, and look to exit. Public listings are always a good way to exit, but they are not always available because you have to be in the right market that would give you the right valuation. You can exit in other ways, such as a strategic sale. So, we don’t have a specific exit strategy. EcoBank, for instance, listed shortly after we invested in it.
Talk about the quality of investment proposals that are coming across your desk?
It’s getting better and more sophisticated. Companies are preparing themselves better to speak the language that we as private equity investors find attractive. That said, it varies from country to country. Larger markets like Egypt, Nigeria and Morocco have become pretty sophisticated. There’s still a big gap, particularly in Francophone Africa, in terms of information flow that allows investors to zero in very quickly on what the opportunity is.
Why do you believe there is an information flow gap in Francophone countries?
The culture of private equity is very new. It is a new asset class in Africa. We are very much the pioneers, with the exception of South Africa where it started in the early 90s. Private equity started [in our region] in 2000.
From your vantage point, are you seeing the effects of brain drain on the quality of management?
I think it is improving. If you look at the banking scene in Nigeria, for instance, the quality of middle-tier management has improved considerably. Across the board, at least in the companies in which we have invested, we’ve found that [there are] good management teams and there’s a very conscious effort to strengthen and improve the quality of the management teams. Even in our own fund, we faced challenges attracting the right level of talent. However, the pool of talent that is available to us today has improved considerably. One reason for this is many Africans who have spent time abroad are returning.
Is it a common practice to change management teams following an investment?
Typically, we like to identify a strong management team before our investment and align our interest with that management team. That is our ideal scenario, but it doesn’t always happen. As a private equity investor, we have to have the presence of mind and boldness to make changes when [they are] necessary.
If you had to rank the most significant risks facing a private equity investor in Africa, which ones would you put at the top?
I’d say the biggest risk is delivering on the business plan and achieving the growth targets, the margins and the profitability goals that you set out to achieve. We’re essentially investing in companies that we think have better-than-average growth potential. We’re betting on a business model and a set of circumstances and parameters in the market, such as consumer demand, prices, manufacturing capacity, cost of production, access to certain markets and a whole host of things that would help achieve those goals. A lot of things could go wrong.
But that is not unique to Africa, is it?
It is not unique, but it is a bigger challenge in Africa. Typically, the companies that you invest in would be pioneers in their business. They would have a strong position in the market, there may be barriers to entry into the business or they may be innovators in what they are doing. The whole story of Africa is about getting in early and creating innovation. If you invest in a bank that is growing in Africa and looking to open in many countries, it is still theoretical. Not many banks have done it so there isn’t a track record.
What other risks would you put at the top?
The sustainability and caliber of management is always a big risk. Finding an exit is also a challenge because the market is not always liquid and strategic buyers are hard to find.
What about political risk? It comes across as a big issue when you’re outside the continent.
It’s not a big issue if you are careful in your due diligence. You avoid investing alongside politically-exposed people, you avoid investing in sectors that are highly dependent on political trends, you make sure you understand the rules of the country and you invest with private businesses.
We emphasize companies that spread their model across multiple countries [in] Africa, which means you diversify your business and political risk.
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