Private equity investment in French-speaking Africa

Paris-based law firm, STC Partners, assists French and foreign investment funds in managing transactions in listed and unlisted companies. In this interview executives at the firm Laurence Elong-Mbassi (Attorney at Law - Of Counsel, Head of the Africa Tax and Legal Practice) and Anne-Sophie Hébras (Attorney at Law - Of Counsel), talk about how reform initiatives in certain countries in West and Central Africa are helping to make investing more flexible and efficient for private equity investors.

How has STC Partners helped private equity fund managers invest in French-speaking Africa?

We have assisted private equity firms in many French-speaking countries in West and Central Africa, and in the Maghreb, notably Morocco and Tunisia, as well as in some English-speaking African countries, such as Nigeria. We have helped teams throughout the deal life-cycle of the investment fund by advising on the legal and tax structuring of the fund itself, drafting and negotiating the fund documents, structuring transactions between the general partner and the advisory and other associated companies, and in performing legal and tax due diligence for investment and exit purposes. Our affiliate, C2A, supports us through their presence in several countries of West and Central Africa, including Côte d’Ivoire, Guinea, Cameroon, Congo and Gabon.

In your experience, how has the Organisation for the Harmonisation of Business Law in Africa (OHADA) benefitted private equity fund managers and investors operating in the OHADA* region?

Firstly, the OHADA Uniform Act relating to commercial companies and economic interest groups (the Uniform Act) benefits private equity investors focused on this region by introducing a common form of law for these groups across OHADA treaty signatories. This greatly enhances efficiency in structuring and administration, and reduces the relative risk when investing in the different countries of the OHADA area.

The Uniform Act has recently been amended (effective 5 May 2014) and introduced greater flexibility in the management of the legal structures available to investors and funds to help secure their operations in the OHADA area. One of the main innovations was the introduction of the “Société par actions simplifiée”, or simplified joint stock company, which allows shareholders greater freedom in structuring their partnership and portfolio company investments. Additionally, the revised Uniform Act brought major innovations relating to securities, which greatly benefit private equity funds. Some examples include the ability to: (i) create preferred shares which can be issued without voting rights, with double voting rights, with suspension of voting rights for a specified period of time, or with a preferred dividend and so forth; and (ii) provide access to capital through the creation of securities or entitling the allocation of debt instruments, which opens up greater funding opportunities, in addition to common equity, for firms incorporated in the OHADA area.

With the increased global focus on Africa, what are some of the issues managers and investors should be aware of when looking to invest for the first time?

One of the main issues faced by clients investing in Africa is the efficient transfer of the proceeds of their investments, in particular the proceeds of sales. There is typically no issue when transfers take place between the Euro zone and the CFA Franc zone. Moreover, as the latter is indexed to the Euro at a fixed rate, there is absolutely no exchange rate risk. Things can prove to be more complicated in North African countries which have foreign exchange control regulations that are much more restrictive than those found in the CFA Franc zone. For other types of transfers, such as dividends and management fees, one must comply with legislation in force (e.g. domiciling service contracts, holding shareholders meetings to approve annual accounts and allocating profits within the time limits prescribed by law).

From a tax perspective, capital gains tax arising from sales of interests in portfolio companies can be an issue, but we find in this respect that the strengthening of the double tax treaties network of African French-speaking countries has allowed a gradual improvement in the profitability of foreign investments by reducing cases of double taxation (wide double tax treaties network with France, and expanding with Mauritius and Morocco).

How have you seen the tax environments in French-speaking Africa change, and are they becoming more efficient from a private sector investment perspective?

In general, we have noticed that, although the tax rules are evolving towards a strengthening of anti-abuse and anti-tax avoidance systems, local tax authorities are becoming more and more aware of international practices. This helps enormously to facilitate effective discussions between the authorities and our clients. In addition, several countries have formalised the possibility for taxpayers to request a tax ruling to validate the regime applicable to a given scheme. While in some cases it is too early to truly appreciate the positive impact this may have due to some practical implementation issues, it certainly contributes to helping secure transactions made by foreign and local investors. 

In relation to private equity in particular, we are seeing tax rules introduced in support of private investment, notably under the lead of the West African Economic and Monetary Union (WAEMU), which has issued several directives which harmonise the taxation applicable to securities among WAEMU members and the taxation applicable to closed-end investment companies within the WAEMU. 

These rules have been implemented in various countries, notably Senegal, Benin and Togo, and provide favourable tax regimes (e.g. exemptions from corporate income tax, exemption from tax on capital gains derived from the sale of securities) for listed and unlisted investments to stimulate regional financial stock markets and offer alternative ways of financing the economy. We believe that this type of legislation, combined with the recent Uniform Act developments, will encourage the emergence of additional local investment funds.

*OHADA is a system of business laws and implementing institutions adopted by 17 countries in West and Central Africa. It is the French acronym for "Organisation pour l'Harmonisation en Afrique du Droit des Affaires", which translates into English as "Organisation for the Harmonization of Business Law in Africa".

Interview sourced from Frontier's content partner, African Venture Capital and Private Equity Association (AVCA)

How to succeed as a franchisee

Turning a start-up franchise business into a success is tough, but possible. Learn from an expert the keys to striking gold.


By Jeremy Lang

If you’re the kind of guy who likes to go to sleep early, don’t buy a restaurant franchise. I am stating the obvious? Perhaps, but you’ll be surprised how many first-time franchisees make the mistake of buying a franchise that simply does not fit their lifestyles.

In the world of start-up franchising, it can easily be a fatal mistake to make, because there is so little room for error. Very few people who buy their first franchise have the resources for a second chance once they’ve found out that the franchise they had set their heart on is actually not the right fit.

Lifestyle preference is only one of three pillars which prospective franchisees must consider to make sure that the franchise they choose is the right fit for them. The other two are skills and personality.

The skills set of the entrepreneur is the most important. First, there is the technical know-how related to the specific industry, such as a beauty salon or a service station. You’ve got to be able to choose a franchise for which you either have a natural skills set, or one in which you’ve had previous experience in.

Irrespective of the industry, a franchisee will always have to be a jack-of-all-trades to a certain extent - the HR person, the salesperson, the office-manager person and the tea lady, so you’ve really got to have a good general hybrid of skills such as:

• Good management ability, which is the core of what the franchisee is signing up for
• Sales skills, because your whole enterprise revolves around your ability to secure business
• An eye for detail and practical problem solving skills. Because you will be fulfilling multiple tasks in your business, you have to know as much about all the different systems as possible
• Networking and relationship-building skills for forging ties with your clients, staff, suppliers and franchisor, and
• Practical problem-solving skills. You are going to be faced with many challenges every day. You will have to be decisive, and think quickly to find solutions to problems.

This list is true for any start-up business, franchised or not, but there is one set of skills particular to franchising: the ability to follow the rules of the concept. Franchising is a recipe that requires strict adherence by franchisees, otherwise the service or product will start differing from branch to branch, and the collective power of the brand will suffer. If you are not somebody who likes to operate your business under a strict set of rules that you have not created, then franchising may not be for you.

Being a successful franchisee not only has to do with skills, but also with personality. Prospective franchisees need to be honest with themselves about their personality. A generally introverted person should shy from retail or service-heavy businesses such as restaurants. Similarly, a sociable, outgoing personality will become frustrated in a desk-bound business where there is little interaction with clients.

Although nothing can replace common-sense self-knowledge, I would suggest doing a personality test such as the Myers Briggs test, more to help you think through what you already know about yourself rather than teach you about aspects of your personality that you didn’t know.

The unknown usually lies on the side of the franchise. A first-time franchisee who knows himself well could still be in for a nasty surprise when it turns out that the franchise requires an approach, attitude or trait that he simply isn’t comfortable with.

There are two methods of avoiding this mistake. First, speak to the franchisor that you have your eye on. A reputable, established franchise group will have a very clear idea of what kind of personality and skills set are required to make a success of their concept. Some will have formal descriptions and even tests as part of their assessment process.

Most importantly, speak to the franchisees in the group that you want to join. If possible, work-shadow franchisees who are hands-on involved in the management of their businesses for a week or two. The exercise should leave you under few illusions about whether you are up to the task, and whether the work and lifestyle suit you.

Jeremy is regional general manager of Business Partners Limited.

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Below are links to some franchise opportunities on the Frontier platform

International financial services company is seeking a master licensees in Africa

Investors sought for expanding popular fast food franchise in South Africa

Private equity funds - what works in Africa and why

Private equity firm Augentius's group head of sales, J.P. Harrop, spoke with the African Private Equity and Venture Association (AVCA) about the attractiveness of Africa and how the firm is helping fund managers to tackle the ever-increasing demands of international regulation.

With your relatively recent presence in Africa, Augentius now stands as one of the only global private equity-focused fund administrators. How did your focus on Africa come about?

Augentius’ roots have historically been in Europe, serving private equity, real estate and private equity fund of funds. In 2007 I went to Mauritius for an initial exploratory visit as we were hearing a lot about Indian private equity managers using Mauritius to domicile their funds. On this visit, a wise man pulled out a map of the region and asked me why we were looking to the right (India) when the greatest opportunity was to the left (Africa). That has always stuck with me as there were no private equity-only fund administrators focused on the African market. Fast forward to 2009 when Augentius led to its foray into Africa by being appointed as fund administrator of Citadel Capital's Joint Investment Funds, on the basis that we opened an office in Mauritius and became regulated by the MFSC (financial services commission). From here, we have build our presence and have now been appointed as the fund administrator for 24 Africa-focused funds, with FUM of circa US$6.1-bn based on committed capital and targeted commitments.

Are there any trends that you are seeing with Africa-focused fund managers that are different from other regions?

We have noticed that the fund of funds model seems to be more popular with those investing in Africa than other regions, with firms such as our client Sango Capital, and a few others establishing themselves as key players. We think this is due to investor demand for exposure to African private equity opportunities coupled with scarcity of local knowledge. Investing into an African fund of funds bridges this knowledge gap in a way perceived as more economical than trying to build out their own investment teams, as many in Europe and the US have been doing of late. At this point in the cycle, it is still very much a case of following cash – cash is still king. We have seen a number of funds in Africa that had previously sourced their commitments from local government and domestic institutions, who are now raising their next fund and looking at investors from other regions. In many cases, these investors are not comfortable with Mauritius as a domicile and consequently, they have to establish feeder or parallel vehicles in places such as Luxembourg, the Cayman Islands or the Channel Islands, alongside Mauritius, to satisfy all of the investors. We have managed this process for a number of our clients with investors joining from parts of Europe and the US. 

With the asset class attracting a more globalised pool of investors, fund managers in Africa need to be ever-more conscious of international regulation. Looking at FATCA, the US’s Foreign Account Tax Compliance Act, how do you see this new legislation affecting fund managers in Africa?

The appearance of FATCA, the US’s new tax avoidance laws focusing on foreign investments, initially caused concern for US-based investors, and then for any investor who had a connection with any US-based institution, over compliance, reporting and withholding obligations being imposed by the IRS, the US tax authority. As mentioned, US-based and other international investors typically participate in opportunities in Africa through funds or feeder funds in centres such as Mauritius, the Cayman Islands, and so on. One of the benefits of these domiciles is that they have inter-governmental agreements (IGAs) with the US to make compliance a more local matter, and reduce potential exposure.

Having dealt with FATCA in a number of cases, it is essential that managers and their service providers ensure they have the systems and processes in place to track their investors’ tax status, and are able to report when needed. The OECD have produced a ‘Common Reporting Standard’ on automatic tax information exchange and as this gains traction, we would expect to see a lot more funds needing to report on a greater number of their investors down the road.

AIFMD, the Alternative Investment Fund Managers Directive, which covers the management, administration and marketing of alternative investment funds in Europe, is also having an impact on fund managers in Africa. What has been your experience?

Precisely that, fund managers in Africa should be very conscious of AIFMD. Following its introduction, the European fundraising environment has been continuously evolving and certain EU countries have taken the opportunity to amend their private placement regimes. These changes particularly affect non-EU fund managers, who are not currently eligible for the EU marketing passport. Germany and Denmark are two examples; both now require fund managers to comply with certain aspects of the AIFMD, specifically the appointment of an EU-based Depositary. This means that all Africa-based fund managers planning to market their funds to Germany and/or Denmark under private placement regimes will need to appoint an EU-based Depositary for each relevant fund.

As an EU-based Depositary, Augentius is well-positioned to help Africa-focused funds efficiently comply with these new rules, and our detailed understanding and experience of the AIFMD within the European market is complimented by our dedication to and presence within the African private equity industry. We are currently unaware of any other Africa-focused administrators with a European presence offering this service. Unlike many of the larger banks offering this service, Augentius provides this depositary service as a standalone offering, as well as offering it as part of our broader service offering. 

Any final words?

This is a very exciting time for African private equity. The main concern I have heard from investors globally is whether there are enough experienced African private equity managers to cope with the likely material increase in interest in the asset class over the next three to five years. I expect to see more of the experienced African professionals currently working within the larger private equity houses in the US and Europe returning to Africa to help fill this gap, and participate in what may be a golden age of African private equity. 

Source:  Frontier's content partner, AVCA

Guide to investing in Côte d’Ivoire

Free download: Gain expert insights into the economy and investment opportunities in Côte d’Ivoire.

Frontier markets have garnered a lot of attention, as international investors continue to search for new growth opportunities. 

One frontier market with immense potential is Côte d’Ivoire. Situated in West Africa, the country is the top producer of cocoa beans in the world, and is one of the most diversified and fast-growing economies in Francophone Africa.

GDP growth of 9.8% is expected in 2014, from 9% last year.

Download the "Investing in Côte d’Ivoire" report to get expert insight on this market.

The report covers:

• Côte d’Ivoire’s reinvention journey, from a conflict-ridden country to rising star in West Africa

• The top four sectors with the best potential for investment and growth

• The business and investment climate

Click on this link to get the report.

 Brought to you in partnership with Developing Markets Associates.

What is private equity doing about risk in Africa?

​What does risk look like in the New Africa with its impressive headlines on growth, investment, and the emerging middle class?

The truth is that risk in Africa today is murkier than ever: lessened by reforms, muddled by continued misperceptions and shifting reputations. What does this mean for private equity (PE) investors – buyer beware? Yes and no. You just have to know where to look, and who to ask, according to Deloitte's latest East African Private Equity Confidence Survey.

Many of the elements that characterise African Private Equity portfolios are also their principal risk factors. Investors must plan for longer term engagements: projects in Africa can take triple the time of other markets to get off the ground from inception to income flow. Most deals are growth investments that require hands-on engagement. And the prominence of development finance in African PE means that investors must further contend with impact mandates and consider what acceptable risk looks like for any Development Finance Institution (DFI) partners.

Operational risks are the number one concern for most PE investors in Africa. General Partners (GPs) want to work with strong companies and good management teams, but those can be difficult to find in what is still a relatively immature corporate environment. The lack of larger deals and resulting focus on SME investing lessens the amount of track record information that investors have to work with. Many smaller deals are also minority stakes, and in those cases it is especially important to understand the people you are doing business with. Reputational risk looms large, and can become particularly critical for sensitive DFIs who answer to tax payers in their home markets. Investors need to assess the type and extent of corruption risks they face. In principle, corrupt staff members can be replaced. But if corruption is intrinsically linked to the company, it will be hard to work around.

Political risk today is much more nuanced than exploding headlines, and often linked to corrupt local politicians who like to disagree with the ‘nature of the investment’. Citizens are also legitimately becoming more vocal, helped by stronger media and, importantly, by their ability to expose wrongdoings on social media. However, even for the best behaved investors who tick all the right ESG (environmental, social, governance) boxes, risks remain: In a corrupt environment, it is still easy for vested interests to mobilise the local population against investors, and feed a distorted media campaign. This is a particular challenge for any investment involving land rights, whether in extractive industries or in large-scale commercial agriculture: land is a notoriously emotive and mismanaged asset.

Regulatory risk in Africa varies widely across sectors and countries – as do corresponding political risks. The risk of corruption and the risk of government interference in a deal will increase commensurate with both the strategic status of the sector in the country and also with the size of the sector. For strategic sectors such as oil and gas, mining, infrastructure, land-related agribusiness or financial services, investors face increased risk of political interference, hidden ultimate beneficial owners, corruption and legislative change. Larger, expanding, multi-jurisdictional sectors like retail and fast-moving consumer goods offer a happy medium, with more opportunities and less vulnerability.

Due diligence: Most PE firms do initial due diligence in house. The model, in any emerging market, is very relationship driven and even more so in Africa, where all investors will need to build up capacity on the ground quickly to keep up, whether through local offices, on-the-ground teams, fly-ins or local partners. There is a historical impression that you need to identify a Mr. Whatever-the-Country is that you’re working in who can open doors for you, but that is changing. More PE funds do the ground work themselves these days.

Risk insurance: Once in bed, political risk insurance as offered by MIGA and ATI or guarantee schemes can hedge further risks, but PE funds have not traditionally gone this route. Cost is a disincentive for GPs and LPs alike – just a few percent per annum can cut into your returns. And for private investors, most of whom still avoid real frontiers like CAR, insurance is not enough to make them comfortable with the risk. At that level, you’re either in or you’re out. Many investors in Africa hedge using mezzanine structures, pure debt or convertible loans.

Veterans and newcomers: Overall, seasoned investors that have been in Africa for years – Aureos (now Abraaj), ACA in Nigeria, or ECP to name a few – are better equipped to manage these risks. They are more accustomed to long-term investments, more familiar with local regulations, have more support built up in house, and more deeply rooted networks. They may have also already made mistakes that taught them crucial lessons. But there are so many opportunities across Africa that even PE outfits new to the market can find their way around it as long as they invest time and resources identifying the right deals for their investment profile and finding partners they can trust.

This article is extracted from Deloitte's latest issue of the 'East African Private Equity Confidence Survey'.

See the full report here

How to distribute agro products in Africa

Are you an agro products supplier looking to access dealers servicing small-scale farmers in Africa?

There is now more investment and innovation in supply chains, presenting great opportunities in this market segment.

There is increased interest in agriculture in Africa and in particular small holder farmers (SHF). SHF’s output remains low and is seen by many organisations to hold the key to the chronic food shortages in Africa.

There are some key challenges for suppliers looking to expand their footprint to access agro dealers servicing small holder farmers.

Infrastructure – Infrastructure remains a key challenge as distances are great in African upcountry areas. According to the Monitor MBS report, the population density of India is five times that of Kenya and Senegal. Some farmers have to travel in excess of 50 kilometers for purchases from agro dealers. While African road networks have improved considerably in some key markets (e.g. Tanzania and Ethiopia) they remain generally poor.

Transport - According to a World Bank study, transport cost in Africa could be as high as 40% of profits. Dealers are adamant that investment in transport is essential to running a successful agro dealer business. Unfortunately, investment in trucks tie up much needed capital that could be used for inventory.

Channels – Channels and markets are less structured and accessing agro dealers servicing SHF in these fragmented markets can be an expensive undertaking with low returns. Few companies have the product mix to penetrate these markets and forming meaningful collaborations with other organisations or companies can be difficult. As one company put it to me, “the margins and product range are just not there”. Often companies poorly understand the landscape of potential organisations and partners they can work with.

Agents – Working with agents to reach SHF farmers can be an expensive and frustrating undertaking. Agents often require intensive training and turnover remains high. Agents are also sometimes left to their own devices with little supervision, support and no clear sales targets. Often limited attention is given to agent and agro dealer selection and they fail due to poor support.

The right product mix and timing – Due to seasonality the product range will not stay constant and companies don’t stock the right product mix for the required season. As one agro dealer put it to me “when we are looking for pesticides they have herbicides”.

Inventory and finance – For agro dealers, it is constant battle to stock the “right product” and maintain the required working capital. The high cost of finance and access to capital remain one of the key challenges for agro dealers. During the low season, paying business overheads can be a challenge, and often agro dealers lack the required business planning to plan for these seasons. Farmers often have to travel great distances for banking services, tying up valuable time and resources.

Counterfeit products – Whether you are in Botswana or Burundi, counterfeit products are increasingly a big problem for farmers.

Scaling models – Often, Bottom of the Pyramid (BoP) Route-to-Market models are in the early stages of development. Scaling the models remains a key challenge. As many companies have learned, you can run perfect pilots with all the “bells and whistles” but scaling it profitably remains an Achilles heel for many organisations.

Demand – As many companies in the BoP segment have discovered, need for a product does not always translate into demand. Often limited Below the line (BLT) marketing support is provided.

How to overcome challenges

To overcome these challenges, companies and suppliers require an innovative Route-to-Market model and partnership to access agro dealers servicing SHF. The following options could be considered to overcome these challenges:

Value proposition – Companies have the potential to create a unique value proposition by providing transport, investment, training and other services. As one agro supplier framed it, “we need to understand the hooks to get agro dealers to support our business”. Understanding the “hooks” or value proposition should be key for any Route-to-Market design teams.

Collaboration – For companies, it is important to assess the landscape and identify companies and organisations they could potentially collaborate with. Farmers in rural communities want to buy at a “one-stop shop”. As previously mentioned, few companies have the required product mix to provide exclusive dealership. Companies can also aim to provide a bundle of goods and services. Potential services and products could include insurance, credit facilities and agro information such as market prices. Shared channels and a bundled approach to services and products can go a long way in reducing cost and making Route-to-Market models viable.

Understand the consumer – It is important to understand the consumer or farmer. Products need to be tailored for the market. Farmers are price sensitive and price points need to match the farmers’ cash flow. As we have also seen in the consumer goods segment, best in class companies provide the right package sizes (e.g. Unilever sachets) at an affordable price (Coca-Cola 200ml returnable glass). A good example in the agriculture sector is Bayer’s Green World Stores that provide smaller package sizes to agro dealers.

Order generation and transport – Companies can assist agro dealers with order generation activities. This could be through the role of an agent or centralized telesales. Orders and shipment from multiple agro dealers could be bundled together to save transport and transaction cost. As previously discussed, for many agro dealers in rural areas, transport remains one of the biggest expense items.

Inventory holding and depots – Agents are facing high transport cost and great distance to make purchases, additional distribution centers and micro depots are often required. These depots could be managed by 3rd parties. Companies can also opt for shared facilities with other companies or organizations to reduce cost.

Value chain and pricing - Many companies have poorly designed pricing strategies and agro dealers often find them competing against other hybrid distribution models such as supplier owned and controlled retail shops and wholesalers. Companies need to map out the value chain and assess the margin required for each partner in the value chain.

Agents and marketing activities - With the right training, incentive schemes and development, agent networks can become important sales components for any company hoping to reach agro dealers in rural communities. Farmers are highly risk adverse and agents can act as key opinion leaders (KOLs) and help create demand and educate dealers. As one agro dealer put it to me, “farmers often buy products when they are not sure what the product will do”. Agents can provide an important role during field days and introducing farmers to demo plots in their respective territories. They can also distribute information and provide below the line (BTL) marketing material such as posters and pricing decals. Finally, agents can sell value added services (e.g. crop spray) and products (e.g. micro-credit) that will increase their income and make the model more sustainable.

Shop fixture and merchandising - Companies can assist with shop fixtures such as racks and also provide value information about merchandising, including supporting merchandising material.

Finance and access to capital - Agro dealer networks can play a key role to assist agro dealers to access capital through banks or Micro Finance Institutions (MFIs). Companies can also assist with start-up cost, consignment stock and provide credit facilities. Companies should also explore collaborations with mobile phone companies to provide m-banking facilities.

Reducing counterfeit - By establishing a reputable supply chain through certification and training, companies can educate dealers about counterfeit products. , including to bar codes and registration (e.g. Nigeria’s NAFDAC registration). As we have seen from the pharmaceutical sector, technology can play a key role in addressing counterfeit (e.g. M-pedigree).

Selection and Training - Companies need a robust system to identify and select dealers ad agents. Understanding the complexity of the sale and determine how much training is required. For example, agro chemicals require specialised training to handle and store chemicals. As training is expensive, it is sometimes necessary to select and work with a limited number of agro dealers and/or agents. Companies and organization can also collaborate on training requirements, such as basic business skills and business planning, to reduce cost.

Many SHF supply chains are long and expensive, but there is increased investment and innovation happening in the SHF landscape. Collaboration remains key and even though the road to these fragmented markets is difficult, there is potential for great rewards.

This article is supplied by Frontier's content partner, The Supply Chain Lab. 

The Supply Chain Lab is is a group of supply chain improvement specialists with a focus on factory to village supply chain solutions in frontier and emerging markets. The Supply Chain Lab focuses on strategy, assessments and implementation.

Water producer's success story in Ghana

Voltic's successful distribution strategy primed it for investment from leading brewing and beverage company, SABMiller.

By Tielman Nieuwoudt

In the early 2000s, Voltic Ghana’s leading bottled water producer faced a common problem encountered by many beverage companies in emerging markets. How to sell water to the bottom of the pyramid (BoP) with hundreds of informal vendors already selling sachets at cut throat prices? The BoP water market held significant potential, but with low prices and little brand loyalty among consumers, it was viewed as a segment with high volume but with very low value. At the time, Voltic’s focus was concentrated on higher income Ghanaians servicing high-end outlets including hotels, bars and restaurants.

Rethink the business strategy

The company clearly had to rethink its business strategy in order to compete. Voltic realized that transporting water from centralized bottling facilities to the respective markets and high traffic areas was costly. Furthermore, with smaller package sizes the transportation cost per liter would increase, as sachets (or pouches) are not really known for stowability. Poor infrastructure and transport utilization in emerging markets likely compounded the problem. So, Voltic took a radical step to decentralize its bottling through more than a dozen franchisees and in the process, brought their water product closer to the market.

Selecting the right partners and sharing cost

Franchisees are local entrepreneurs with the ability to invest and grow the business. This includes bottling (including quality control) and distribution. In this partnership, Voltic pays for just over half the capital cost, with the rest of the costs covered by the entrepreneur. Voltic and the franchisees split the operating margin.

Branding and pricing

Voltic introduced a new brand called Cool Pac and priced it at a slight premium above the numerous informal competitors. In the BoP segment where water functions more as a commodity, Voltic changed all of that with a strong emphasis on the brand and quality. Even though Voltic outsourced bottling and distribution, the company maintains close control over all brand building activities.

Route-to-Market

The sachets are distributed using a network of informal street hawkers. Sachets (500ml) are sold to consumers for $0.03 per sachet  on a cash and carry basis. Today more than 10,000 street hawkers sell nearly 480,000 Cool Pac sachets daily.  Following Voltic’s success, in 2009 Voltic was acquired by SABMiller.

Top 9 private equity deals in Africa

The month of March saw an abundance of activity in the private equity sector in Africa. Below are some of the transactions realised.

1. Citadel Capital Subsidiary acquires additional stake of Rift Valley Railways (Kenya, Uganda)

Africa Railways, a core subsidiary of investment company Citadel Capital, has acquired a 34% stake in the national rail operator of Kenya and Uganda. The US$ 37.8m transaction brings Africa Railways’ total ownership of Rift Valley Railways (RVR) to 85%.

The selling party is TransCentury, a Nairobi-listed infrastructure company.

As part of this transaction, Africa Railways shareholders including Citadel Capital have together committed US$80m to increase Africa Railways’ capital to US$200m. Of that USD$80m in fresh capital, US$37.8m has been used to finance the acquisition of shares from TransCentury, while the balance will be injected into RVR to support the ongoing five-year turnaround program.

Citadel Capital first acquired a minority stake in RVR in 2010, eventually becoming lead shareholder via Africa Railways. The firm has since led the creation and full financing of a five-year, US$287m turnaround program for what was then an ailing railway at risk of defaulting on its concession agreements with the governments of Kenya and Uganda.

The first phase of the rehabilitation of 500 kilometers of track that links Kenya with Tororo in Eastern Uganda and Gulu in the north has been completed. The railway is now more efficient and is supported by world-class technology.

2. AfricInvest Group achieves third closing of its AfricInvest Financial Sector Fund (Africa)

The AfricInvest Financial Sector fund, which garnered €60.6m in commitments, will focus on financial inclusion in Africa through investments in financial institutions that service, amongst others, micro, small and medium-sized enterprises (SMMEs). It is one of the first funds to focus on these market segments.

New commitments came from KfW,BIO, Desjardins Group, and the Adolf H. Lundin Charitable Foundation and other private investors.

The AFS was initially launched in June 2007 with a capital commitment of EUR 20m by FMO5, the Dutch development bank, and was then increased to EUR 31m in April 2010 with additional capital commitments by PROPARCO through its FISEA fund6, and by Développement international Desjardins.

The AFS fund has made 13 investments and has realized two full exits and one partial exit. Given the track-record, opportunities and the high impact of the Fund, the shareholders and the Manager of the Fund decided to increase its size and term in order to create a real pan-African Financial Sector Portfolio. The Fund now has the ability to both increase its exposure to promising and fast-growing portfolio companies and to execute a pipeline of new investments.  It makes investments in the range of EUR 1 to 5-million.

This closing comes at a time when many African Central Banks are increasing minimum capital requirements and tightening regulations across the financial sector.

3. AIIM’s IHS Holding Ltd secures $490m to fund expansion in Africa (Africa)

IHS Holding Ltd., Africa’s largest independent telecommunications infrastructure company by number of towers managed, has secured US$490m of equity and debt in its latest financing round.

Existing shareholders contributing alongside new investors are Goldman Sachs, the IFC Global Infrastructure Fund (GIF) and African Infrastructure Investment Managers. Standard Chartered Bank is providing senior debt, for expansion of IHS’ business in Zambia.

This funding round brings the total amount of capital raised by IHS to more than $1.5bn over the last 12 months.

IHS will utilise the proceeds of the round to finance acquisitions, help its customers expand coverage and capacity by building new towers and continue investing in alternative energy and green solutions.  

IHS Towers currently owns and manages over 10,500 towers and has built over 3,500 for its clients in Nigeria, Cameroon and Côte d’Ivoire. In Q4 2013, IHS signed agreements with MTN in Zambia and Rwanda to acquire over 1,200 sites in Zambia and Rwanda.

4. Emerging Capital Partners invests in bottling business, Atlas Bottling Corporation (Algeria)

Pan-African private equity firm Emerging Capital Partners (ECP), has announced a 33% stake in Atlas Bottling Corporation (ABC), the exclusive PepsiCo bottler of carbonated soft drinks (CSD) in Algeria, as part of an $80m investment plan.

Founded in 1995, ABC signed an Exclusive Bottling Agreement with PepsiCo in 1998, and has grown to become one of Algeria’s leading beverage players with a portfolio of global brands including, Pepsi Cola, Pepsi Max, Mirinda and Seven-up.

A mix of growth equity, provided by ECP, and debt, from commercial banks, will be used to increase bottling capacity, build a new production site and give the company flexibility to develop new product categories. ECP will also provide technical assistance to the management team, supporting them in professionalizing business functions such as governance and compliance.

Algeria is Africa’s third largest soft drinks market

5. Fusion Capital acquires stake in REMU Microfinance Bank (Kenya)

Private equity firm, Fusion Capital, has completed buying a 25% stake in REMU Microfinance Bank, in a move that will see it inject working capital and divest its ‘debt only’ portfolio to focus on providing pure equity and real estate financing to mid market companies in East Africa.

This is in line with Fusion’s current strategy to invest only in private equity deals between US$1million to 5 million targeting this segment.

REMU is a Microfinance Bank that offers deposits and credit services to small and medium size enterprises. Presently, there are eight regulated microfinance banks in Kenya.

The partnership will see the bank implement its new strategic plan to grow and expand its branch network and widen its product offering to include mortgage and housing products and electronic banking.

The banking sector in Kenya has seen more than a decade of rapid growth, as institutions aggressively moved to bring people who were previously excluded to using banking services. It is estimated that over 30% of the population remains unbanked, offering opportunities for further growth, according to FinScope Survey report 2012.

6. PIC invests €19m in Phoenix Capital Management’s West Africa Emerging Markets Growth Fund (Cote d’Ivoire)

South Africa’s Public Investment Corporation (PIC), the largest asset manager in Africa with assets under management of about US$150bn, entered into a strategic alliance with Cote d’Ivoire-based financial services group, Phoenix Capital Management (PCM) S.A.

PIC will, on behalf of the Government Employees Pension Fund (GEPF), invest an initial investment of US$30m in the West Africa Emerging Markets Growth Fund (WAEMGF), the Private Equity (PE) fund sponsored by PCM. PIC will take a 30% shareholding in PCM Capital Partners (PCP), the Fund Manager.

This dual investment reflects the group’s developmental strategy for sub-Saharan Africa, which revolves around investing some 5% of its assets under management on the continent.

The partnership envisages potential co-investment opportunities between the two groups and will give PIC a solid channel for any investments in the ECOWAS region.

7. PROPARCO extends US$10m Loan to Central Africa Building Society (Zimbabwe)

PROPARCO signed a 5-year loan agreement of US$10m with Central African Building Society (CABS) to support its growth in Zimbabwe.

With total assets over US$575m, a strong mortgage asset base and a range of financial service offerings, CABS ranks in the top three of Zimbabwean banks.

PROPARCO’s loan will allow CABS to finance the development of its credit portfolio and extend the maturity of its financing for Zimbabwean businesses as funding is only available on a very a short term basis.

8. Swicorp lists paper producer, Sotipapier, on the Tunis Stock Exchange (Tunisia)

Swicorp, a leading investment banking and asset management firm focused on the MENA region, listed Sotipapier on the Tunis Stock Exchange.

Sotipapier manufacturers paper for industrial use in North Africa.

Swicorp acquired a strategic stake in Sotipapier in May 2012 through Intaj Capital II (Intaj II), a private equity investment vehicle managed by Swicorp.

The listing, which covered 9.5 million shares representing 40% of the company’s shares, was oversubscribed nearly 10 times, with demand for the shares exceeding TND400m  (US$ 250m) for a total expected market capitalization of TND120m (US$76m).

Sotipapier is poised to drive further growth in the coming years, by investing in expanding its production capacity and geographic footprint, while continuously improving the quality and performance of the products it manufactures.

The deal demonstrates the compelling investment opportunities that the MENA region, specifically Tunisia and Egypt, provides to private equity investors with in-depth insights into the region.

9. Anjarwalla & Khanna enters into a strategic relationship with ATZ Law Chambers (Tanzania)

Anjarwalla & Khanna (A&K) has entered into a strategic relationship with ATZ Law Chambers (ATZ), a law firm in Tanzania. Shamiza Ratansi and Amish Shah (both formerly of Adept Chambers) set up the new firm in March, shortly after Fred Ringo of Adept Chambers was appointed Head of the Fair Competition Commission in Tanzania. Shamiza and Amish are joined by substantially all of the other Adept staff members.

The increasing number of Tanzania-Kenya cross border deals makes a tightly knit strategic alliance between A&K and ATZ valuable to each firm. The new connection will allow for seamless interaction on deals, sharing of know-how and the exchange of lawyers between the firms.

Tanzania has a rapidly evolving market with exciting developments across multiple sectors. The relationship will allow the firms to help clients to take advantage of the new economic opportunities in Tanzania.

10 top tips for potential franchisees

Need help to find the perfect business opportunity?      
  

The South African franchise industry presents a mind-boggling array of franchises, and every month more are added to this fast-growing sector. Wonderful choice, but the bling generated from aggressive marketing by each franchise can be blinding to someone looking for a solid business opportunity.

Fortunately, those prepared to work their way methodically through a number of basic steps will be able to cut through the clutter and find a franchise in which they can thrive.  

Below are some useful tips if you are looking to buy a franchise:

Know the industry

Choose a franchise in an industry that you know. Your industry knowledge is an important tool for judging the value of the business opportunity, to know if the business suits your personality, and to help you succeed. The ideal scenario is to have worked in an outlet of a franchise that you intend to buy. Failing that, work experience in a similar business is invaluable. Where even that is lacking, choose a franchise with a thorough franchisee training course, the bare minimum for any franchisee.

Choose within your budget

Work out what price range you can afford – savings together with finance that you would realistically be able to raise. There are a number of things to keep in mind here. First, too much finance can ruin your venture. Even if you can get it, be wary of overburdening your business with too big a loan. Second, calculate the entire investment required, including set-up costs and working capital. Do not limit your funding to just the franchise fee.

Check out the franchisor

The first two steps should dramatically narrow down your search and allow you to focus on a particular franchise. Now you have to investigate the franchisor. Start by having a look at the documentation the group provides, but go beyond that. Find out as much as you can about the reputation and financial help of the franchise. The business media and internet searches can reveal a lot about a company’s reputation. Membership of the Franchise Association of South Africa counts in the favour of a franchise, but it does not guarantee success.

Speak to franchisees and ex-franchisees

This is probably the most important exercise in the process. A franchisor should be able to give you a fully updated list of franchisees and ex-franchisees and their contact details. You can test all the assertions of the franchise group with the franchisees – their levels of support, the quality of their training, the profitability of the business, and the integrity of the franchisor’s business dealings.

Investigate the site

Just as important as the integrity of the franchise group is the suitability of the site that you are going to choose for your outlet, or, in the case of non-retail franchises, the area in which you are going to operate. You have to gain a truly deep understanding of the market around your site, not just merely the foot traffic past it, but what kind of foot traffic it is. Are they your target clientele? If you have access to advice from experts or the franchisor, use it, but do your own independent research to help you think deeply about it.

Get the value calculation right

You have to make sure that you are not overpaying for the franchise outlet that you have in mind, whether it is a new or existing one. Once you have done your due diligence and market research, sit down with an accountant to check your financial projections and value calculations. Industry specialists are helpful if you can afford them.

Get legal advice and knowledge

The franchisor will give you a franchise agreement to sign. This is a crucial document detailing the rights and obligations of you and the franchisor. Get a lawyer, preferably one with knowledge about the franchising sector, to go through the document with you, not only to make sure that it is fair to you, but also to explain any clause that you do not understand. While you are in a legal frame of mind, get to know your rights as a franchisee as embodied in the Consumer Protection Act.

Lease considerations

Don’t neglect to get legal and strategic advice on the lease you will sign with the landlord. Some franchisors may recommend that they hold the lease, which can help you if they use their clout to negotiate a good rental. But the disadvantage is that you lose some control over your business if the group ever decides to disband as a franchise.

Think before taking on a business partner

Do not just go into business with someone because it seems nicer than doing it alone. A business partner must add value, such as bringing a skill or capital that you do not have. Even so, you have to make sure that your values and expectations of reward are aligned.

In the end, it depends on you

The strongest franchise brand can still fail if you, the franchisee, do not make it work. Just as in any other business, your operational and cash-flow management must be sharp if you are going to make a success of it. Hands-on management is almost always required. And remember, if you are an experienced independent business owner and this is your first attempt at franchising, you’ll need to get used to operating according to the rules of the group.

Article by Jeremy Lang, regional general manager at Business Partners Limited