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BusinessDay 11 Apr 2018

PRIVATEEQUITY &

PRIVATEEQUITY & FUNDRAISING Wednesday 11 April 2018 C002D5556 Alta Semper eyes two more investments after N6bn Health Plus deal BUSINESS DAY INSIGHT Mistakes most PE firms make while working with single family offices and super rich MICHEAL ANI A7 Source: Alta Semper Capital LOLADE AKINMURELE AND ENDURANCE OKAFOR Alter Semper’s $18 million (N6 billion) investment in retail pharmacy chain, Health Plus, is the first of three to come this year, according to the Londonbased private equity firm. In an exclusive telephone interview with BusinessDay, Zachary Fond, a director at the Africa-focused private equity firm, said there will be two more investments in Nigeria’s healthcare and retail sectors before the curtains draw on 2018. “We plan to close two more deals in the consumer healthcare and retail sectors this year,” Fond said, declining to provide further details, given the sensitivity of such transactions. Alta Semper’s $18 million (N6 billion) investment in Health Plus in March is the second deal in the Nigerian health care space this year and it takes the total deal value to N15 billion, according to data compiled by BusinessDay. PE WORD OF THE WEEK jority-stake in a leading oncology, radiology and diagnostics company in Morocco. While no company was named, Alta Semper said the deal will be concluded in May 2018. Alta Semper Capital LLP is a private equity firm specializing in growth capital and prefers to invest in food, beverage, other FMGC, supermarkets and retail, retail and consumer banks, micro finance, insurance, healthcare facilities & services, generics manufacturing, pharmacies, beef, poultry farming/processing, fertilisers, e-payments, mobile payments, diagnostics/imaging, M-health, telemedicine. It considers investments with a specific focus on Africa. Ghana, Senegal, Ivory Coast, Tunisia, Kenya, Ethiopia, Uganda, Tanzania, Mozambique, Egypt and Nigeria, all make the cut of countries Alta Semper plans to invest in, according to information on its website. Nigeria is home to one of the least penetrated formal retail markets in the world, despite its large and growing In January, there was a $25 million (N9 billion) acquisition of medical diagnostics company, Echo Scan, by Londonlisted Integrated Diagnostics Holdings (IDH) which created a joint venture with Man Capital, the investment arm of the billionaire Mansour family. Growing demand, driven by favourable demographics, increased consumer awareness and evolving consumption patterns are big attractions to Nigeria’s healthcare and retail sectors, according to Fond. “Much of the healthcare infrastructure is confined to major cities, with people living in urban areas having approximately four times as much access to healthcare as those living in rural areas,” Fond said. Alta Semper’s investment in Health Plus was its first in Nigeria and second in Africa, following a US$45 million investment, in 2016, in Egyptbased consumer healthcare company, Macro Pharmaceuticals. The consumer and healthcare focused private equity firm is however said to be in the middle of acquiring mapopulation. The retail pharmacy sector is highly fragmented, with many independent drug stores and several patent medicine outlets. Structural challenges with the industry supply chain, has helped counterfeit pharmaceuticals find their way into over forty percent of the retail market, while most wholesale and retail sales across the country are still made through informal markets. Nigeria deal making has turned the corner this year, as investors get over the foreign exchange illiquidity that dogged deal flows in the last two years. In the first three months of 2018, deals have blasted past the $500 million mark, according to data compiled by BusinessDay. That’s 5.2 percent more than total deals in 2017 and 30 percent more than the $384 million worth of deals recorded in the whole of 2016. The economy expanded 0.83 percent in 2017 after contracting the year before on the back of higher global oil prices and local production. Mandatory Redemption A right of an investor to require the company to repurchase some or all of an investor’s shares at a stated price at a given time in the future According to Usha Bhate, an executive director at Institutional Investor and a leading international authority on single-family offices, “Single-family offices and the extremely wealthy have a number of reasons for being unhappy with private equity firms even when investment results are solid. “A big issue is that many private equity firms are transactional while single-family offices and the superrich are often relationship oriented. When private equity firms build meaningful relationships with them, they are able to raise capital even when investment returns are off for a while,” he added A large percentage of singlefamily offices and a significant number of the super-rich (net worth = $500 million or more) are heavily investing in private equity. While their interest in private equity funds is strong, many private equity firms are doing a poor job of managing these relationships. Consequently, a percentage of singlefamily offices and the super-rich are disinclined to entrust more monies to private equity firms even when investment performance is good. A related mistake is where private equity firms are all about closing sales. “Even when it comes to investments, single-family offices and most of the super-rich are looking for solutions to their concerns,” says Angelo Robles, founder and CEO of the Family Office Association and author of Effective Family Office. “Hard sales pitches, which are not uncommon from private equity firms and other types of money managers, tend not to resonate with these investors.” “For private equity firms to get significant assets now and in the future from single-family offices and the super-rich requires they really understand them,” says Bhate. “They should make a concerted effort to understand their investment priorities and concerns.” A really comprehensive understanding can take some time to develop. Nevertheless, it is likely to be a very rewarding way to go. Along these lines, according to Peter Sasaki, managing member of CGS Associates, “To raise capital on-going from the ultra-wealthy, knowing their experience with private equity funds and direct investments, their time horizons, the returns they’re anticipating, and their views of lock up periods can all be key in framing the discussion.” Single-family offices and the super-rich have been and will likely continue to be a source of substantial capital for many private equity firms. By avoiding these three interrelated mistakes, private equity firms will probably be better able to raise capital from these exceptionally wealthy investors. BusinessDay PRIVATE EQUITY & FUNDRAISING (Team lead: LOLADE AKINMURELE - Analysts: MICHEAL ANI, DIPO OLADEHINDE, ENDURANCE OKAFOR, DAVID IBEMERE ... Graphics: DAVID OGAR ) Businessday’s Private Equity and Fundraising section is a weekly publication that provides in-depth analysis on private equity trends and tracks deal activity in Nigeria. Email the PE & F team loladeakinmurele@gmail.com Continues on page 34

A8 BUSINESS DAY C002D5556 Wednesday 11 April 2018 PRIVATEEQUITY &FUNDRAISING People & Perspectives Fragmented healthcare sector provides investment opportunities With thousands of small clinics, hospitals, and diagnostic centres spread across 36 states, Nigeria’s healthcare market is extremely fragmented and poorly provided for. In this interview with BusinessDay’s LOLADE AKINMURELE and ENDURANCE OKAFOR, a director at Alta Semper, ZACHARY FOND said opportunities are there for investors with a long-term view on the healthcare sector. Excerpts: Health Plus investment Alta Semper is investing US$18 million into Health Plus. The investment from will enable Health Plus to continue to expand its store footprint, allow the Company to continue to invest in market-leading human talent, develop regional distribution centres in commercial hubs across Nigeria as well as selectively explore private label and e-commerce initiatives. Why Nigeria? The healthcare and retail markets in Nigeria are characterised by growing demand, driven by favourable demographics, increased consumer awareness and evolving consumption patterns. Furthermore, Nigeria is home to one of the least penetrated formal retail markets in the world, despite its large and growing population. The retail pharmacy sector is highly fragmented, with many independent drug stores and several patent medicine outlets. Furthermore, given structural challenges with the industry supply chain, counterfeit pharmaceuticals find their way into LEX Africa members from around the continent gathered at a seminar in Johannesburg to discuss Africa’s investment climate and private equity market, governance in Zimbabwe, and the future of Nigeria’s flourishing economy. Quality goods, policy reformation that addresses the challenges of doing business in Africa and a welcoming environment for foreign direct investors are just three areas that speak volumes about the continent’s growing investment potential. The positive perspective on the continent was shared at a seminar hosted by Werksmans Attorney’s and LEX Africa titled, An Outlook on Africa 2018. LEX Africa’s members from Nigeria, Zambia, Zimbabwe and Mozambique presented forecasts for each of their countries, delving into the economic climate, investment opportunities, reforms and challenges. Sternford Moyo, Senior Partner of Zimbabwean LEX Africa member Scanlen & Holderness said in Zimbabwe, new leadership had managed to present an attractive, stable political situation to the global market. The change in presidents also brought with it fresh hope for widespread policy reform that promoted ease of access for foreign direct investors hoping to do business in the country. Mr. Moyo said Zimbabwe had enormous opportunities in the areas of agriculture, energy, infrastructure rehabilitation and mining. Reformations were being applied to policies that previously limited foreign ownership in specific sectors of mining, to allow for a greater stake. He said Zimbabwe had untapped mineral wealth that could be accessed proper equipment and over forty percent of the retail market, while most wholesale and retail sales across the country are still made through informal markets. Moreover, much of the healthcare infrastructure is confined to major cities, with people living in urban areas having approximately four times as much access to healthcare as those living in rural areas. The investment into HealthPlus will enable the Company to capture the pent-up demand for high- An Outlook on Africa 2018 improved technology. They key was to look for the potential within the challenges, to uncover the opportunity. In particular, Mr. Moyo pointed to flooded mines and regions within Zimbabwe that could be explored for lithium, platinum, diamonds and gold. He said private equity investors with rehabilitation resources could enter these areas and find great returns in the medium to long-term. Mozambican LEX Africa member Dr. Pedro Couto echoed Mr. Moyo’s sentiments. He said investor confidence in the sea-facing country was growing steadily. He urged investors however, to consider the long-term yield instead of doing quick business. Dr. Couto said amendments to laws pertaining to Foreign Direct Investment was proof that Mozambique was making itself as attractive as possible to the global market. Faster transactional processing was also being implemented for the international investment community. “We are going to have a Local Content law… It’s a pure concept of a law that requires three investors to partner with those in the local sector. There is no mandatory 51 percent partnership… it is basically a requirement that in certain cases [and] in certain industries, you will need a Mozambique partner and a commitment to develop local business (as part of the investment deal).” In March, Brazilian mining company Vale announced that it, together with Japanese partner Mitsui & Co, inked USD 2.7 billion funding deal to finance the Nacala Logistics Corridor (NLC) The rail system, when complete, will connect the Mozambique-based Moatize coal mine, to the Nacala port and will thereafter link up to Zambia through landlocked Malawi. quality yet affordable healthcare and professional beauty supplies by developing regional distribution centres in commercial hubs across Nigeria, rapidly expanding the Company’s footprint across Nigeria as well as developing a wholesale channel and investing in private label and e-commerce. The allure of consumer goods and health sector Dr. Couto said the rail system would certainly extend the reach of exported and imported goods further into Africa, giving ease of access into Asian markets as well. Sharon Sakuwaha, LEX Africa’s Zambia partner said while the Zambian leg of the rail system — the Chipata-Petauke-Serenje railway — had experienced some delays in construction, on the policy side, government had mandated a heavy cargo and bulk goods policy that would see at least 30 percent of goods transported via rail. This would encourage investment in the rail transport sector as there was guaranteed traffic siphoned into the system. Osayaba Giwa-Osagie, Senior Partner of Nigerian LEX Africa, said while Africa’s largest economy experienced a recession in the first quarter of 2016, for the first time in 25 years, it had emerged in the second quarter, albeit sluggishly. Mr. Giwa-Osagie said the situation arose from lower revenues of oil — Nigeria’s dominant export — but government had tackled the situation by trying to diversify the economy. “Our oil production dropped to as low as 1.1 million barrel per day, but within 24 months it increased to 2.2 million barrels per day. With the efforts of the government to diversify the economy, we’ve seen an emphasis on agriculture (for example), the economy is back now. The government has also worked very hard to reform the way business is done in Nigeria. At the moment structures are being put in place to diversify the economy [and] policies are being introduced to make it easier for foreign investors to come to Nigeria.” He said in the past four or five years, private equity companies have come into the country to buy Alta Semper specifically invests into market-leading businesses in defensive sub-sectors. Consumer and healthcare verticals fit well within this remit. The entire Alta Semper team has spent the majority of their careers covering these sectors. Alta Semper’s fund strategy is to create and preserve value by implementing material operational improvements across our portfolio within our selected growth markets. The opportunity to do so exists as a result of the dearth of experienced sector-focused investors in markets where businesses require operational knowledge as well flexible and patient capital. We seek to invest in companies that have the following characteristics: Country footprints into local companies. According to the South African Private Equity and Venture Capital Association, Nigeria outperformed South Africa and Kenya in recording the continent’s highest value private equity deals between 2012 and 2017. Nigeria recorded a total of 112.14 deals worth USD 7.8 billion, while South Africa recorded 207.32 deals worth USD 2.8 billion and Kenya, 100.8 deals worth USD 1.17 billion. Ayo Akinwumi, Head of Research FSDH was quoted by Business Day as saying: “Nigeria attracted the highest private equity deals in the continent as a result of the business opportunities that investors see in country.” Mr. Giwa-Osagie said the country was seeing private equity investment from all over the world, including New York to Senegal. “With the political stability, I believe Nigeria is the right place to come to at the moment (to invest). The population is there, you have educated people and you also have infrastructure deficit which makes it easy for people who have the capital and knowledge to come into Nigeria to fill in (the gaps).” In December last year, Deloitte released a survey that indicated a generally optimistic view of private equity activity in Africa. The survey revealed that investors anticipated a more positive outlook for Sub-Saharan Africa over the 2017-2018 period and despite the oil price slump from 2014 and the continued slowdown in real GDP growth between 2015 and 2016 across the African continent, sentiment and confidence had shown a strong rebound. The survey titled, “2017 Deloitte Africa Private Equity Confidence Survey: Translating potential into investment growth” revealed that most respondents across all three Alta Semper has invested in Egypt. We acquired a majority stake in Macro Holding for c. US$45million. Alta Semper is a frontier market focused private equity manager with a current focus on Africa. Africa is made up of 54 different countries, and is extremely diverse. We will invest in twelve large, diversified, politically stable and fastgrowing African economies and regions. We will invest only in these countries, where we feel there is appropriate risk-adjusted returns for investments in the Healthcare & Consumer industries. The entire team has deep connections to Africa including strong ties both personally and professionally. Given many of our deals are proprietary, out networks in Africa lend a significant competitive advantage to our firm in terms of sourcing, execution and portfolio management. Plans for the future We are looking at a number of opportunities across our target geographies Africa. Each of our target geographies is at a unique stage of development / economic diversification, growth, infrastructure and technology access. Opportunities differ across each country; some regions present better consumer opportunities, while others present compelling opportunities in healthcare. In each case, we take a balanced and systematic approach to assessing and mitigating risk vs. returns. regions were investment ready and expected to invest more over the next 12 months. Deloitte also predicted that competition for new investments would increase, particularly in East and West Africa; and consumer-focused sectors, which include food and beverages, agriculture, healthcare and financial services, would rank among top focus sectors for investors. Addressing the seminar, Tanya van Lill CEO of SAVCA said in South Africa, 2017 was a very tough year for private equity. “Funds, especially funds II and III, found it difficult to fundraise. They also found it difficult to agree on prices on targets and assets, especially with the political uncertainty in South Africa (pre- ANC national elective conference).” Ms. Van Lill said 2016 was a stellar year for exits, where over USD 1.5 billion in returns paid out, which was a high for the industry in the past 20 years. She said a downturn had been experienced in 2017, but the mood was changing. Ms. Van Lill said currently investors are reporting a positive shift in energy with the new leadership in the country and the optimism had spread across the region. “When I go to international conferences, I don’t have to convince them (investors) about private equity; I have to convince them about investing in the region. [One] gets the sense that investors are ready to come to meeting with their chequebook and not just their notebook.” “According to the South African Private Equity and Venture Capital Association (SAVCA), a total of USD 6.5 billion has been raised for African private equity from 2011 to 2016, with a total reported deal value over the same period of USD 22.7 billion for 919 deals. In 2016 alone, 145 deals were reported, totaling USD 3.8 billion.”

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