Emerging Capital Partners co-CEO Hurley Doddy explains how
successful investments in telecoms a decade ago were just part of the reason
his firm has grown into a $1.8bn industry leader in the African private equity
space. BY ANTONY IRELAND
Africa’s private equity landscape now boasts several
managers close to or exceeding $1bn in AUM, but of the continent’s first
generation of true heavyweights, Emerging Capital Partners (ECP) is perhaps the
elder statesman. Its team came together as part of Emerging Markets Partnership
in 2000 and spun out as ECP in 2005, and in 12 years of Africa experience the
firm has launched seven private equity funds focused on the region, with total
assets of more than $1.8bn.
ECP has made more than 50 investments and 20 exits on the
continent, its portfolio spanning 40 countries. It also boasts arguably the
most deeply entrenched investment capability in the regional industry, with 29
investment professionals based across seven African offices and outposts in
Paris and Washington.
According to co-CEO Hurley Doddy, ECP’s portfolio has
spanned a diverse range of sectors including power, water, agribusiness,
transportation and more recently the consumer sector, although telecoms and
financial services have been ECP’s biggest allocations to date. “We’ve been
lucky to have had a number of successful investments,” he says, citing Celtel,
MTN, Starcomms and Orascom among the telecoms firms that have grown rapidly
into market-leaders in the years following ECP investment.
“We were early investors in the telecom business. We made a
number of investments as the GSM business developed and matured,” Doddy
explains. “When we started, cell-phone penetration [in Africa] was 2% and the
consumer market was much smaller. The thinking at the time was that cell-phone
penetration may grow to 4-5% over the next decade. The fact it has gone to more
than 60% showed the consumer power in Africa, and that has changed the focus away
from infrastructure into more consumer-related businesses as well,” he adds.
Telecoms and financial services have typically accounted for
just under half of ECP’s portfolio, with the firm an early investor in
Nigeria-based Ecobank and Continental Reinsurance, among others. The rest of
the portfolio has been broadly diverse, although investments in consumer
products businesses – such as one recently in restaurant chain Nairobi Java
House in Kenya – are set to play an increasingly important role.
Successes in other sectors include Somdiaa, a Central
African sugar firm that now produces around 90% of the region’s sugar, and
SIPH, Africa’s largest rubber producer and one of the largest in the world,
with operations in Cote D’Ivoire, Nigeria and Ghana. “We got in and out of that
deal at very good rates,” says Doddy.
“Recent transactions that we feel good about include Notore
Chemical Industries, one of the only fertiliser plants in Sub-Saharan Africa,
based in the delta region of Nigeria. We invested in that firm to get it back
into production and it is now producing above nameplate capacity,” he adds.
With investments throughout the continent and across
multiple industries, Doddy says ECP is not currently in fundraising mode, and
the firm’s main priority is to optimise its existing portfolio. “We are fully
occupied trying to add value to our current portfolio of companies in Africa
Fund II, and successfully investing Africa Fund III – at the moment that is our
full time job,” he says.
“We have just finished putting an office in Nairobi, and we
now have offices in all the major regions of Africa. We are very happy with our
build out and the size and composition of our team, so we are in a good spot.
“As with any private equity firm, at some point we will be
fundraising again but at the moment we are very happy with the sectors we are
in and happy to focus only on Africa – the place is big enough and fast growing
enough for us. I see another couple of decades of good African growth, and a
fair number of industries in which there are good opportunities.”
New pitch
These are, of course, difficult times to raise capital,
regardless of ECP’s strategy. However. Doddy says the Africa story is gaining
traction among investors to the extent that ECP has to pitch less about the
Africa story and more about its own philosophy. “More people are looking at
Africa and we hear more positive things about it. Our presentation in 2000 was
about why you should consider Africa. Now it’s more about ‘why ECP?’ People are
buying into the Africa story and now they are asking why they should invest
with us. That’s a big change in mind-set,” says Doddy.
DFIs have been important investors for ECP, which counts
among its investors CDC, IFC, OPIC and the Development Bank of Southern Africa,
although Doddy says the firm’s investor base is broadening and the firm is
seeing more money from pensions and sovereign wealth funds globally but also
from investors within Africa itself.
“Over time there has been more investment by African
investors – about a third of our investors are African including Africa-based
DFIs, but also private investors, banks and South African and African pension
funds. Sovereign wealth funds have been investors more recently as the track
record has grown,” he explains.
Doddy adds that involvement in the private equity industry
by local African pensions is vital for the sector’s development, and one of the
frustrations of raising funds in Africa is that many pensions are severely
restricted in where they can put their money by protectionist domestic
allocation rules. However, in the West, it is only caution holding investors
back.
“We are not currently in the market but are always talking
with investors. We do see good interest in Africa in a relatively tough
fundraising environment. People see Africa as one of the few areas where there
is good growth. A lot of money has gone to China and Brazil, leaving Africa as
a place people are interested in,” says Doddy.
However, he says, Africa is still a relatively new concept
for many investors, and managers will have to be patient and dedicate resources
to ensuring the story is fully understood and interest is converted into flows.
“It takes a while for investors to get their hands around Africa – most don’t
have much experience there and as such It’s an educational process for us,” says
Doddy.
“It’s a process we are committed to for a number of years in
order to get more people into the space.”
ECP’S ORIGINS IN EMP
“We were one of the first large funds to invest in Africa,”
explains Hurley Doddy. “The team came together in 2000 with the launch of the
Africa Fund I, run by Emerging Markets Partnership (EMP) – one of the earliest
emerging markets private equity investors with $6bn assets under management in
Latam, Asia and Eastern Europe. That initial Africa fund had AIG as an anchor investor
along with the IFC and a number of other strategic and DFI supporters, and was
more than $400m – quite big for Africa at the time. We had the honour of having
Nelson Mandela on our advisory board and attending investor meetings because he
believed in what the fund was trying to do – to show that after a number of
years of structural adjustment in Africa the ground had really been set for
profitable business and doing business in the right way, and there would be
lots of opportunity and growth in Africa. Our first fund was pan-African in
focus and invested in a variety of sectors, although it didn’t invest in
financial services because AIG was in that business. The group came together
for that fund and it was successful – we made 14 investments including early
success with Celtel, which we invested in when it had fewer than 60,000
subscribers, and we saw a lot of growth in that business. When it became time
to launch our second Africa fund in 2005, we spun out of EMP [as did the
Europe-focused Mid Europa Partners]. A year later we established Emerging
Capital Partners as our management company.”
ECP IN NUMBERS
$1.8bnAfrica-focused AUM
7Offices in Africa
29Investment staff
50+African investments since 2000
7African countries in which ECP has invested more than $50m
