Wednesday, August 22, 2012

Private equity pioneer Emerging Capital Partners co-CEO Hurley Doddy


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

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