At the recent SuperReturn Africa event, which saw private equity and venture capital professionals gather to discuss all aspects of investing in the continent, there was one key takeaway – summarized succinctly, by author and Africa advocate Deanne De Vries in her keynote speech: “Africa is open for business.” Deanne urged the private capital community to step up their investments in this vast, vibrant and diverse continent with a wealth of human and natural resources that translate into business opportunities. A continent with a population of 1.3 billion people across 55 countries which, by 2050, 2.5 billion people will call home.
Secrets to success from post-Covid “winners”
Africa, like other emerging markets, was hit hard by Covid-19-induced lockdowns. Still, many businesses managed to turn the crisis into an opportunity, improving their services and resilience to create more value for their clients and grow further. Our Managing Partner Nimrod Gerber joined George Odo, Senior Partner at AfricInvest, Luc Rigouzzo, Managing Partner at Amethis, Paul Boynton, joint CEO at Old Mutual Alternative Investments and Danladi Verheijen, co-founder and CEO at Verod Capital Management, on a panel to discuss the recipe for success. Here are the main ingredients:
1 Operational expertise
Companies – particularly in the retail sector – were faced with a flurry of Covid-19 adversities, including reduced consumer confidence, new spending behaviours and a dispersed workforce. Panellists agreed that the resilience and success of the private equity firms investing in these businesses – namely the GPs that have structured their deals in a way to exert greater influence over their portfolio companies – have been largely down to their expert operating teams who have been able to efficiently and swiftly adapt supply, cash management and operations, and upgrade digital capabilities.
Nimrod said: “Operational value is the single most important factor that has enabled us to deliver on our promises over the last decade.”
On the topic of investing for resilience, Nimrod went on to highlight the enduring value of essential services – such as in critical sectors of food, water, healthcare and sustainable infrastructure – that we look to convert into high-return opportunities here at Vital. Companies in these sectors, with the right team and operational expertise behind them, are well-cushioned to weather economic shocks.
2 ESG and Impact = Resilience and Returns
In a similar vein, the panel agreed that those that take a long-term look ahead to future-proof their portfolios with a focus on sustainability and ESG are at an advantage during turbulent times.
When it comes to investing for impact, you go one step further – generating risk-adjusted returns is part and parcel of the process. “If we want to scale up impact, we have to accelerate financial returns,” Nimrod noted. Impact investing should generate significant enhancing synergies that create a strong positive correlation between an investment’s impact and its financial performance.
It is this correlation, strengthened by improved tools for impact management, enhancement and measurement – with the goal of achieving an industry consensus for assessing and quantifying positive impact potential – that will engage more investors and propel this asset class further into the mainstream.
3 Digital and technology drive
The pandemic’s acceleration of the digitalization trend was a recurring theme during the event. Africa continues to attract unprecedented levels of investment in digital infrastructure and technology, fuelled by increased demand for connectivity and data in the post-Covid environment. Just last month, Google announced plans to plans to invest $1bn in Africa’s tech infrastructure and talent over the next five years.
Private equity managers have had to step up their tech game to stay competitive, leveraging tech and digital strategies and helping to instill an innovation-led mindset across their portfolio.