Harnessing Maghreb’s Growth Potentials: A Private Equity Perspective

LAGOS, Nigeria, Capital Markets in Africa: Very often investors wonder whether investing in the Maghreb is beneficial and delivers high returns. There are several reasons why this region is more attractive than other emerging markets in the world. In the Maghreb countries, future growth expectations tend to be high, competition levels are rather low and markets relatively stable. Also, there is usually a strong pipeline of good companies in fundamentally good sectors.

Another important element to keep in mind is that the Maghreb region is currently experiencing an exponential demographics growth with 50% of the population below 25 years-old, and a phenomenal rise of the middle class.

All these factors will continue to trigger the GDP growth in the Maghreb countries for many decades to come.

Private Equity investment is crucial for the Region’s development and the world’s stability and its impact can be felt across society. Investments through Private Equity contribute to helping the development of these countries and companies, creating new jobs, driving the economies and encouraging further investments in related sectors. Also, thanks to the additional financial and business support that Private Equity firms bring, local companies are able to expand their reach quickly and enter new markets and customer segments. Furthermore, it’s proven that in cases where Private Equity firms are involved in the management of the company, there is lower entrepreneurial failure with the consequent benefits for the local community.

In addition to this, PE firms implement socially responsible policies such as encouraging female employment, offering employees secondary benefits and supporting environmental policies to achieve energy efficiencies or preserve natural resources.

All in all, PE investments are both necessary and very beneficial for the progress of the Maghreb countries and their communities. In that sense, we have seen an enormous evolution in several companies since the start of our operations in 2008, especially in terms of ESG impact and Value Creation.

ESG Impact:
First of all, the labour market has been positively impacted by Private Equity as PE firms help local companies achieve and exceed their growth plans subsequently increasing employment. For example, through the Mediterrania Capital I and II funds, we have created more than 1000 new jobs since 2008 with 50% of them being held by female employees. Besides that, all our portfolio companies conduct an official equal opportunity employment policy and provide secondary benefits such as health insurance, vacation pay, pension plans, etc to their staff.

Secondly, many PE firms implement policies related to preserving the environment. In our case, all our portfolio companies pursue at least one environmental objective, 2/3rds are actively pursuing pollution prevention and waste management, half of them implement policies to achieve energy and fuel efficiencies, while others focus on water resource management, natural resources conservation or sustainable land use. This was not the case prior to PE entering those companies, today this is a reality.

In terms of Governance, PE firms must establish a Governance structure in their investee companies that focuses on developing a strong, transparent and fluid relationship with the local partners through formal and informal interactions.

Overall, social, environmental and governance policies as we may know them in Europe are not yet obvious in the African region, and PE is playing a major role to make them happen.

Value Creation:
Essential for the PE industry is to create value in the local companies where we are investing. Since the start of our operations, through Mediterrania Capital Partners, we have implemented a unique Value Creation model that allows our portfolio companies to deliver on average over 20% y-o-y growth on revenues and 30% y-o-y growth on EBITDA.

How does it work?
First of all, a Social Operating System is well defined. This Social Operating System, also called Governance, includes monthly board meetings, management meetings, audit committees and strategic sessions. Also we combined these scheduled meetings with informal touch-points with employees at different organisational levels. This approach for formal and informal meetings helps us understand the business in depth and what to do to improve the performance of the company.

Then, having the right person in the right job is key for the success of any company, so we spend significant time with the entrepreneur reviewing employee profiles, performances and potential, and make changes where necessary to ensure people are in the job that best fits their skill set, experience, knowledge and ambitions.

Also, we implement the 3 Wide Enterprise processes that are essential for a strong and efficient operation: the strategic process, the HR process and the budgeting process. The strategic process considers where we are today and where we want to be in the short, medium and long term. The HR process aligns the resources with the work to be done in order to achieve the strategic plan goals. And the budgeting process deals with how we can achieve a step further in our strategic growth plan next year.

We also monitor very closely the company’s Key Performance Indicators. Each company has its own, but all companies have 5 in common:

• Cash
• Growth
• Customers
• Velocity (or inventory turns)
• Profits

And finally, a diligent and comprehensive follow-up is critical so we perform regular checks to monitor strategy implementation, to verify that the right people are at the appropriate positions, to ensure that budgets are under control, and that Key Performance Indicators are met on a consistent basis.

Thanks to this value creation model, Mediterrania Capital‘s portfolio companies are growing far beyond the markets where they are playing, and are setting the right foundation that will allow them to keep performing in the future years.

Case Study – Cash Plus (www.cashplus.ma)
The largest independent money transfer company in Morocco specialised in national and international money transfers, prepaid credit cards and bill payments. It operates through 1000+ point-of-sales across the country.

Improvement:
In 2015 Cash Plus sales increased by 80% vs. the previous year; EBITDA grew by 33%; and Net Income grew by 196%.

Cash processed transactions increased by 20%, from 1.4 million transactions in 2014 to 1.7 million transactions in 2015. Regarding international transfers, in 2015 the company delivered a 20% increase in total value of the transactions, clearly over performing the market (5% est.). During 2015 Cash Plus opened new shops reaching a total of 1,000 point-of-sales by the end of December.

Development impact:
Cash Plus helps enhance financial inclusion in Morocco by allowing its 1 million unique clients, mostly unbanked, to have access to financial products: money transfer and payment services. In a country where 12 million of people do not have a bank account, the company plays a key role in providing low-income banking solutions and improving financial inclusion.

Social impact:
200 new jobs have been created under Mediterrania Capital’s tenancy. Employee working conditions and rewards have been improved.Innovation: Cash Plus is continuously working in developing new products and services for its clients. Thus, the company has added bills payments and telecom recharge to its products offer, and its teams are working in pilot mode on mobile accounts management.

Summary:
Cash Plus’s financial inclusion products allow hundreds of thousands of people to have access to new payment capacities, to widen their consumption capabilities and to participate more actively in the economic development of the country. At the same time this allows Cash Plus to deliver fast growing sales and profitability, ensuring that new jobs continue to be created and the working conditions of its employees keep improving.

Side Note:
According to the Emerging Markets Private Equity Association (EMPEA), 12 private equity (PE) funds raised a total of US $994 million in the MENA region over the first three quarters of 2015, compared to US $1.1 billion raised by private funds for the full year 2014, underlining the better shape of the sector in 2015. Total capital invested increased over the first three quarters of 2015 with US $774 million invested by PE funds for 35 deals closed while US $752 million were invested for the full year 2014 for 67 deals closed. Funds managers have been increasingly harnessing the progress and prospects for regional expansion within North Africa toward Sub-Saharan Africa and Europe.

Contributor’s Profile
Mr Albert Alsina , is Founder, CEO and Managing Partner of Mediterrania Capital Partners. With over 25 years of international experience, Albert Alsina started his career at General Cable where he spent 10 years in General Management and Executive positions based in Germany, England, Scotland, Zimbabwe, Brazil and USA. Afterwards, Albert was appointed General Manager & Vice-President at Textron Power Transmissions in Boston, MA. Later, he joined VWR, a pharmaceutical company, as GM & VP managing the Northern Europe business. In2007, Albert entered the Private Equity industry through Permira, and continued as head of Fons Mediterrania Capital with RyG. In 2013, he founded his own management company, Mediterrania Capital Partners.
Albert is a Graduate of Harvard Business School (AMP). He has a Postgraduate in Business Management from the University of Barcelona (Spain). Albert also attended The Wharton and the John Moore University in Liverpool (England). Postgraduate in Business Management and Finance from the University of Poitiers (France) and the University of Fulda (Germany). Also attended The Wharton School (AMP), IESE (Spain) and London Business School (Corporate Finance).

This article was featured in the INTO AFRICA July edition, which focused on Private Equity in Africa and is titled Private Equity: Africa’s Trump Card.