PRIVATE EQUITY AFRICA: GROWING AFRICA’S VENTURES THROUGH SUSTAINABLE INVESTING

EXCLUSIVE INTERVIEW with Anne Keppler, Vice President, Corporates & Funds Africa Equity & Mezzanine, DEG Regional Office Southern Africa. Anne Keppler’s team is responsible for structuring and managing DEG’s direct equity and fund investment portfolio as well as structuring mezzanine solutions for its private sector clients on the continent. She talks to Capital Markets in Africa about some DEG’s investment and activities on the continent.

To start off, could you introduce the DEG to our readers, what is the mission of the DEG and what are its core mandates?

ANNE: DEG is the German Development Finance Institution. We are a dedicated emerging market investor with the mandate to promote private sector development and hence funding entrepreneurs and businesses since 1962. For DEG, a well working private sector is vital for sustainable growth and a strong contributor to improving living conditions of the local population. To this end, we provide long-term debt funding but also offer equity and mezzanine solutions to private enterprises investing in these countries. We try and add more value than a usual commercial bank would offer by extending advice and business support services to grow ventures sustainably.

Please, can you share the size and investment philosophy of DEG with us? Also, could you tell us the newest investment mandate made by DEG in terms of size and the reason behind it in Africa?

ANNE: DEG invests sustainable and we expect our partners to act and operate along the same lines. The actual mandate is obviously broader and also slightly more complicated. We invest to promote private sector development. This comprises entrepreneurs and businesses in the agricultural sector, infrastructure developments, and financial institutions as well as businesses in the manufacturing or services industry. We have a specific interest in energy, logistics, and trade, the textile industry, healthcare and agriculture. Also, we invest a limited portion of our new commitments every year with private equity funds. This, as well as the partnership with financial institutions, allows us to serve clients, we could not otherwise service out of Cologne, due to their size, their funding needs or simply the geographic proximity.

To date, we have worked together with more than 1,900 companies globally, which include 478 in Africa. DEG’s portfolio of about EUR 8bn is spread over 738 investments in 81 countries, about USD 2bn in 23 African countries. In essence, this means that we are looking for minority equity stakes between USD 10m and USD 50m per investment and senior debt tickets between USD 10m and USD 75m. We prefer fund expansion to support experienced partners in growing their ventures. This applies to our debt as well as our equity strategy. DEG operates 4 offices in Africa; Accra, Lagos, Nairobi and Johannesburg. Especially for equity investments, we like to be in proximity to our (co-) investment partners.

I guess one of our main strategy drivers is that we like to find the right partner in our investments. DEG will always be a minority shareholder and we invest our own money, so risk and a balanced assessment of threats and opportunities for each investment are part of our DNA. We would like to partner with someone whose interests are aligned with ours: to grow a profitable business in a truly sustainable fashion for more jobs, more taxes. And we have contributed to these. An analysis of DEG’s portfolio has revealed that businesses co-financed by DEG employ around a million employees, and they make a substantial contribution to state revenue through tax payments totalling around EUR 1.5bn per year.

Investing in Africa has been a significant part of your professional life, what significant Investments have you witnessed and what have been the greatest significant impacts these have had on the people of the region?

ANNE: Sometimes it is not only about “big” numbers. Certainly, having seen I&M Bank to develop from a mid-sized Kenyan bank into a regional financial institution has been a success for DEG. When DEG invested in 2005, I&M had almost 1,500 clients and at the end of last year, more than 100,000 clients and was well established as a regional player.

DEG has also supported the Bokpoort Concentrated Solar Plant in South Africa. DEG supported the original development team which joined Metier since 2011 and attending the commissioning of the 50MW plant in March this year was a great milestone. The plant provides electricity to 200,000 households in South Africa.

But sometimes the individual experiences have even more impact. Having discussions with a fund manager and helping to add value, or talking to a plant manager who has just undergone a resource and energy efficiency assessment sponsored by DEG and is very motivated to keep improving his plant performance going forward, are just some of the examples of the motivational moments which keep me going.

Institutional investors often have concerns around liquidity, transparency and lack of benchmarks when it comes to private equity. How do you manage this and what advice can you give in this respect?

ANNE: I truly believe this depends on the investor’s preferences and strategies, therefore requirements differ. From DEG’s perspective, we are a long-term investor by mandate and hence the liquidity constraints and long-term nature of private equity don’t “scare” us.

Various reports and analyses prepared by AVCA and SAVCA frequently show that PE can outperform public equities. If you enter the PE space, the only advice I would give is the selection criteria of the manager. Take your time and think carefully whom to entrust your money with for 10 years or more. The strategy and chemistry should be aligned to make this a successful experience.

It has been said that SMEs are key to Africa’s growth as we have witnessed from the many SME stories coming out of the region. Can you give us some examples of where the DEG has invested in SMEs and what is the DEG investment strategy in this regard?

ANNE: Somehow I would tend to say that most economies are backed by SME’s. Obviously there are various examples but to pick on two examples which you can read up on DEG’s website as well (www.deginvest.de) are:

The Berlin-based solar company Mobisol GmbH supplies off-grid solar home systems to households in rural areas in East Africa. DEG provided the company with a convertible loan for expansion and also invested equity in the company. Mobisol has already equipped over 21,000 households in Tanzania and Rwanda with off-grid solar power systems, with an outlook that 150,000 people in East Africa will use Mobisol systems. Moreover, 10,000 micro entrepreneurs are expected to generate an income amounting to 10m US-dollars annually.

Another example for a successful SME investment, is the Kenyan enterprise Kevian Kenya Ltd. (Kevian). DEG provided a long-term loan of USD 7.5m for expansion which enabled the business to realise strong market growth, high product quality and improvement of its distribution strategies. DEG was the first international development finance institution to support Kevian and the company continues its growth by increasing its production capacity, improving its packaging systems and introducing new products.

In investing in Africa, what are the key conditions that a Fund Manager/Private Equity would need to have in order to attract DEG’s investment?

ANNE: As I mentioned earlier, our fund investment mandate is seen as an extended arm of DEG‘s own, direct investments. We frequently partner with PE funds to co-invest and hence an alignment between the fund’s investment strategy and ours is key. DEG, as a member of the EDFI network and a subsidiary of KfW Banking group, adheres to standards of responsible and sustainable investment. We expect every fund manager we invest with to implement reliable environmental and social risk assessments as well as adequate management processes in reducing identified risks. The same applies for integrity and good corporate governance, where we expect our partners to speak the same language and to have the same ambition to improve standards to build a sustainable business which will yield profits for all its stakeholders.

Finally, what is your investment outlook for Africa in 2016 and are there any hidden gems to look out for?

ANNE: Sometimes gems are out in the open, think about the Namib dessert. So keep your eyes open. Goods and services you request as a consumer might actually be the investment gems you are looking for.

Thank you very much for granting the interview.

Anne Keppler’s Profile
Anne Keppler joined DEG’s financial institution’s team in 2005 after 5 years at WestLB in Germany. Anne has been responsible for assessing and structuring debt as well as equity transactions for banks and non-bank-financial institutions globally. In 2010, she joined the corporates and funds team for Africa and is based in Johannesburg since 2011. The team is responsible for structuring and managing DEG’s direct equity and fund investment portfolio as well as structuring mezzanine solutions for its private sector clients on the continent.

This interview was featured in the INTO AFRICA July edition, with focuses on Private Equity in Africa and is titled Private Equity: Africa’s Trump Card.