When we met, Skander Oueslati had just returned from Cairo. When I ask him for his impressions of the country, his eyes light up and he tells me that all the signs, from a business perspective, are definitely encouraging and that projects and investments are taking place at pace.
A graduate of MIT in the US as well as ivy schools in Paris, Oueslati has been at AfricInvest for more than a decade now. The company is over 25 years old and was one of the first pan-African private equity groups.
In the beginning, the firm, then called TunInvest, focused exclusively on Tunisia but, with the encouragement of its initial backers, the Dutch development bank, FMO, extended its remit to cover the rest of Africa.
After over 160 investments and 90 successful exits, the firm is expected to close a $400m fourth-generation fund by June. Investor interest, both prior and during Covid, has been strong, Oueslati assures me.
As he explains, having a wider geographical remit made great business sense, as the firm can allocate capital where they see the best options: “The beauty of being pan-African fund managers is that we’re not country or region specific, so we can focus on the areas where we see good macro prospects and solid opportunities; and cool off on certain regions if we see trouble coming.
“We’re currently re-engaging in Nigeria, a country where we haven’t made any investments since 2015, as we can see signs of improvement on the ground.”
Historically headquartered in Tunis, the firm now has eight offices in Africa as well as offices in France and Dubai and a representative office in the US.
It is thanks to having boots on the ground, Oueslati says, that they were able to continue to be active in originating and structuring deals last year, when restrictions limited travel.
In terms of portfolio management, he recounts how they went through three phases from the onset of the pandemic. The first was reactionary, ensuring staff safety and that all the companies they had invested in had the necessary protocols in place and could adjust to the new working environment.
The second phase involved safeguarding the business and the third, working within the new environment, with a medium to long term approach.
“We had weekly calls to co-ordinate all our actions within the team, and also with our investees and investors. In addition to the safety measures, we issued recommendations to our investees to preserve cash – that is, to defer all non-essential capex [capital expenditure] and reduce where possible your opex.”
They managed to weather the crisis well, he adds, and some companies in their portfolio delivered growth. Given their longstanding relationships with their investors, many of them development finance institutions, the company was also able to mobilise financial facilities to support some of their portfolio companies on exceptional expenses they had to incur as a result of the crisis.
Having a clear exit policy
On the whole, Oueslati is upbeat. Despite the difficulties the whole world experienced, AfricInvest was able to negotiate good transactions last year and complete exits that were initiated pre-Covid, he says.
Covid will inevitably delay future exits, he explains, especially as stock market valuations are low at the moment, but having managed over 90 exits since launch, he’s confident that the avenues for exits still exist, even if the timing will be impacted.
Exits are amongst the first issues they discuss internally when considering a new investment, he says: “When we invest in a company, we need to be clear what our value addition plan will be and how we are going to exit from the investment.”
They negotiate an active clause in their shareholder agreement that lays down the process that will achieve an exit. This could then take place through a listing or a mandated sale of either a minority or a majority stake.
The buyers tend to be other funds or strategic buyers, other larger regional or international players – for example, they sold two different insurance businesses to Old Mutual from South Africa and French insurer Axa, respectively.
The firm provides both debt – albeit at a small scale – and traditional private equity. They invest in what he refers to as growth capital: that is, companies that have got strong growth potential.
When I put it to him that the pandemic will have depressed asset values and will create opportunities in terms of distressed companies, he quickly tells me that this won’t change their approach, as they are not turnaround specialists.
“We focus on solid companies that have strong fundamentals and are looking for capital to grow regionally or in their countries. The key focus for us is resilience and the ability of the company to sustain itself through the crisis, and grow despite the environment.”
He also emphasises the importance of the target company’s fundamentals. “In most cases, we work with entrepreneurs and family owned-businesses. We make sure that owners and partners of that business have a high level of integrity and are respected in the business community, with a strong management team. We don’t compromise on integrity.”
Focus on governance
One area where Oueslati says they’re strong and in which they have invested a lot of time and effort is governance, both their own governance structure and also, that of investee companies.
Helping family businesses strengthen their governance has always been part of their value-add, but he says that governance has become an increasingly important criteria of their investors, the Limited Partners (LPs).
There has been a greater emphasis on governance across the PE industry in general and investors globally are now looking more closely at the whole Environment, Social and Governance (ESG) aspects when investing.
Oueslati adds that unlike some of the bigger global PE firms, they won’t use leverage at a GP level, and are very cautious to put leverage at the level of their investee companies.
AfricInvest has a strong track record in financial services, as well as pharmaceuticals, healthcare and education.
Oueslati says these sectors are still of interest and they’re also looking at sectors that are consumer-led. The firm is currently working on a transaction for a company providing agriculture services in West Africa, with a strategy to grow its businesses in East Africa.
Does he worry about currency risk? It’s an important consideration, he admits, but once again, diversification in terms of exposure from a country and sector perspective helps. Companies that have managed to grow successfully, have in general included a regional strategy. Also, he explains, they look at generating top-line growth of 20-30% per annum, which means they can weather a 5-10% depreciation.
Is he confident there are enough opportunities to deploy the $400m they expect to close on this fourth-generation fund? He says they have a very strong pipeline, and, as he likes to stress, have diversified in terms of countries and sectors, so the number of potential deals is large. The challenge, he adds, is making sure you are selective.
This is particularly pertinent when it comes to their fund that invests in start-ups. “We have an Innovation Fund, and our dedicated VC team actually sees 20 opportunities a week. It’s crazy. They have to pick the right opportunities that fit the strategy of the fund and have the growth potential that is expected from them.”
As we end our interview, he tells me that without a doubt the outlook is positive, and that he expects the companies they’ve invested in to resume rapid growth once the crisis is behind us. Encouraging signs indeed.