proprietary and confidential — kroll advisory solutions · 2012. 9. 26. · 1. sub-saharan africa...
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Proprietary and Confidential — Kroll Advisory Solutions 1
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Proprietary and Confidential — Kroll Advisory Solutions 2
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The Appeal of Africa: Maximizing Investment Opportunities While Mitigating Risk with Kroll Advisory Solutions An EMPEA Professional Development Webcast Hosted with Kroll Advisory Solutions 26 September 2012
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Today’s Agenda
1. Sub-Saharan Africa Market Overview – Melvin Glapion, Managing Director, Kroll Advisory Solutions
Regional Investment Climate
Key Investor Opportunities, Risks & Limitations
2. Overview of Regulatory Considerations for Private Equity Funds Investing in Sub-Saharan Africa – Bayo Odubeko, Partner, Norton Rose LLP
3. Panellist Introductions 4. Panel Discussion Overlap between public and private sector
How best to overcome the lack of transparency at both the government and corporate entity level?
Are undisclosed beneficial owners a primary concern?
Difficulties in conducting due diligence Is the Western approach to due diligence suitable or unsuitable for Sub-Saharan markets?
What can be done when there is an absence of clear legal and regulatory frameworks?
Aggressive regulatory frameworks Given the strong overlap between commerce and government, how do Western PE firms ensure sustainable and anti-bribery compliant
relationships?
5. Lessons Learned 6. Q&A Session
Proprietary and Confidential — Kroll Advisory Solutions 4
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Sub-Saharan Africa Market Overview
Proprietary and Confidential — Kroll Advisory Solutions 5
Melvin Glapion Managing Director, Kroll Advisory Solutions
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FDI has historically focused on diversified or oil-exporting economies – in countries that are perceived to be less corrupt
Proprietary and Confidential — Kroll Advisory Solutions 6
FDI Stock inwards vs. Corruption Perception Index 2011
Sources: Transparency International for Corruption Perception Index, International Trade Centre for FDI Inward Stock; Country categorisations based on The McKinsey Global Institute’s ‘Africa at work: job creation and inclusive growth.’ August 2012. Notes: The Corruption Perceptions Index ranks countries/territories based on how corrupt their public sector is perceived to be. A country/territory’s score indicates the perceived level of public sector corruption on a scale of 0 - 10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean. A country's rank indicates its position relative to the other countries/territories included in the index.
Angola
Cameroon
Congo, Dem. Rep.
Ethiopia Gabon Ghana
Kenya
Mali Nigeria
Zambia
South Africa
Namibia
0
1
2
3
4
5
6
7
8
-10% 0% 10% 20% 30% 40% 50%
Cor
rupt
ion
Perc
eptio
n In
dex
Ran
king
FDI inward stock average change per annum since 2007
Nature of Economy*
Pre-transition
Transition
Oil Exporters
Diversified
* As defined by The McKinsey Global Institute
7.2 Average of G7 nations
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Cameroon
Ethiopia Gabon
Ghana
Kenya
Mali
Nigeria
South Africa
Zambia
Namibia
Congo, Dem. Rep. Angola
0
1
2
3
4
5
6
7
8
0% 5% 10% 15% 20%
Cor
rupt
ion
Perc
eptio
n In
dex
Ran
king
GDP growth average change per annum 2011-2014
Growth is expected in transition economies, many of which do not score highly on the corruption perception index
Proprietary and Confidential — Kroll Advisory Solutions 7
GDP Growth Forecasts vs. Corruption Perception Index 2011
Sources: Transparency International for Corruption Perception Index, , IMF World Economic Outlook for GDP forecasts; Country categorisations based on The McKinsey Global Institute’s ‘Africa at work: job creation and inclusive growth.’ August 2012 Notes: The Corruption Perceptions Index ranks countries/territories based on how corrupt their public sector is perceived to be. A country/territory’s score indicates the perceived level of public sector corruption on a scale of 0 - 10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean. A country's rank indicates its position relative to the other countries/territories included in the index.
7.2 Average of G7 nations
Nature of Economy*
Pre-transition
Transition
Oil Exporters
Diversified
* As defined by The McKinsey Global Institute
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There is significant disparity in income per capita within regions, and the average income per capita is less than the BRICs
Proprietary and Confidential — Kroll Advisory Solutions 8
GDP Per Capita, US$ 2011
Source: IMF, World Economic Outlook Note: Data for selected African countries
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Eastern Africa Southern Africa Western Africa BRIC countries
GD
P Pe
r Cap
ita, C
urre
nt P
rices
(U
S$)
High Low Average (mean)
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Proprietary and Confidential — Kroll Advisory Solutions 9
Household income per capita varies widely across the continent and within regions
EASTERN AFRICA WESTERN AFRICA SOUTHERN AFRICA
Source: World Bank Note: Data for selected African countries
Household Consumption Per Capita, US$ 2010
BRIC countries average: US$3,575
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Sud
an
Ken
ya
Uga
nda
Eth
iopi
a
Tanz
ania
Bur
undi
Sou
th A
frica
Bot
swan
a
Nam
ibia
Ang
ola
Zam
bia
Zim
babw
e
Moz
ambi
que
Mal
awi
Gab
on
Con
go, R
ep.
Gha
na
Cot
e d'
Ivoi
re
Sen
egal
Gam
bia
Libe
ria
Sie
rra L
eone
US$
-
2,019 2,767 2,814
3,337 3,536 165
533 721
842 847
355 405
504 548
300
315 335
346 393
106
204 483
515 515 150 350
129
252
335
2,888
4,271
4,902
5,961
6,566
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2008 2009 2010 2011 2012 H1
Cap
ital I
nves
ted,
US$
mill
ions
Much of the investment in the past has flowed to South Africa, but is now expanding across the continent
Proprietary and Confidential — Kroll Advisory Solutions 10
Sub-Saharan Africa PE Investment Cumulative Total, 2008–2012 H1
Source: EMPEA, August 2012 Data as of 30 June 2012.
Country 2008-2011 CAGR
Other Southern Africa n/a
Other East Africa 46%
Sub-Saharan regional Africa
n/a
Other West Africa 69%
Ghana 5%
Kenya 32%
Nigeria 72%
South Africa 18%
217
Cumulative Total
n/a: no CAGR as no data for 2008
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Proprietary and Confidential — Kroll Advisory Solutions 11
Share of Private Equity Deals in Sub-Saharan Africa (as a % of all Emerging Markets) 2008-2012
The share of private equity investment into Sub-Saharan Africa has increased in both volume and value
Source: Emerging Markets Private Equity Association. Data as of 30 June 2012.
Recent fundraising • Vantage Capital closed one of 10 largest funds in H2 2012, a
generalist fund focused on Sub-Saharan Africa. Total capital raised to-date US$251m.
• In 2011, Helios Investment Partners achieved a final close of US$900m.
Recent investments over US$100 million • Actis bought Tracker, a company in the consumer sector in
South Africa, for US$443m in October 2011.
• Capital International Private Equity Funds (CIPEF) invested US$150m in Sub-Saharan telecoms company Eaton Towers in September 2011.
• Hony Capital invested US$100m in Madagascar Wisco Guangxin Kam Wah Resources SA (MWG), a Madagascan mining company in February 2011.
• A consortium including Investec Asset Management (IAFPEF), FMO, IFC (in June 2011) followed by Investec Asset Management and ECP (in December 2011) invested US$135m in Pan African Telecom tower company IHS Nigeria.
• Kerogen Capital invested US$125m in Sub-Saharan oil and gas company NewAge (African Global Energy) Limited in January 2012.
• Ethos Private Equity bought South African retail company Kevro for US$104m in January 2012.
6.0% 6.3%
2.2%
3.9%
6.2%
6.6% 5.5%
5.6% 5.1%
6.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2008 2009 2010 2011 2012 (1H)
Shar
e of
Em
ergi
ng M
arke
t Dea
ls
Value Share Volume share
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Africa has a broad range of fraud-related issues and scores highly in most categories
Proprietary and Confidential — Kroll Advisory Solutions 12
Respondents' fraud-related loss
Source: Kroll Global Fraud Report, 2011/2012 with EIU; polled 1,265 senior executives worldwide in June and July 2011
Key issues:
• Overlap between public and private
sector
• Difficulties in conducting due
diligence
• Deal size means due diligence tends
to be focused on legal issues
• Aggressive regulatory frameworks
mean Africa is deemed high risk
0% 5%
10% 15% 20% 25% 30% 35% 40%
Theft of physical assets or
stock
Corruption and bribery
Internal financial
fraud or theft
Financial mismanagem
ent
Vendor, supplier or
procurement fraud
Management conflict of interest
Information theft, loss or
attack
Regulatory or compliance
breach
Africa Asia Latin America Europe North America
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Overview of Regulatory Considerations for Private Equity Funds Investing in Sub-Saharan
Africa
Proprietary and Confidential — Kroll Advisory Solutions 13
Bayo Odubeko Partner, Norton Rose LLP
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Proprietary and Confidential — Kroll Advisory Solutions 14
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Proprietary and Confidential — Kroll Advisory Solutions 15
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Moderator: Melvin Glapion Managing Director, Kroll Advisory Solutions
Panellist Introductions
Ralph Keitel Principal Investment Officer, Private Equity and Investment Funds Department, International Finance Corporation (IFC)
Gerben Dijkstra Investment Principal, Investec Asset Management
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17
Bayo Odubeko Partner, Norton Rose LLP
Panellist Introductions
Davinder Sikand Senior Partner - Africa, Aureos Capital
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Audience polling question
How does Africa compare to other emerging markets regions as far as transparency issues, government relationships and due diligence concerns?
A. These are less of a concern in Africa than in other emerging markets
B. Africa is comparable to other emerging markets
C. These are more of a concern in Africa than in other emerging markets
Proprietary and Confidential — Kroll Advisory Solutions 18
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Proprietary and Confidential — Kroll Advisory Solutions 19
Vulnerable to regulatory and compliance breaches
• Lack of transparency
• Opaque corporate structures
• Undisclosed beneficial owners
• Concern about government relationships
• Striking a balance: maintaining relationships vs. quid pro quo
Key issue: Overlap between public and private sector
Vulnerable to management conflict of interest
Vulnerable to corruption and bribery
Highly/ moderately vulnerable
Slightly vulnerable
Not at all vulnerable
Don’t know/ Not applicable
30 %
35 %
36 %
39 %
46 %
52 %
40 %
39 %
40 %
39 %
37 %
34 %
28 %
21 %
21 %
21 %
14 %
12 %
0% 50% 100%
Middle East
North America
Latin America
Europe
Asia
Africa
Source: Kroll Global Fraud Report, 2011/2012 with EIU; polled 1,265 senior executives worldwide in June and July 2011
48 %
34 %
53 %
39 %
46 %
55 %
28 %
39 %
30 %
37 %
35 %
30 %
22 %
23 %
14 %
21 %
16 %
10 %
0% 50% 100%
Middle East
North America
Latin America
Europe
Asia
Africa
62 %
17 %
70 %
32 %
63 %
78 %
22 %
41 %
21 %
38 %
23 %
12 %
15 %
38 %
7 %
28 %
12 %
6 %
0% 50% 100%
Middle East
North America
Latin America
Europe
Asia
Africa
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Key issue: Difficulties in conducting due diligence
Proprietary and Confidential — Kroll Advisory Solutions 20
Source: Kroll, Mergermarket Survey, “Private Equity into high risk markets – the need for a new approach”, 2012l; based on interviews with 50 private equity investors based in the UK with significant exposure to emerging markets
98%
2%
Agree Disagree
Due diligence in emerging markets (or on targets with significant exposure to emerging markets) requires a different approach. Agree or Disagree?
How would you describe your due diligence activities in emerging markets, compared to your due diligence activities in developed markets?
0%
20%
40%
60%
80%
100%
Lega
l
Tax
Fina
ncia
l
Ope
ratio
nal
Env
ironm
enta
l
Rep
utat
iona
l
Com
mer
cial
Perc
enta
ge o
f Res
pond
ents
More thorough About the same Less thorough
• Poor information
• Need to adapt approach
• Intelligence versus fact based
“In emerging markets, an out-of-box approach is required and due diligence has to be done in more detail. The quality of information, whether financial or operational, is always questionable because local, private companies lack sophisticated financial reporting functions and do not provide information on how the business is monitored”
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Key issue: Deal size means due diligence is focused on legal issues
Proprietary and Confidential — Kroll Advisory Solutions 21
Top 10
Emerging Asia Company name and deal size US$ millions
Sub-Saharan Africa Company name and deal size US$ millions
1 Taikang Life Insurance Corporation 925 Tracker 443
2 Television Broadcast TVB 804 Eaton Towers 150
3 Greater China Intermodal Investments 750 Madagascar Wisco Guangxin Kam Wah Resources SA (MWG)
100
4 Hero Investments Pvt Ltd 750 Wanachi Group Holdings 58
5 Patni Computer Systems 700 First Hydrocarbon Nigeria 50
6 Alibaba Group 480 IHS (December 2011)** 46
7 Welspun Corporation 300 Universal Industries 45
8 PT Link Net 269 IHS (June 2011)** 25
9 Golden Jaguar 250 Afrifresh Group 20
10 Funtalk China Holdings 250 Africa Railways 20
Total – Top 10 5,478 Total – Top 10 957
Average (median) - Top 10 590 Average (median) - Top 10 48
• Smaller deal size reduces levels of
due diligence
• Reliance upon legal frameworks
(SPA, management retention
agreements)
• Questions around adequacy of
legal system
• Compliance for corruption and
bribery
*Investment totals exclude direct commitments from LPs, including DFIs. ** A consortium including Investec Asset Management (IAFPEF), FMO, IFC (in June 2011) followed by Investec Asset Management and ECP (in December 2011) invested US$135m in Pan African Telecom tower company IHS Nigeria. Source: EMPEA 2011 Investment Review
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Key issue: Aggressive regulatory frameworks deem Africa as a “high risk” jurisdiction
Proprietary and Confidential — Kroll Advisory Solutions 22
Investment and FCPA Penalties, by Sector (Africa)
Sources: Private Equity International (based on Mergermarket data); FCPAmap.com Notes: Deal data based on number of deals by sector, August 2011- July 2012; FCPA data based on value of penalties in US Government FCPA cases since 1977
13%
50%
61%
28%
22% 20%
4% 1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Share of deals FCPA penalties
Shar
e of
dea
ls b
y se
ctor
(vol
ume)
/ sh
are
of F
CPA
pe
nalti
es b
y se
ctor
Agriculture
Defence, manufacturing and construction
Consumer, healthcare, financial services, business services
Natural Resources, Utilities
• Oversight & control
• Post execution due diligence
• Forensic accounting review
• Anti-bribery compliance
• Employee screening
• Supplier vetting
• Exit opportunities
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Lessons learned and Q&A
Proprietary and Confidential — Kroll Advisory Solutions 23
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Slide Number 1Slide Number 2The Appeal of Africa: Maximizing Investment Opportunities While Mitigating Risk with Kroll Advisory SolutionsToday’s AgendaSub-Saharan Africa Market OverviewFDI has historically focused on diversified or oil-exporting economies – in countries that are perceived to be less corruptGrowth is expected in transition economies, many of which do not score highly on the corruption perception indexThere is significant disparity in income per capita within regions, and the average income per capita is less than the BRICsHousehold income per capita varies widely across the continent and within regionsMuch of the investment in the past has flowed to South Africa, but is now expanding across the continentThe share of private equity investment into Sub-Saharan Africa has increased in both volume and valueAfrica has a broad range of fraud-related issues and scores highly in most categoriesOverview of Regulatory Considerations for Private Equity Funds Investing in Sub-Saharan Africa Slide Number 14Slide Number 15Panellist IntroductionsPanellist IntroductionsAudience polling questionSlide Number 19Key issue: Difficulties in conducting due diligenceKey issue: Deal size means due diligence is focused on legal issuesKey issue: Aggressive regulatory frameworks deem Africa as a “high risk” jurisdictionLessons learned and Q&ASlide Number 24Slide Number 25
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