the diversified industrials conference 11 june 2014

Antitrust Trends in Diversified Industrials

Ros Kellaway and Lesley Farrell, Eversheds LLP 11 June 2014

Overview

• What are the biggest antitrust cases in the sector?

• Focus on Information Exchange • Implications

– Fines – Individual liability – new CMA, new UK cartel

offence • Recent developments in the private enforcement

of competition rules in the UK and the EU • Focus on collective actions • Possible implications

Two Fundamental Rules in the EU

• Article 101(1) TFEU / Chapter I Prohibition Competition Act 1998 (CA98): prohibits agreements or concerted practices between businesses that restrict competition and affect trade in the EU/UK

• For example: • Price fixing • Market sharing • Customer allocation • Bid rigging • NB. Information Exchanges

• Article 102 TFEU / Chapter II Prohibition (CA98): prohibits abuse of a dominant position that

affects trade in EU/UK

Update – Biggest antitrust cases in the sector Decisions • TV and computer monitor tubes: December 2012, Commission fined tube

producers €1.47 billion for participating in one or both of two price fixing, market sharing and customer allocating cartels

• Ball bearings: March 2014, Commission fined 5 automotive suppliers €953 million for price fixing

• Automotive wire harnesses: July 2013, Commission fined 5 harness manufacturers €141.8 million for cartel behaviour

• Polyurethane foam: January 2014, Commission fined 5 foam producers €114 million for price fixing and market sharing

Investigations • Capacitors: June 2014, Commission announced investigation into capacitors

– regulators in China, Japan, US and Korea also investigating EU commitment to enforcement • “we have a powerful and resilient array of tools to detect and sanction the

companies that take the ill considered decision to set up a cartel…we will not rest on our laurels…the fight against cartels is and will remain a priority”

Vice President of the European Commission responsible for Competition policy, April 2014

Presenter

Presentation Notes

Ongoing appeals in TV tubes Metal content index: ongoing – Eversheds acting on investigation by 3 national competition authorities into manufacturers’ use of index based on metal content

Focus on information exchange (1)

• The focus is on “strategically useful” information

• Some information by its nature regarded as being “strategically useful”: – future prices – future quantities

• Private exchanges of individualised data regarding future prices or quantities may be treated and fined as cartels

• N.B. what is “private data”

Presenter

Presentation Notes

which removes uncertainty in relation to the operation of the market and could therefore lead to collusion

Focus on information exchange (2) Hot topics

• Trade Associations: – beware of unlawful exchanges occurring through the

association – involvement of an association does not legitimise an otherwise unlawful exchange

– use agenda, minutes and (if necessary) lawyers at trade association meetings to avoid competition law issues

• Online exchanges: LIBOR, EURIBOR and Platts • Investigation creep:

– globally - authorities taking inspiration from, and sharing information with, one another (Capacitors)

– across behaviours/industries (information exchanges, investigations into indices/benchmarks)

Implications of Infringing Competition Law

• For the company: – Dawn raids – Lengthy, intrusive and disruptive investigations – Fines of up to 10% of group worldwide turnover – Agreements void and unenforceable – Damages actions – Other costs - management, legal, publicity

• For individuals: – Director disqualification for up to 15 years – Criminal cartel offence, jail for up to 5 years... – Extradition

Presenter

Presentation Notes

Competition Officials can: Use force to enter premises Seal premises Take away original documents Read your diary Put you under surveillance Use covert human intelligence sources Impound your car Interview you Disqualification where: infringement of competition law; and director’s conduct in connection with infringement makes them unfit to manage a company OFT guidance: directors play a “key role” in compliance culture directors can be disqualified where they “ought to have known” about conduct disqualification unlikely where directors genuinely committed to, and taken reasonable steps to ensure, compliance culture

Changes to criminal cartel offence as part of UK Competition regime reforms (1) • New offence only applies to agreements made on or after 1 April 2014

• Removal of ‘dishonesty’ requirement

• “An individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented” a hard core cartel arrangement

• Scope of the offence: – need an “agreement” – arrangements must contain a reciprocal restriction on

pricing, supply or production – applies where undertakings are at the same level in the

supply chain

Changes to criminal cartel offence as part of UK Competition regime reforms (2)

• Existing exclusion for bid rigging still applies (person accepting bids needs to be have been given “relevant information”)

• New exclusions: if parties have (i) notified their customers; or (ii) published details of arrangements before they are implemented in a suitably accessible form

• New defences: where there is no intention to

conceal the nature of arrangements from: (i) customers; or (ii) the CMA; or (iii) where the defendant, before making the agreement, took reasonable steps to obtain legal advice (external/internal)

OFT Ongoing Criminal Investigations 2013/14

• Galvanised steel water tanks – one individual charged with market sharing, price fixing and bid rigging between 2004 and 2012 – reporting restrictions apply

• Building sector product supply cartel – – Searches carried out in March 2013 at a

number of locations across the UK – Seven individuals arrested

• CMA priority and part of global trend to individualised enforcement

Recent developments in the rules relating to the Private Enforcement of Competition Rules at UK and EU level

Background • 1984 – Garden Cottage Foods v Milk marketing

Board (1984) 1 AC 130 • 2001 – Courage v Crehan (2001) ECR 1-6297 • Numerous Green Papers, White Papers and

consultations at both UK and EU level in relation to private enforcement of competition law

Current context

• OFT research shows that private enforcement of competition law is one of the least effective parts of the competition regime

• Private actions complex and expensive • Beyond the resources of businesses (particularly

SMEs) and consumers • Commission research shows that only 25% of

Commission’s decisions finding a cartel or other anti-trust infringement between 2008-2012 were followed by damages actions

• Actions concentrated in three Member States of EU • Nearly all claims brought by large companies

UK - The response

• A consultation on options for reform of private actions in competition law – January 2013

• The principal aims: – Empower small businesses to tackle anti-

competitive behaviour – Enable consumers and businesses who have

suffered loss due to anti-competitive behaviour to obtain redress

• Consumer Rights Bill – Schedule 8

UK - Reforms

• Establish the Competition Appeal Tribunal (CAT) as a major venue for competition actions in the UK

• Fast track procedure for SMEs • Introduce an opt-out collective claim procedure • Promote ADR • Enable private regime to work effectively with

the public enforcement regime

UK - Collective Actions

• Opt out collective claim procedure before CAT for individuals and businesses

• Subject to a number of safeguards in order to prevent frivolous or unmeritorious claim including prohibition on triple damages and contingency fees and requirement for judicial certification

• New opt-out collective settlement regime (modelled on Dutch Collective Settlement Act 2005)

EU - The Response

• Directive on rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and the European Union

• Adopted by Commission and approved by European Parliament in April 2014. Awaiting approval by the Council

• Aim is to facilitate antitrust damages actions in Member States

EU – The Directive

• Harmonise certain procedural rules throughout member States of the EU – Access to evidence – Effect of a competition authority decision – Limitation periods – Joint and several liability – Passing on defence – Rebuttable presumption that cartel infringements

cause harm – Relationship between public/private enforcement

EU - The Recommendation

• Commission Recommendation on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under EU law

• Adopted 11 June 2013 • Applicable to competition law and other claims • “Opt in” collective claim

Conclusions

“The proposal for a Directive on antitrust damages actions is a milestone in the evolution of competition law enforcement in the EU.”

Joaquin Almumia European Commissioner for Competition

“There is a good deal of competition in the area of international

competition litigation, much of this work does come to the UK, as things stand but we do have at least two active competitors within the EU. Others are gearing up. We cannot be complacent if we wish the UK to remain at the forefront.”

Sir Gerald Barling Former President of the Competition Appeal Tribunal

Conclusions

• Increase in private enforcement of competition law claims

• Emergence of collective claim mechanisms in the UK and the EU?

• Continuing focus on follow on claims? • End to forum shopping or emergence of some

Member States as premier venues for private competition law claims?

Diversified Industrials Conference – 11 June 2014

For further information on this conference and any future Eversheds’ Diversified Indsutrials group events please contact Sally Jenkins on: [email protected] or 0845 498 4018

Diversified Industrials Conference

Commercial Contracting Pitfalls

Tony Andrews, Doncasters Gary Pellow & Tom Bridgford, Eversheds LLP

Good contracts

• Tacitus’s law: “Inquissima haec bellorum condicio est: prospera

omnes sibi indicant; aduersa uni imputantur” (Agricola 27:1 - 98 AD)

• “Victory has a thousand fathers and defeat is an orphan” (JFK 1961)

Copyright Doncasters Group 2014 Strictly Private & Confidential 3

Commercial contracts – an industry view

Tony Andrews Group Commercial Director

Doncasters Ltd

Eversheds, London, 11 June 2014

ver 10/Jun/14

Copyright Doncasters Group 2014 Strictly Private & Confidential

4

"I am not in the office at the moment. Send any work to be translated“

"When they're proofing signs, they should really use someone who speaks Welsh," said journalist Dylan Iorwerth.

Lost in Translation

Swansea council, Morriston, Asda store, 31 Oct 08, www.bbc.co.uk


Doncasters Group Overview

4,500 employees c. $1.2bn Gross sales 2013

30 Operating Businesses


Doncasters operates out of 30 locations in North America, Europe and China servicing primarily the Aerospace/IGT market

Aero/IGT 58%

Other 10%

Industrial 9%

Construction 5%

On/Off Highway

18%

Casting 50%

Fab./ Machining

20%

Fasteners 21%

Forging 9%

North America

40%

Europe 33%

UK 18% ROW

10%

End Markets Geography Mfg. Process


Through our varied manufacturing processes Doncasters is able to produce most components of value in a turbine engine

Compressor airfoils

Structural castings

Turbine airfoils

Rings & casings

Combustion components

Fabrication & exhausts

Superalloys Rotor Bolting

7


Product diversity


Contract Life Cycle

9

Issue Recognition

Resolution Formalising / Signing

Roll-out / Appraisal

Red-lining wording

Standard T&Cs

Show-stoppers

Trade-offs


Key protocols

10

• Clearly define Scope of Work • Nail down everything related to money • Ownership of work • How will changes affect pricing !! (“change control”) • Whole agreement • Process for changing the agreement


1. “Must do”: Group policies, protocols Reference library Bid approval policy 2 . “Assistance”: Guidelines, checklists Suggested best practices Links, contacts, further refs

Contractual support (1) - online

Central repositary for contracts Sharing platform Latest docs status Approval routines / Exec summs


• Facilitate sign-offs

RAG list

Approvals required?

CAF & Exec CAF Training • Categorise issues • Focus negotiations

• Red: show-stoppers • Amber: address • Green: typos, etc

Contractual support (2) – training & ownership


1) ‘3 level’ review of contracts: • “Bronze” – eg, ROM • “Silver “ – opps progressing • “Gold” – final negotiations • Internal & external legals

13

2) Post-award of contracts: • Formalising ‘roll-out’ • Who does what, awareness • Responsibilities, sign-off • Back-back, supply chain • Change management

Contractual support (3) – central response / post-award


Convergence process

14

• Early engagement of “contracts” in process • Alignment of people involved (internal & external) • Efficiency of decision–making • Adherence to a process

Exec protocols

Focus: “Cost” / downside risk “Value”

Con

trac

t aw

ard Exec sanction


Complexity

15


Key contract provisions

16

• Liabilities – Limitation of Liability – Warranty – Lateness damages – Indemnities – Insurance

• Termination provisions – Buyer commitment

• Pricing - change control - Cost drivers re current design - Design changes

• Intellectual property


Contract pitfalls

17

1. Contract Management process – Resources – Negotiation skills, agenda – Post-Award management

2. Certainty of intent – Clarity of terms / variation changes – Binding v get-outs

3. Remedies - Multi-dipping

4. Risk - Appetite, apportionment, flowdowns


18

Any Questions?


Contracts – key success factors

23

1. Internal • Early engagement & alignment of individuals • Decision-making, collaboration, support

2. Contract management • Resources; post-award ownership; diligence

3. Buyer / Supplier relationship – complex supply chains • “Value” – recognition; capturing it • “Risk” – re-address attitudes, mutual mitigations • Collaborative long-term, rather than adversorial

Objective: “Fit for purpose” contracts = enhance value of future benefits

IACCM research

• More collaborative/partnering approach • Carrot rather than stick • Focus more on sharing benefits • Less on defensive, risk averse, compliance based

contracts • Improved governance and flexibility • Success defined not on signature but over life of

contract

IACCM research

• Conflicting pressures of need for speed vs concerns over regulatory compliance, reputational risk and sustainability

• Need to consult growing number of stakeholders

IACCM research

IACCM research

Most negotiated term Most important term

1 Limitation of liability Scope and Goals

2 Indemnities Responsibilities of the parties

3 Price / Charge Price / Charge

4 Intellectual Property Delivery / Acceptance

5 Service levels Service levels

6 Warranties Payment

7 Performance guarantees / Undertakings

Performance guarantees / Undertakings

8 Service withdrawal / termination Communications & Reporting

9 Liquidated damages Change management

10 Delivery / Acceptance Limitation of liabilities

Discussion

• “Poor execution”

• “Contract discussions too late in the process”

• “Missing the nasties”

Discussion

• “Lack of consideration of relevant risks”

• “Optimism bias”

• “Contract seen as obstacle to getting business done”

• “The business wants to secure the deal”

Discussion

• “Weak contract management”

• “Change in commercial circumstances – not anticipated”

• “Leaving it too late to raise an issue” • “Lack of realism – what can the contract actually

deliver”

Contract risk management

Regular debriefs

Training programme

Contract tools, protocols & processes

Improved contract

management

Enhanced contracts

Reduced Claims

Success factors

• Get right negotiating team - beware silos; who is over all lead?

• Leave enough time • Engage legal team early • Identify key areas of risk up front • Look at it from other side’s view – try to get win

win • Don’t just focus on getting it signed – needs to

be successful over life of contract

Success factors

• Be realistic; be careful not to over negotiate or over complicate

• Balance need for long term contract with need for flexibility

• Clear protocols and processes with top down support/enforcement

• Clear financial modelling • Agreement over key issues such as spec,

warranties • Actively manage issues post signature

Responsible Care ‘you can’t live without us’ ‘you can’t live without us’ Responsible Care

Energy costs – opportunities and challenges

Nick Sturgeon, CIA

Responsible Care ‘you can’t live without us’

UK chemical and pharmaceutical industry statistics

• Turnover tops £58 billion

• UK is the tenth largest global producer

• Export surplus £6.0 billion

• Direct employment of 170,000

• R&D: chemicals = £689 million pharmaceuticals = £4,850 million

• Capital expenditure £1,704 million

• Largest energy consumer - 16% of manufacturing


Chemistry fuelled growth strategy - 50% increase in value added by 2030

Competitive and secure energy

- New feedstock sources : unconventional gas, waste, bio, CO2

Accelerating innovation

Rebuilding supply chains

• Chemistry enabled GHG reduction solutions to others sectors of the economy

• Reducing emissions from our own energy use: process improvement, CHP, CCS

Implementation by Chemistry Growth Partnership (Joint chairs Michael Fallon - BIS, Neil Carson – JM)


Global climate solutions from the chemical industry - net abatement 2005 MtCO2e

0

40

Sub-total

Insulation 2,400 700 Lighting 220 Packaging 190 Marine antifouling 130

1,600

Synthetic textile 120 Automotive weight 80 Low-temp. detergents 70 Engine efficiency 70 Piping 60 Wind power

District heating Green tires

40 Solar power 230 Other 4,410

60

6,010 Total 1 : 1

850 0 : 1 3,560 5,160 Net

Fertilizer & crop protection

Net abatement volume per chemical application

Not explicitly calculated No realistic alternative

w/o fertilizer & crop protection


Energy trilemma

• Decarbonisation

• Security

• Affordability

Competitive and secure supplies a pre-requisite for growth strategy


UK chemical sector energy efficiency

60

70

80

90

100

1990 1992 1994 1996 1998 2000 2002 2004 2006

Voluntary Agreement, 18% since 1990

CCA, 20% since 1998

35% Improvement since 1990

Index


Chemical sector Climate Change Agreement (Part A activities - Environmental Permitting Regs)

• DECC proposed 13.5%

• CIABATA negotiated 11.2%

• 230 sites, individual targets as per survey

• £50m p.a. Climate Change Levy saving

- 90% power - 65% gas

• £25m p.a. CRC Energy Efficiency Scherme saving

0.800

0.850

0.900

0.950

1.000

1.050

Energy efficiency target , 2008=1.000


Emissions trading schemes

• CRC Phase 2 (1 Apr 2014 to 31 Mar 2019) is simplified, features include: – Simpler registration / no overlap with the EU Emissions Trading Scheme

– Reduction of the number of fuels covered - electricity and gas only

– Abolishment of the Performance League Table

– Allowances in Phase 2 will be £16/tonne CO2 (all use of gas and power)

• EU Emissions Trading Scheme Phase 3: 2013-2020 – Free allocations to exposed sectors – list confirmed to 2019

– cross-sector correction factor of 5.73% in 2013 rising to 17.56% in 2020,

– Price intervention by back-loading 900mtCO2 emissions

– Further reforms for post 2020 under discussion


Indirect climate policy impacts on power costs (£/MWh, 2010 prices)

UK mitigations (for most electro-intensive): - Carbon Price Floor compensation - Electricity Market Reform exemptions


Climate policy impacts on power prices

• Carbon cost compensation payments for – EU ETS impacts from Jan 2013 onwards

– Carbon Price Support (CPS) compensation – state aid just received

• Exemption from CPS on inputs to electricity from Combined Heat and Power from 1 April2015

• Carbon Price Floor freeze (EU ETS +CPS) at £18/tCO2 from 2016/17

• Compensation for other decarbonisation subsidies from 2016/17 – Electricity Market Reforms - Contracts for Difference

– Renewables Obligation

– Small scale feed-in tariffs


UK power generation margins could fall to 2% by 2015

Electricity Market Reforms

• Contract for Difference

• Capacity mechanism

Gas generation strategy / security of supply

• Office for Unconventional Gas and Oil (OUGO)

• EU energy market liberalisation 2014/15

• Maximise North Sea output


Demand side response opportunities

• DUoS Unit Charges - Time of Use (TOU) charges (and critical peak pricing)

• Night/day rates

• Red rate tariffs

• DUoS Fixed Charges - Peak Demand Charges – Available Capacity

• TNUoS - TRIAD Avoidance

• STOR – Short Term Operating Reserve

• FCDM – Frequency Control by Demand Management

NEW – Demand and supply side balancing

Coming soon - capacity mechanism


Gas prices, US$/BTU (World Bank commodities data bank)

0

2

4

6

8

10

12

14

16

18

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US

Europe


UK gas supplies

Good diversity of supplies and import capacity infrastructure

Gas price reflects oil indexed price on mainland EU

High and volatile UK price spikes in winter due to uncertainty

Indigenous supplies will help security


Forward gas prices, p/therm As offered during previous winter

62

64

66

68

70

72

74

76

Oct Nov Dec Jan Feb Mar

W12-13

W13-14

W14-15

W15-16

W16-17

Presenter

Presentation Notes

W 14-15 contract has stayed around 60 – 65, next 2 winters around 64 – 66 since end of March.


Unconventional gas potential

• British Geological Survey estimate 40 trillion cubic metres of shale gas in the Bowland Basin = 40 years of demand; Weald Basin central estimate is 4.4 billion bbl of shale oil

• CI growth strategy calls for exploitation of unconventional gas for feedstock as well as energy commercial flows by 2017

• Incentives, legislation, planning

and permitting guidance

• Major players joining in but supply chain needs developing

• Cross-party support for shale gas development providing there is a “social license to operate” locally

• CIA support to promote economic benefits including Shale Gas: The Facts leaflet

http://www.cia.org.uk/Portals/0/Shale Gas document FINAL.pdf

http://www.cia.org.uk/Portals/0/Shale Gas document FINAL.pdf


UK and EU Carbon reduction target developments

• UN “Durban Platform” implementation 2020, if talks are successful

• EU 2030 energy and climate strategy – Carbon only reduction of 40% proposed, renewables target 17% EU level

only consulting on energy efficiency

– Talk of industrial renaisance but insufficient action

– Decision by October 2014 on target to 2015 UN discussions in Paris

• Review of UK fourth carbon budget (2023-2027) – Set at 50% reduction on 1990 levels with 2014 review if out of step with

EU targets (Treasury driven)

– Committee on Climate Change have advised support

– Government decision by summer 2014?


EU positioning

• EU should not impose unilateral cost increases that harm its own industry

• EU carbon targets should be conditional

• Renewable subsidies, are leading to a “lock in” of expensive low-carbon solutions; need more R&D

• EU ETS proposals would result in unilateral increases in the costs to industry

• We need effective protection against investment leakage: based on a “dynamic allocation” of free allowances


UK heat strategy for energy intensive industries

• ID future abatement opportunities and where policy change / support is needed for Energy Intensive Industries’ (EIIs’) carbon reduction to 2030 & beyond

• Part of EII strategy, backed by BIS and DECC and chemical industry growth strategy

• Cross-cutting technologies – Recovery and use of waste heat

– Incentives for new CHP

– Carbon capture and sequestration

• Work on chemical industry pathways and roadmaps for 2050 – 9 month project concluding Nov 2014

« M&A in Africa»

Rafik Mzah, AfricInvest

[email protected] Jawad Fassi-Fehri, Eversheds LLP, Africa Group

[email protected] 11 June 2014

Eversheds

1

1. Background on speakers

2. Although there are still problems/instabilities in few countries, the reality is that in Africa, the economic and political situation is gradually getting more stable and more dynamic.

3. Indeed, few aggregates about Africa today and by 2020, Africa appears as a huge market with many potentialities and many needs in all sectors.

Introduction

2 2

1. Africa is the second largest continent in the world in terms of both land mass and population:

a. Over 1 billion people, or 15% of the world’s total population,

b. 52 cities with more than 1 million people, which is equal to or greater than Europe, the United States and India,

c. Larger land mass than the United States, China and India, combined.

2. Africa’s middle class has grown to over 310 million

people, representing nearly a threefold increase

since 1990.

1. Why Africa – the current picture

3 3

3. While Africa benefits from a large and growing natural resource endowment and has benefited from increased commodity prices, less than one-third of real GDP growth over the past decade has been attributable to natural resources.

4. Instead, the vast majority of growth has been, and is expected to continue to be, driven by consumer spending, manufacturing, and service industries with an increasing emphasis on the domestic market.

5. The most dynamics countries (accounted for about 85% of the consuming in Africa):

Morocco South Africa Nigeria Tunisia Angola Ghana Algeria Mozambique Ivory Coast Egypt Kenya Senegal Tanzania DRC Ethiopia Gabon

1. Why Africa - the current picture

4 4

We can divide the Continent into 3 areas 2.1. The French speaking countries

• North Africa countries (Morocco, Algeria, Tunisia, Mauritania) and sub-saharian countries (around 21 countries).

• These countries represents around 25 countries (among 54 countries) and 400/500 million people.

• Business is made in French and legal documents and contracts are in French.

• In all of these countries, the rules and laws are deeply inspired from French laws.

2. Main characteristics

5 5

2.2. The English speaking countries

• Egypt, South Africa + sub-saharian countries (around 20 countries).

• These countries represents around 20 countries (among 54 countries) and 550/650 million people.

• Business is made in English and legal documents and contracts are in

English.

• In all of these countries, the rules and laws are deeply inspired from British laws.


6 6

2.3. The Portuguese speaking countries

• Mozambique, Angola, Cape Verde and Guinea Bissau.

• These countries represents 4 countries (among 54 countries) and around 45 million people.

• Business is made in Portuguese and legal documents and contracts are

in Portuguese.

• In all of these countries, the rules and laws are deeply inspired from Portuguese laws.


7 7

Even if there are still many improvements to achieve, the Sub-saharian countries have made significant efforts to improve the legal and the economic framework. 3.1 OHADA (UNIFIED BUSINESS LAWS FOR AFRICA ) 17 countries have uniformized a wide part of their business law. Same rules in these 17 countries in: • Corporate matters, • General business law, • Pledge/guarantee law, • Arbitration rules • Accounting rules, • Insolvency and bankruptcy rules, • Debt-Recovery rules.

3. Legal environment - Uniformisation ?

8

However, this uniformization doesn’t include • tax rules, • foreign investments rules, • social and employment rules, • specific rules (oil and gas, TMT

etc.).

8

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3.2. Central banks and currency Amongst the 21 African French speaking countries:

• 8 western African countries have the same currency (CFA Franc) and

are submitted to the same central bank with the same rules for the banks:

• UEMOA (Senegal, Ivory Coast, Togo, Benin, Burkina Faso, Mali, Guinea Bissau (Pr), Niger).

• 6 central African countries also have the same currency (CFA Franc) and

are submitted to the same central bank with the same rules for the banks:

• CEMAC (Cameroon, Gabon, Congo, Chad, Central African Republic and Equatorial Guinea).


9 9

• the banks belonging to each area are submitted to the same regulations.

• the currency exchange parity is fixed with the Euro = no problem of change fluctuation. • freedom to transfer money in each monetary union.


10 10

3.3. Morocco – Algeria – Tunisia – Lybia and Mauritania – Arab Maghreb Union • Even if these countries are culturally close, the trade between these

5 countries is very low.

• Investment approach in these 5 countries must be done as 5 different individual investments / They don’t have the same currency.

• Regulations for foreign investors are: • very restrictive in Algeria an Lybia, • medium in Tunisia, and Mauritania, • open in Morocco.

• Morocco and Tunisia try to be a hub for companies for their investment in Africa.


11 11

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• Infrastructures are more developed in Morocco:

• harbor of Tanger Med : one of the two biggest in Africa and Mediterranea for Transshipment.

• industrial offshore zone (only for exportation) close to the harbor Tanger Med, with tax incentive.

• one of the 3 majors stock exchanges place in Africa

• good highway network (more than 1,100 kilometers) and highspeed train between Tangier – Rabat – Casablanca in 2015.

• good newtwork (through Royal Air Maroc) from Casablanca to join major cities in Africa.

• Casablanca finance city : financial hub for africa with incentives

3. Legal environment - Uniformisation

12 12

3.4. COMESA (common market for eastern and Southern Africa) • A Free Trade Area between :

• 19 states (DRC, Rwanda, Burundi, Djibouti, Comores, Madagascar,

Libya, Ethiopia, Soudan, Zimbabwe, Zambia, Eritrea, Malawi, Swaziland, Mauritius, Seychelles).

• Population of around 400 million.

• Annual import bill of around US$32 billion with an export bill of US$82 billion.


13 13

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3.5. East African Community

• 5 countries (Kenya, Tanzania, Uganda, Rwanda and Burundi).

• Population of around 135 million.

• Common market treaty for free circulation of people, goods and capital in

the area (custom union and common market).

• Current negotiations for the East African Monetary Union, which commenced in 2011 .


14 14

http://www.google.co.uk/url?url=http://africadummy.wordpress.com/&rct=j&frm=1&q=&esrc=s&sa=U&ei=bGyPU4HVOYeg7Aa8lYCYCw&ved=0CEYQ9QEwEg&usg=AFQjCNEfzjMEtwxdt7Bb4TUDku3hhCiApg

4.1. Accelerating Urbanization

1. In 2016:

• more than 500 millions of African will live in cities and urban areas (and by 2030, the continent’s top 18 cities are expected to have combined annual spending power of $1.3 trillion).

• there will be around 65 cities of more than 1 million people.

2. Continent average growth between 2010-2020 is around 6.5% pa with highest projected growth rates in the world for 2020 onwards. 3. Urbanization is a key economic growth driver as urban populations have

higher incomes and consume more goods and services (e.g., while only a third of Africa’s population is urban, this segment currently accounts for 80% of total GDP).

4. Why Africa - Growth

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4.2. Consumption 4. In 2020, Mc Kinsey estimates:

• to 1,400 billions $ the consumptions spend in Africa,

• that consumer goods (telecoms, banks, trade), naturals resources, agriculture and infrastructures will generate a revenue of 2,600 billions $,

• around 130 million African households will spend more than 50% of their income on other things than food and accommodation.

5. Private consumption in Africa is already higher than in India or Russia; and

rose by >$550 billion between 2000 and 2010 and is expected to increase

by an additional $410 billion by 2020.

6. It is projected that by 2060, the African middle class will grow

to 1.1 billion, representing 42% of the continent’s population.


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4.3. Favorable Demographics

7. Africa has the youngest population in the world, with over 200 million people between the ages of 15 and 24, which is expected to double by 2045.

8. Africa currently has over 500 million working age people, which is expected to double by 2020, creating the largest labor force in the world, surpassing both China and India.

9. Education levels are improving among young people and it is projected that by 2020 nearly 100 million young people will have had secondary education (vs. 69 million in 2010).


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4.4. GDP Projection 2013-2018

Projected GDP Per Capita Growth Per Country, 2013-2018

0.17 0.2

0.23 0.27 0.28

0.3 0.35

0.46 0.46 0.47

South Africa Angola

Senegal Uganda Nigeria

Tanzania Ethiopia Zambia Ghana Kenya

Source: Renaissance Capital, IMF

Source: IMF, World Economic Outlook


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Presenter

Presentation Notes

Objective(s): Please see comments on slide 18

Going forward, Africa should continue to present highly compelling fundamentals for growth:

• Attractive macroeconomic fundamentals and favorable demographics.

• Accelerating regional integration and improving regulatory environment.

• Large number of sectors that are experiencing hyper growth and/or rapid structural change.

• Improved governance and new democracies leading to a more stable political context.


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Presenter

Presentation Notes

Objective(s): Please see comments on slide 18

Needed are in all sectors, but the highest growth are in the following sectors

• Energy, mining, and oil and gas:

• Given the Africa’s existing resources as well as new discoveries, these sectors offer many attractive investment opportunities, including the opportunity to take advantage of local content requirements.

• Special attraction for service companies providing support in the value chain for large operators, as opposed to extractive businesses.

• Manufacturing and agribusiness:

• African businesses targeting the African continent, Europe and/or other markets and,

• Ventures with international companies from Africa, Europe, the Middle East, Asia and America that are increasingly off-shoring

some of their activities to the Region.

5. Sectors in growth

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• Education: • There is an increasing need for investment in quality private education

as the public sector cannot always balance quality with affordability, which has become increasingly apparent as a result of the rapid growth in population.

• Private education is taking a larger market share in several African countries.

• Financial services (consumer credit, insurance, specialized financial

services, etc.): • In addition to opportunities on banking services in countries that are

still lacking a developed financial sector, there are real opportunities on non-banking financial services.


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• Distribution and retailing: The modernization and specialization of distribution and logistical networks that is starting to take place Africa offer several highly attractive investment opportunities.

• Petro-chemical and plastic industries: These industries specialize in emulsions and solvent production, polyethylene preforms production, and packaging. Oil and gas-producing countries have a clear competitive advantage in these sectors.

• Construction and construction materials production and distribution: Many African countries are lacking adequate infrastructure and housing, generating opportunities in services and raw materials used by this sector. This includes indigenous construction companies, cement and other raw materials plants, production of ready-to-use concrete, and transportation.


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• Business Process Outsourcing: Some African countries are uniquely

positioned to serve European and U.S. markets. Following the model of India’s development as an outsourcing hub for business services, countries like Ghana, Senegal, Mauritius, Morocco and Tunisia could all position themselves as competitive alternatives.

• Pharmaceutical and private hospitals: generic drug production, research as well as medicine distribution. Private hospitals in countries where governments are supporting the private sector in this field.

• Transportation and Logistics: The sector is in the process of being deregulated and offers many attractive investment opportunities.


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• Telecom and technology: There has been extraordinary growth in

telecommunications in Africa, as more than half of Africans now own a mobile phone, which has allowed for dramatic innovations in e-business and e-payments. The expansion of international technology suppliers into Africa, reduction of distribution intermediaries due to technological progress and need to respond to international market requirements are increasing the focus on access to modern technology. There are many opportunities to develop service providers to this sector, which has been growing but has yet to achieve maturity.


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• Target: mid-sized businesses that exhibit significant potential for improvement and growth: o More than 95% of companies in the Region have revenues of less

than €70 million, o Significant untapped potential for enhanced performance and

growth, o Attractive Entry Valuations Relative to Growth Potential, o Increasing Deal Flow.

• Pan-regional approach.

• Proactive deal sourcing initiatives by the Investment Team. • Duplication of successful business models and strategies from one region to another and cross-regional development initiatives.

6. Sourcing deals in Africa

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• Co-investment: bringing-in fund investors and other private equity players

to co-invest in many transactions. These relationships constitute a significant sourcing channel.

• Network: recognized and credible professionals including industrial

families, lawyers, accountants, professional advisors, investment banks, commercial banks, merger and acquisition specialists, consultants and development agencies.

6. Sourcing deals in Africa

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7. Structuring an acquisition

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• Tools: • Equity-linked debt instruments. • Ensure that the Fund’s quasi-equity investment has liquidation

preference and is paid back together with any dividends or interest before distributions to other shareholders are made.

• Majority stakes, when commercially feasible, or substantial minority equity stakes with significant control.

• Governance:

• At least one seat at the board of directors of Portfolio Companies. • Provisions requiring approval of the Fund for key decisions relating to

such matters including: the constitution of the board of directors and management; business objectives, strategy and tactics; material investments and disposals; employee contracts; budgeting and reporting; as well as audit rights.

• Transfer of Shares: • Rights of first offer, tag and drag-along rights, Put option, sale

restrictions, and

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8. Creating value and assisting the management

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• Prior to investment, develop detailed operational, financial and strategic initiatives and corresponding action plans.

• Sit at board of directors and plays a highly active. • First Phase: consolidation and improvement of operations in the

company’s existing local market. • Second phase: assist the business in expanding further into domestic

markets or into new markets within the Region.

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Ensuring the management team is strong and aligned:

• Highly motivated and experienced management teams. • Invest in IT and Enterprise Resource Planning (“ERP”) systems to

optimize monitoring. • Develop and implement a coherent growth strategy. • Identify and exploit domestic and international market opportunities, • Management invest a significant amount of their personal resources as

evidence of their commitment.

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Implementing modern management practices and governance measures: • Strengthen corporate governance structures. • Professionalization of financial reporting. • Standardization of procedures and policies. • Recruitment of independent members with industry expertise. • Establishment of various committees that meet frequently (including

strategic, audit, ESG, and compensation.

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Restructuring and/or consolidating operations:

• Typically, family-owned groups are heavily diversified into numerous and unrelated, business interests.

• Focus resources and capital most effectively. Improving profitability: • Performance targets and milestones in order to measure progress. • Drive improved margins through a variety of initiatives including:

• changing the product mix and pricing strategies, • optimizing working capital management, • improving production efficiency/capacity, • improving supply chain management, • outsourcing non-core functions, • negotiating more favorable contracts with suppliers and vendors, • increasing labor productivity.

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9. Exit Strategies

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Sale to strategic buyers: • These types of sales remain the most likely sought source of exits

in Africa. Potential strategic buyers are, depending on the size and the markets, firms from Africa, Europe, the Middle East and America.

Stock exchanges: • The Casablanca, Lagos, Johannesburg, Cairo and Nairobi stock

exchanges present excellent routes for exit. Algeria is also encouraging listings.

• These stock exchanges have shown strong growth and liquidity during the last few years. The current high multiples should provide good returns to investors in companies seeking to float their shares. A listing on local or international stock markets is now possible given the growing economies and the increasing interest of local and foreign investors in public securities.

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9. Exit Strategies

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Sale to financial buyer: • These types of sales will also become a more likely source of

exits for “regional champions,” as late-stage funds and buyout funds become more common in Africa. Additionally, Arab and South African financial holding companies are increasingly seeking to gain exposure to the Region. The size and scope of “regional champions” makes them more attractive targets for these financial players.

Innovative schemes for the Region, such as leveraged management buyouts: • With the availability of larger cash flows and more substantial

asset bases, regional champions are better candidates for exits through leveraged management buyouts (“LMBOs”).

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The main hurdles: 1. Foreign exchange regulations are restrictive.

2. In some countries (ie Algeria or Tunisia), a foreign investor cannot hold more than 49.9% of the share capital of the local entity.

3. In some cases and in some legal areas, regulations are: • no longer appropriate/old / not detailed enough, • absent : no regulations /lack of rules (PPPs).

4. The administrative processes are quite random, tricky: • to register a company/ to carry out formalities, • to obtain a licence, • to buy a plot of land, • tax controls can be arbitrary.

5. The time is not the same : things take more time...

6. Local law firms are not usually up to date /market practice of the operation

10. Main difficulties to invest in Africa

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Eversheds in Africa – largest legal network

36 offices on the ground in 32 countries

Eversheds in Africa – 32 EALI members

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the diversified industrials conference 11 june 2014

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