Private Equity Activity, Growth, and Performance in Morocco Report 2011

1 © 2012 Grant Thornton. Tous droits réservés

Casablanca, March 6, 2012

Private Equity Activity, Growth, and Performance in Morocco Report 2011

Private Equity Activity, Growth, and Performance in Morocco - Report 2011


Sommaire Scope and Methodological Overview

Economic and Financial Environment

Characteristics of Management Companies

Characteristics of Funds Under Management

Investments

Exits

Performance

Economic and Social Impact

Forecasts

Summary

Annexes

Table of Contents



Scope : The report covers : • All funds with a local representative office in Morocco • Funds with an investment strategy involving unlisted companies • Funds with a limited life cycle • All sectors except funds dedicated to real estate, infrastructure, and tourism

Methodology : • Data collection was carried out by a survey of 18 management companies, on the basis of their

statements • The amount of funds raised includes only those dedicated to Morocco • Only investments in Moroccan companies were taken into account • The IRR corresponds to gross IRR by exit provided by the funds

SCOPE AND METHODOLOGICAL OVERVIEW







Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



Evolution of Real GDP Growth [%, 2009-2011]

Data source: International Monetary Fund

• In 2010, global real GDP growth recovers and becomes positive (5%) – The United Nations’ Emerging and Developing

Countries record significant growth (3% 7%)

• In 2011, growth declines slightly globally compared to 2010 and is lower than figures recorded between 2004 and 2007

• In Europe, growth declines and reaches 1.6% – Concerning emerging countries, growth declines

approximately 6.2%

• In developed countries, growth remains weak, specifically in Europe due to: – a fragile and weakened financial situation – unemployment rate – public finance prospects – financial sector prospects

Comments

*and developing countries (see detailed list in Annex 2) Analysis: International Monetary Fund, World Bank, HSBC

ECONOMIC AND FINANCIAL ENVIRONMENT

In 2011, economic growth slows after a significant rebound in 2010

**2011 estimated data

7.3% 6.2%

Europe (EU) Emerging Countries*

2.8% 1.6% 2.0%

-4.2%

Worldwide

3.8%

5.2%

-0.7%

Morocco**

4.9% 3.7%

4.6%

09 10 11p 09 10 11 09 10 11

09 10 11



History and forecasts for real GDP growth • For 2012, the majority of developed

countries are moving towards austerity measures

• In terms of emerging countries, the principal financial authorities worldwide have identified a risk concerning rising inflation related to very strong growth

• Significant uncertainty remains concerning the Euro zone’s ability to solve its problems

Comments

**and developing countries

Forecasts are consequently bearish

Data source: International Monetary Fund Analysis: International Monetary Fund, World Bank, HSBC

ECONOMIC AND FINANCIAL ENVIRONMENT

Current uncertainties about the moderate economic growth forecast for 2012 and 2013

***2011 estimated data * projected

[%, 2000-2013p*]

6.2%

4.6%

3.8%

1.6%

10 09 08 07 06 05 04 03

Emerging Countries** Morocco*** Worldwide

02 01 00

Europe (EU)

13p*

5.9% 4.9%

3.9%

1.2%

12p*

5.4% 4.6%

3.3%

-0.1%

11



Morocco

95 90

115 110 105 100

0

100

85

Source: MSCI

2009 2010 2011

ECONOMIC AND FINANCIAL ENVIRONEMENT

2011, a very difficult year for financial markets

Marrakesh bombing

February 20th Movement

160

200

80

140 120

Emerging countries

Morocco

Worldwide

100 Europe

180

0

100

220

2009 2010 2011

MSCI Large + Mid Cap Index

1st Greek rescue plan 2nd Greek rescue plan

The Arab Spring

Japan’s earthquake

Start of Greek crisis



• After a real revitalization in 2010 of financial markets, 2011 is marked by a sharp fall in stock indices, in particular from May forward

• Investor confidence is weak and can be explained by two factors: – The threat of a new relapse – The fear of the Euro zone’s collapse (hence a greater impact on the CAC 40)

• Consequently, financial markets have shifted largely towards safe havens like gold and government bonds at the expense of equity markets

• The Casablanca stock market declined over the year. Several factors caused this situation: – Continuing uncertainty in the global economy – Multiple Middle East crises and the risk of contagion in Morocco – Impact of the Marrakech bombing on the tourism industry – Uncertainty concerning the impact of constitutional reform – Uncertainty concerning the impact of parliamentary elections


Review of financial markets in 2011



Steep decline in capital raised in 2009 and 2010 [Worldwide]

Recovery of investment operations with 2010’s economic rebound [Worldwide]

Source: Preqin, Dealogic

03 02 01 00 06 10 09 08 07 04 05

[Billions USD, 2000-2010]

04 05 03 09 07 10 06 08 01 02 00

[Billions USD, 2000-2010]


Private equity worldwide



Source: Preqin, Dealogic

Exit [Divestment] evolution worldwide * [Billions USD 2000-2010]

*Excluding bankruptcies


Strong recovery in exits in 2010

07 06 05 04 03 02 01 00 09 08 10

Q410 Q310 Q210 Q110 Q409 Q309 Q209 Q109



GDP and real GDP growth Inflation Unemployment rate [Billions MAD, %, 2007-2012e*] [%, 2007-2011] [%, 2007-2011]

Source: High Commissioner for Planning (HCP), Ministry of Economy and Finance (MEF), Foreign Exchange Office (OC)

2011e*: estimated figures based on the first 3 quarters 2011 2012e*: nominal GDP estimated on the basis of 07-11 CAGR, real GDP growth estimated by HCP

Extrapolated (07-10 base) DFI (total) Privatization-related DFI Household final consumption expenditure

Indicator selection


Dashboard of Moroccan economy

Household Consumption Direct Foreign Investment

4.1%

0 2011e

793 4.6%

2010

764

3.7%

2009

732

4.8%

2008

689

5.6%

2007

615

2.7%

1.000 845

500

2012e 2011

2%

2010

2%

2009

1%

2008

4%

2007

3%

360

+7%

2011e*

467

2010

438

2009

418

2008

400

2007

2011

8.9%

2010

9.1%

2009

9.1%

2008

9.6%

2007

9.8%

[Billions MAD, 2007-2011e*] [Billions MAD, 2007-2011e*]

GDP growth GDP

2011e* 2010 2009 2008 2007

Business Climate Business confidence index (ODE)

Q4-11 Q3-11 Q2-11 Q1-11 Q4-10 Q3-10 Q2-10 Q1-10

32 -35%


38 28 25 21






Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



No new companies were created in 2011. Amundi was taken over by Abraaj Capital. Management companies have, on average, a staff of 5 people, 3.5 of whom are in professional functions

CHARACTERISTICS OF MANAGEMENT COMPANIES

19 management companies were in existence at the end of 2011.




Distribution of capital

• Following the international trend, management teams’ share increased: 23% at the end of 2010 compared to 26% at the end of 2011

• Moreover, there is a decline in financial institutions’ share and growth on the part of individuals

*Other: Funds of funds + private holdings + government entities Scope: 18 management companies, excluding PEI

Financial institutions

Insurance companies

Management teams

Other*

Caisse de dépôt** Individuals

**Caisse de dépôt: state pension/asset management entity




Organization of investment committees and management type

Discretionary management corresponds to an internal investment committee only organization. The investment decision rests entirely with the management team.

Non-discetionary







Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



At the end of 2011, there were 34 funds: • Reintegration of MIF (2006) • Creation of IDRAJ funds by CFG (2011) • Creation of MPEF III by Maroc Invest (2011)

LEGAL FORMS OF FUNDS

CHARACTERISTICS OF FUNDS UNDER MANAGEMENT

Since 2006, the legal forms of funds have diversified: SA, foreign form for funds domiciled outside Morocco, SAS and SCA. No funds have yet been established as an OPCR, even though several management companies have received approval

2 7 25 funds

By number of funds

SA: Société Anonyme, roughly equivalent to a corporation SCA: Société en Commandite par Actions, roughly equivalent to a limited share partnership

SA SAS

SA

SAS: Société par Actions Simplifée, roughly equivalent to a limited liability company (LLC) OPCR: a new legal vehicle for private equity funds in Morocco, created by Law 41-05




Contribution level from parent companies

Contribution to the managed funds from the parent company of “less than 10%” increased (from 50 % to 55%): demonstrating an increase in the funds self-reliance

En nombre



In 2011, fundraising (new funds and new closings) totaled MAD 480 million, a decline compared to 2010 At the end of 2011 with respect to the cumulative total, all funds raised amounted to nearly MAD 8 billion but the funds actually available * amounted to MAD 3.9 billion


Amounts raised

*Note several correctives compared to previous reports: reintegration of MIF, downward revision of Morocco’s estimated share for certain regional funds

*after removal of amounts raised by funds in the exit phase and removal of investments made by funds in the investment phase

Amounts raised by year* (in MAD million)

Moroccan funds

Regional funds

1999 and earlier Between 2000 and 2005

Between 2006 and 2011

Amonts raised by fund vintage (in MAD million)


2883



Country of Domiciliation of Funds

Almost half the funds are domiciled overseas, leading with Mauritius and followed by Scotland, Luxembourg, Spain and France

By capital raised

France

Spain

Scotland

Luxembourg

Mauritius

Morocco

Jersey

1999 and earlier Between 2000 and 2005 Between 2006 and 2011

4% 5% 6% 6%

26%

52%

4%

49%

45%

100%




Type of funds: general or sectoral

More than MAD 1 billion were raised by sectoral funds (mainly agribusiness, ICT and health)

By capital raised

Sectoral

General




Priority investment areas

Since 2006, regional funds have arrived targeted at the Maghreb and Africa and a portion of such funds allocated to Morocco

By number of funds

MOROCCO Regions in Morocco

Morocco

Maghreb

Africa

1999 and earlier Between 2000 and 2005 Between 2006 and 2011




Capital raised by investor type

The share of financial institutions (including insurance companies) and that of development finance institutions has risen sharply since 2006 and represents more than two-thirds of investors

By capital raised

Other**

Caisse de dépôt*

*Caisse de dépôt: state pension/asset management entity

Private holdings

Caisse de dépôt*

Other**

International Development Finance Institutions

Financial institutions


**Other: local governmental entities, individuals, Moroccan State offices, pension funds, funds of funds, investment companies



Capital raised by investor nationality

Foreign investors account for over 50% of funds raised including the European Union, in the lead, and other countries such as Kuwait, the UAE, Saudi Arabia, the United States, countries in the MENA region

By capital raised

EU

Morocco

Other countries







Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



INVESTMENTS

Evolution of invested and reinvested funds

2011 investments represent MAD 344 million, slightly lower compared to 2010: there were 16 investments and 7 reinvestments. Total investments at the end of 2011 amounted to MAD 3.3 billion

Invested funds (total in MAD millions) Reinvested funds (in MAD millions)



En nombre En valeur

INVESTMENTS

Invested companies by development phase

Since 2010, there has been a strong growth in the number of seed and venture phase investments. In terms of amount invested, growth phase investments remain predominant

En valeur

Seed

Buy-out

Turnaround

Venture

Growth

Seed

Buy-out

Turnaround

Venture

Growth

By number of companies

By capital invested

By capital invested

Seed

Venture Turnaround

Buy-out

Growth

2010 2011 2011 2010

Between 2000 and 2005 Between 2006 and 2011


3% 4%

6%

1%


INVESTMENTS

Investments by sector

Greater growth is noted in investments in Service, Construction and Agribusiness sectors


Construction industry

Chemical industry Primary sector

Automobile industry

Agribusiness industry

Service sector

Distribution and commerce

Other industries

ICT Service sector


Agribusiness industry

Chemical industry

Primary sector

Automobile industry

Construction industry Chemical industry Primary sector Automobile industry

By capital invested by vintage year

Agribusiness industry Service sector Distribution and commerce Other industries ICT

2010/2011 by capital invested



11%

12%

13%

25%

33%

23%

8% 3% 12%

27%

11% 9% 5%


En valeur

INVESTMENTS

Location of invested companies

Since 2006, there is increasing investment in new areas: Rabat-Salé, Tangier, Fez and Eastern regions


By capital invested

Rabat-Salé-Zemmour-Zaer

Fez-Boulemane

Other regions

Casablanca

Tangier - Tetouan



INVESTMENTS

Breakdown of enterprises by investment method

Straight equity investment continues to dominate


By capital invested

Equity & Quasi Equity

Straight Equity



INVESTMENTS

Breakdown of enterprises by transaction size and by capital acquired

Transactions of more than 50 million are rising sharply. Acquisition of majority equity stakes continues to increase (36% for second generation funds)

By number of transactions (in amount of capital acquired)


More than 50

40 to 50

30 to 40

20 to 30

10 to 20

0 to 10


Less than 5%

Between 5% and 34%

Between 34% and 50%

Between 50% and 67%

More than 67%

59.0%

9.8%

19.7%

8.2%

By number of transactions (in MAD millions)


3.3%






Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



The last two years were marked by significant exits (more than MAD 500 million) due to the maturity of the first generation funds. The total amount of exits totaled MAD 1.6 billion at the end of 2011

EXITS

Evolution of exits

Amounts exited



EXITS

Breakdown by exit type

In 2011 there were 10 exits, with JetAlu and S2M IPOs of significant value

Management

Listing (IPO)

Industrials (trade sales)

Private equity buyer

Refinancing

Write-downs and write-offs

By number By capital returned

Management

Listing (IPO)

Industrials (trade sales)

Private equity buyer

Refinancing

Write-downs and write-offs


75%

19%






Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



PERFORMANCE

Weighted average IRR by investment stage

Based on all exits through year-end 2011, the overall weighted average IRR is 20%.

Note that the IRRs from investments with a duration of less than 1 year and IRRs of partial exits were not taken into account

Seed/Venture Growth Buy-out



Average IRR= 20 % Median = 12 %

Average (unweighted) IRR by quartile

The most successful exits (4th quartile) reflect an average performance of 42%

PERFORMANCE

1st Quartile 2nd Quartile 3rd Quartile 4th Quartile







Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



CAGR* 18.76%

ECONOMIC AND SOCIAL IMPACT

Evolution of invested companies sales by development stage

Companies in the seed stage and in the process of being established showed the highest rate of sales growth. On average for invested companies, the sales growth rate is 19%, down compared to the 2010 Report (26%)

* Compounded annual growth rate





Sales growth by sector

Sectors with the strongest growth: construction, agribusiness, and ICT

Other industries Construction industry Agribusiness industry

Distribution and commerce

Service sector ICT



Employment growth in invested companies

CAGR = 11 %


On average in 2011, employment growth is 11%, down compared to 2010 (15%)



Annual employment growth in invested companies by development stage between 2005 and 2011



Evolution of companies CSR Existence of an annual

training plan

At investment

Today

At investment

Today

At investment

Today

At investment

Today

At investment

Today

Existence of a Strategic Workforce Plan Existence of a code of ethics

Existence of action plan for environmental protection

Existence of social action plan (community actions to fight poverty, illiteracy,

and to support local employment, etc.)




Evolution of corporate governance

The impact on governance is very high: almost all invested companies are at levels close to 100%

Existence of company audit

At investment

Today

At investment

Today

At investment

Today

At investment

Today

Existence of reporting tools

At investment

Today

Existence of policies on defining and monitoring budgets

Existence of performance indicators


Existence of oversight committees (steering committee, audit committee,

management committee, etc.)






Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



What will be the 3 main challenges in 2012 ? When will fundraising for a new fund commence ?

FORECASTS

Manage under-performing companies

Fundraise

Identify exits

H1 2012 H2 2012 H1 2013 H2 2013 Not planned

Invest in new companies



When has the exit been planned for the majority of portfolio companies ?

Which aspects of the general context in the Maghreb might impact business activities in the short-term ?

FORECASTS

H1 2012 H2 2012 H1 2013 H2 2013 Not planned

Fundraising

Profitability of portofolio companies Exit opportunities

New investments

Evaluation of portfolio companies



For regional funds, in which countries will investments be made in either equal or greater amounts ?

FORECASTS

Algeria Morocco Tunisia Egypt Sub-Saharan Africa



In which sectors will investments be contemplated, in either equal or greater amounts, in the next 5 years ?

In which areas will investments be contemplated, in either equal or greater amounts, in the next 5 years ?

FORECASTS

Agribusiness Health Service ICT Consumer goods Automobile Distribution Energy Transportation and logistics Construction Telecommunication Holiday real estate

Casablanca Rabat Tangier Marrakech Agadir Oujda Fez Laayoune







Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



SUMMARY

Key figures • Number of funds: 34, managed by 17 management companies • Funds raised year-end 2011 in total : MAD 8 billion • Funds Available: MAD 3.9 billion • Investment: MAD 3.3 billion • Fundraising and investments declined in 2011 vs. 2010 • Exits in total : MAD 1.6 billion • Average IRR per exit : 20% • Number of invested companies: 135 companies (15 co-invested) • Number of exited companies: 45 companies • Significant exists in 2010/2011, in particular IPOs

Trends • Sectoral and regional investment expansion • Growth in seed/venture stage investments • Strong commitment by the investment funds to support the invested companies, resulting in a

remarkable economic, social and environmental development • Plans for new funds in 2012 for half the management companies







Investments

Exits

Performance


Forecasts

Summary

Annexes

Table of Contents



* Funds not yet closed ** Funds in exit phase *** Fund data for Kantara Maroc managed by Amundi in France were kept in the Report

ABRAAJ Al Kantara LP***

ALMAMED Massinissa Massinissa Luxembourg

ATLAMED AM Invest Morocco**

ATTIJARI INVEST Agram Invest Igrane** Moroccan Infrastructure Fund**

AUREOS CAPITAL Aureos Africa Fund Africa Health Fund

AZUR PARTNERS Nebetou Fund

CDG CAPITAL PRIVATE EQUITY Accès Capital Atlantique** Fonds Sindibad** Cap Mezzanine

CFG CAPITAL CFG Développement** IDRAJ

CAPITAL INVEST Capital Morocco** Capital North Africa Venture Fund

DAYAM SA Fonds Dayam FIROGEST FIRO HOLDAGRO SA Targa

MAROC INVEST MPEF I et Afric Invest I** MPEF II **et Afric Invest II MPEF III

MITC CAPITAL Maroc Numeric Fund PRIVATE EQUITY INITIATIVES-‐PEI* RIVA Y GARCIA Mediterrania

UPLINE INVESTMENTS

Upline Technologies** Upline Investment Fund Fond Moussahama I **et II OCP Innovation Fund for Agriculture (OIFFA)

VALORIS* VIVERIS ISTITHMAR Altermed Maghreb

ANNEX 1 List of management companies and funds included in the report



List of “emerging and developing countries”, according to the IMF

This category contains 150 countries:

Republic of Afghanistan, Albania, Algeria, Angola, Antigua and Barbuda, Argentina, Armenia, Azerbaijan, The Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, Chile, China, Colombia, Comoros, Democratic Republic of Congo, Republic of Congo, Costa Rica, Côte d'Ivoire, Croatia, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, The Gambia, Georgia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Hungary, India, Indonesia, Islamic Republic of Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya, Kiribati, Kosovo, Kuwait, Kyrgyz Republic, Lao People's Democratic Republic, Latvia, Lebanon, Lesotho, Liberia, Libya, Lithuania, Former Yugoslav Republic of Macedonia, Madagascar, Malawi, Malaysia, Maldives, Mali, Mauritania, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Nicaragua, Niger, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russia, Rwanda, Samoa, São Tomé and Príncipe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Solomon Islands, South Africa, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Sudan, Suriname, Swaziland, Syrian Arab Republic, Tajikistan, Tanzania, Thailand, Democratic Republic of Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vanuatu, Venezuela, Vietnam, Republic of Yemen, Zambia, and Zimbabwe.

ANNEX 2



Constituents of MSCI indices measuring stock market performance

• BRAZIL • CHILE • CHINA • COLOMBIA • CZECH REPUBLIC

• EGYPT • HUNGARY • INDIA • INDONESIA • KOREA

• MALAYSIA • MEXICO • MOROCCO • PERU • PHILIPPINES • POLAND • RUSSIA • SOUTH AFRICA • TAIWAN • THAILAND • TURKEY

Constituents of the Emerging Markets index • AUSTRIA • BELGIUM • DENMARK

• FINLAND • FRANCE • GERMANY

• GREECE • IRELAND • ISRAEL • ITALY • NETHERLANDS • NORWAY • PORTUGAL • SPAIN • SWEDEN • SWITZERLAND • UNITED KINGDOM

Constituents of the Europe index

Constituents of the World index

• AUSTRALIA • AUSTRIA • BELGIUM • CANADA • DENMARK • FINLAND

• FRANCE • GERMANY • GREECE • HONG KONG • IRELAND • ISRAEL

• ITALY • JAPAN • NETHERLANDS • NEW ZEALAND • NORWAY • PORTUGAL • SINGAPORE • SPAIN • SWEDEN • SWITZERLAND • THE • UNITED KINGDOM • USA

• BRAZIL • CHILE • CHINA • COLOMBIA • CZECH REPUBLIC • EGYPT

• HUNGARY • INDIA • INDONESIA • KOREA • MALAYSIA • MEXICO

• MOROCCO • PERU • PHILIPPINES • POLAND • RUSSIA • SOUTH AFRICA • TAIWAN • THAILAND • TURKEY

24 developed markets 21 developing markets

ANNEX 3



MOROCCAN PRIVATE EQUITY ASSOCIATION (AMIC)

Founded in 2000, AMIC is an independent professional association whose mission is to unite, represent and promote the private equity profession to local and international investors, entrepreneurs and governmental bodies.

AMIC's main mission is to strengthen the private equity industry’s competitiveness in Morocco and abroad through:

• Effective and clear communication on the private equity industry

• Executing reliable reports and surveys on the state of private equity in Morocco

• Active participation in discussions on any draft law regulating the sector

• Establishing a good governance and ethics code for the private equity industry and promoting compliance with such code

• Providing support services to members on regulatory issues related to the profession

• Development of a quality training program on all aspects of the private equity industry

FIDAROC GRANT THORNTON

The firm belongs to the Grant Thornton International network: • A global leader in consulting and auditing • Grant Thornton International includes more than

27,000 employees in nearly 120 countries • Grant Thornton France is the official partner for the

activity report of the French private equity players.

Fidaroc Grant Thornton operates in the following areas: • Auditing-Statutory Auditor • Company valuation and acquisition and divestment

audits (due diligence) • Advisory work on corporate performance,

organization and information systems • Executing sectoral reports and benchmarking • Supporting certification projects (customs

classification and corporate social responsibility) • Training in management and financial management • Business Risk Services (risk management, risk

mapping) • Support companies in adopting IFRS standards.

ANNEX 4


Private Equity Activity, Growth, and Performance in Morocco Report 2011

Documents

Transcript of Private Equity Activity, Growth, and Performance in Morocco Report 2011