Proprietary and Confidential — Kroll Advisory Solutions · 2012. 9. 26. · 1. Sub-Saharan Africa...

Proprietary and Confidential — Kroll Advisory Solutions 1

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

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


Sub-Saharan Africa Market Overview


Melvin Glapion Managing Director, Kroll Advisory Solutions

FDI has historically focused on diversified or oil-exporting economies – in countries that are perceived to be less corrupt


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

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


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

There is significant disparity in income per capita within regions, and the average income per capita is less than the BRICs


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)


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


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


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

Africa has a broad range of fraud-related issues and scores highly in most categories


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

Overview of Regulatory Considerations for Private Equity Funds Investing in Sub-Saharan

Africa


Bayo Odubeko Partner, Norton Rose LLP

16

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

17

Bayo Odubeko Partner, Norton Rose LLP

Panellist Introductions

Davinder Sikand Senior Partner - Africa, Aureos Capital

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



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

Key issue: Difficulties in conducting due diligence


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”

Key issue: Deal size means due diligence is focused on legal issues


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

Key issue: Aggressive regulatory frameworks deem Africa as a “high risk” jurisdiction


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

Lessons learned and Q&A


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

Proprietary and Confidential — Kroll Advisory Solutions · 2012. 9. 26. · 1. Sub-Saharan Africa...

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