Africa Comes of Age: An Interview with Bryce Fort

by MMC
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The talk of a lack of exit opportunities may be due to the inability of some managers to properly manage or structure their transactions, rather than a lack of demand in the secondary market.

The year 2022 saw a record $7.4 billion in private investment in Africa.
Source: African Private Equity and Venture Capital Association (AVCA)

You have been a major player in the private equity sector in Africa for many years, with key roles in many notable transactions. What attracted you to physical education work in Africa?

I joined Emerging Capital Partners in 2002, then called Emerging Markets Partnership (EMP), where we launched the first large pan-African PE company. Before that, I was an investment analyst at Deutsche Bank in London. As such, I have an interesting and multifaceted vision of PE in Africa, having been active from the beginning of the industry. There were only four African funds and management companies when we established Fund I. Today there are around 80 to 100 management companies and over 260 equity investment funds focused on Africa.

Foreign investment in Africa has increased significantly over the years, despite ongoing jurisdictional and regulatory risks and political instability across the continent. Do you sense a change in mood towards Africa?

The mood tends to come and go, depending on global macroeconomic trends. There was a period of learning from 2011 and 2012, when the so-called “rising Africa” discourse became predominant. During this period, investors began to explore Africa more deeply. We’ve received several billion dollars in direct funds, and IHS has certainly been a major beneficiary. We raised $3 billion in equity capital from investors around the world between 2012 and 2014. The COVID-19 pandemic created a different mood, with interest rates rising and African economies contracting. However, the mood is becoming more positive as we emerge from the devastation caused by COVID-19.

Skeptics still insist that private equity opportunities in Africa are quite limited and exit possibilities can be particularly problematic. Do you think these perceptions are still valid?

Exit opportunities in Africa can broadly be divided into two categories: general exit opportunities and IPOs. ECP has completed over 40 exits so far and other private equity firms have sold good and profitable African companies. The demand and capacity to exit PE equity investments in Africa does exist, provided the investor adheres to certain key principles and takes into account a number of Africa-specific factors. The talk of a lack of exit opportunities may be due to the inability of some managers to properly manage or structure their transactions, rather than a lack of demand in the secondary market. That said, there are challenges in Africa that private equity investors need to consider. For example, capital formation in Africa is less pronounced than in more developed markets, and companies have smaller budgets for M&A transactions.

Regarding the IPO as an exit opportunity, the recent listing of IHS Towers (IHS) – one of Africa’s leading mobile tower operators – on the New York Stock Exchange (NYSE), is made history in many ways as an African IPO. It was great that we were able to list IHS on the New York Stock Exchange. To be eligible to list on a market like the US or UK, you must be able to adhere to the highest standards of corporate governance, as well as financial, accounting and reporting obligations imposed by their respective stock exchanges. IHS was able to do it, and I think many other African companies are also able to do it. I expect to see more African companies listing on African stock exchanges internationally and hopefully locally as well.

Besides the African stock exchanges and the NYSE, there are other exchanges to explore, including London and Paris, for example. Do you think African companies will naturally look to the NYSE for IPOs, and what are your thoughts on the other options available?

The choice of exchange depends on each particular situation. Some countries have deep historical roots with London and Paris, including in their legal systems. This plays a role. However, there are also challenges to consider. The regulatory and/or stock exchange requirements of a particular country may or may not align with the needs of the company and shareholders. In certain circumstances, corporate structuring may be necessary to adapt the business to the rules of a particular stock exchange.

New York is larger, with deeper capital markets and more flexibility, but that doesn’t mean it will be best suited for every company looking to go public. African companies are often attracted to large local stock exchanges due to their familiarity, notably the Johannesburg Stock Exchange, which benefits from a critical mass of large institutional investors. The choice of exchange ultimately depends on the size of the company, the exchange, the rules of the exchange and the structural changes that need to be undertaken to align the company with the rules of that particular exchange and the profile of the company’s shareholders. For example, IHS had shareholders spread across the Asia-Pacific region, Europe, Africa and the United States. Their level of knowledge of the requirements of U.S. financial markets varied considerably. White & Case was instrumental in helping IHS shareholders understand these issues and align them with their own local requirements.

Africa has become a pioneer in financial services in several respects. The way people move money across the continent and bank on their mobile phones is far ahead of even more developed markets. Over the last 15 to 20 years, we have seen this transformation become much more institutionalized, which is a very positive by-product of PE’s engagement in Africa. Africa appears to be coming of age – a good market in which to do business and make profits – beyond the simple development work we saw in the early years. Do you agree?

Absolutely. When we started, investor interest outside of natural resource companies, ports/shipping, logistics, etc., was marginal. What we have seen more recently is interest from traditional financial investors and strategic investors. We have seen a large and very consistent influx of big names into Africa, such as American Towers, General Electric and Walmart.

Financial investors, of course, come and go much more frequently, depending on how they allocate their capital. Africa is very sensitive to global macroeconomic trends, and we have seen its interest wax and wane based on these trends. When markets are rising, extra money tends to flow to Africa. When markets are down, this money returns to safety, mainly to the United States. However, if we take a longer-term view, going back before the global financial crisis, then after the COVID-19 crisis and up to today, we see a clear and positive trend from investors financial and strategic policies that allocate increasing amounts of capital to Africa.

Do you see a growing trend to focus more on regulatory compliance and ESG issues affecting PE in Africa? If so, how do you see the reaction of your investors?

Africa has actually been a leader in ESG for some time now, in some ways due to the role that development finance institutions have long played as a major source of capital in Africa. We have been reporting on ESG since the early 2000s, long before markets expected European or American companies to do so.

Regulation and compliance is a very interesting trend. Generally speaking, it is the United States and Europe that set the tone. They create regulations and compliance rules that they believe should apply in their own markets, and then these extend to other markets. What concerns us – and not just in Africa – is that companies must invest significant sums in compliance teams and systems to ensure compliance with these increasingly complex and burdensome requirements. This crushes small businesses in favor of larger companies with greater resources. Small businesses can find it very difficult to meet required standards, for example “know your customer” requirements imposed on shareholders. For example, the requirements in one jurisdiction may be much more onerous than those in another.

White & Case means the international law firm comprising White & Case LLP, a limited liability company registered in the State of New York, White & Case LLP, a limited liability company incorporated under English law and all other partnerships, affiliated companies and entities.

This article is prepared for the general information of interested persons. It is not exhaustive and does not claim to be. Due to the general nature of its contents, it should not be considered legal advice.

© 2022 White & Case LLP

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