Slide 1

Report
Case Study: Aureos
Southern African Fund
Ron Den Besten
20th October 2010
Aureos Capital
Regions:
- Central America
- South America
- China
- West Africa
- East Africa
- Southern Africa
- South East Asia
- South Asia
- Pacific Islands
• Independent private equity fund manager focused on building mid-market companies
• Since its establishment in 2001, Aureos has increased its funds under management to over
US$ 1.2 billion and extended its geographical footprint to over 50 emerging markets covering
Asia, Africa and Latin America, by establishing 16 regional private equity funds.
• 184 transactions completed in the emerging markets since 1989
• Unparalleled global infrastructure underpinned by strong local market intelligence
• Over 50 institutional investors
The Lifecycle of a Private Equity Fund
Fundraising
Launched:
30 June 2003
Current Fund Size:
US$50 million
Regions:
Johannesburg, SA
Lusaka, Zambia
Port Louis, Mauritius
Institution
Investment in US$
% Stake in Fund
CDC Capital Partners
12.55
25.1
Norfund
12.55
25.1
European Investment Bank
10.00
20.0
Canadian Investment Fund for Africa
4.9
9.8
International Finance Corporation
6.0
12.0
Nordic Development Fund
4.0
8.0
Fundraising
Investor Setup & Transaction Flow
Distributions
•
•
•
Capital
Income
Exit Proceeds
Drawdown
•
•
•
Fees and Expenses
Capital for approved
investments
Follow-on investments
Returns
•
•
•
Hurdle Rate – 6%
25% Catch - Up
20/80 Carry
Investment Period
Deal Pipeline / Approval Process
• ASAF has 10 Deals
• Source of Deals:
• Proprietary
• Intermediary
Watch list
Rejected
Initial Enquiry
Initial
Screening
Dead Deals
Final
Screening
Approved
On hold
Pre Disbursement
Invested
Investment Period
Initial Screening Process
Business Integrity & Anti Money
Laundering Check
ESG Check
Legal Provisions
Initial Screening
Deal Structure, Portfolio
Management & Exit
Valuation
Final Screening Process
ESG Check
Legal Provisions
Valuation
Final Approval
Portfolio Management & Exit Plan
Deal Structure
Investment Period
Investment Criteria
Investment Types






Industries

Across all industries
(However utilise World Bank exclusions
including: No investments in Tobacco,
Liquor, Gaming and Child Labour
related businesses)
Fund
ASAF
Investment Size
US$0.5 – US$5 million
(Vintage)
(2003)
Instruments



Fund Size
50.0m
Investments to date
42.0m
Investments approved
0.7m*
Total
42.7m
% of Committed Capital
85.4%
Management Buy-Outs
Management Buy-In
Expansion Capital
Public to Private
Privatisations
Black Economic Empowerment
Equity
Quasi-equity/ Mezzanine
Loans
Currency
US$ and Local Currency
Equity Stake


Significant minority stakes with
requisite minority protections
Ability to take control
No of investments
10
No. of remaining
investments
8
Investment Period
Best Practice Corporate Governance
Studies have indicated;
 “Emerging market companies with the best governance
practices generated a cumulative 5-year return 542% greater
than firms that had poor governance”
Gill, A. - CLSA Emerging Markets, 2001
“The best governed companies generated a return on equity
that was 23.8% higher than firms with poor corporate
governance”
Brown, L & Caylor, M – Institutional
Shareholder Services, 2004
“Portfolios of companies with strong shareholder-rights
protections were found to outperform portfolios of companies
with weaker protections by 8.5% annually”
Gompers, P, Ishti, L & Metrick, A. – Quarterly
Journal of Economics
118 no.1, 2003
Investment Period
Industries Invested
Country Exposure
Telecommunication,
12%
Information
Technology, 12%
Madagascar,
5%
Manufacturing, 35%
Regional, 20%
South Africa,
40%
Angola, 6%
Construction, 10%
Financial Services,
20%
Agri Processing,
11%
Zambia, 29%
Deal Types
MBO, 17%
Replacement, 36%
Expansion/Growth,
36%
MBI, 11%
Portfolio Management
Value of Equity
Investment at Entry = x
Value
Value
1/3 =
External
Factors
1/3 =
Factors that
can be
Influenced
1/3 = Deal
Structure /
Leverage
Value
• How much value have we left
on the table?
• Where could we have done
more?
Value of Equity
Investment at Exit = 2x /
3x / 5x
• What could the multiple have
been if we had extracted all
potential value?
Portfolio Management
Portfolio Management: Summarized
Previous Action
Plan
Budget
Valuation
ESG Report
Investment
Valuation Report
RCF
Investment
Financial
Performance
P
o
r
t
f
o
l
i
o
M
e
e
t
i
n
R g
e s
v
i
e
w
PM is a very important stage of
the investment which involves
monitoring of the investment and
constant reporting to the
investors. The overall
performance of the portfolio
company is measured, tracked
and corrected in this stage to
ensure a successful exit.
Revised Action
Plan
During this stage the Fund
Manager provides growth,
guidance and assistance to
ensure an efficient portfolio
management leading to
attractive returns.
Portfolio Management
Passive Value Addition
Active Value Addition
Setting aside time for Board Representation while
focusing on primary activities e.g. deal execution
Designating individual executives to focus solely
on enhancing investment value and limited
responsibility to 3-5 deals
Reviewing outcomes on interventions from an expost perspective
Reviewing inputs to interventions, examining
progress and learning from outcomes
Generating ideas that are suggested to Investee
management for consideration
Developing a comprehensive, integrated
intervention plan, including target outcomes
Contributing ideas to management during regular,
but infrequent board meetings
Frequent interaction with management, providing
input on how to improve effectiveness of
interventions
Portfolio Management
Leveraging Industry Networks
 Personal relationships
 Professional relationships
 eg. Real People Investment Holdings (Pty) Ltd
 Tasked with securing ZAR100m lines of credit
in the first 18 months.
 Managed to secure ZAR143m in 6 months
 Introduced DFI’s
 Strengthened Balance Sheet
 Provided assurance to other credit line
providers
 Funding Facilities grew from ZAR 127m in
2007 to over ZAR 1bn in 2008
Acquisition Strategies
 Building pan-regional businesses
ASAF Entry
Portfolio Management
Industry & Competitor Analysis
 Importance of Analysis and
tracking competitors
 Gather Intelligence
 Eg; Understanding why
competitor is managing 25%
revenue growth pa vs our
Investee growth of 15%
 Identify opportunities and
threats
 Can make use of
dashboarding here as well....
Competitor Sales Analysis
250
200
150
Competitor
Investee
100
50
0
2006
2006
2007
2008
2009
Portfolio Management
Exports
US$ 16m
Taxes Paid
US$ 57m
Turnover
US$ 330m
Over US$
0.9m spent on
training
Source: 2009 ASI Data
(9 investments)
ASAF Portfolio
Development
Impact
….. Of which
US$ 34m was in
investment in
new
Technology
Over 3 367
Employees
Over US$ 112m
on Investment
mobilisation…
Exit
Identification
of a buyer
Integrity
Checks
Valuating the
Business
Prepare Exit
Paper
Different Exit Methods
There are different exit methods employed by the
investing companies to exit from the invested
portfolio company. Following are some of the exit
methods employed by the Fund:
•
•
•
•
Management Buy Out (MBO)
IPO
Trade Sale
Buy Back
Fund
ASAF
IC Exit
Approval
Current (as at Q3 2010)
Invested
Current
Vintage Fund
Capital
Income
Value Received Received Value of
Fund
2003
42m
10.3m
11.9m
49.2m
Exit
Capital
Income
Value of
Received Received
the Fund
1.5m
22.2m
Current (as at Q3 2010)
Forecast (end of 2012)
7.4m
72.4m
8.9m
Forecast (end of 2012)
IRR
Cash Multiple
IRR
Cash Multiple
20.64%
1.70x
26.0%
2.47x
Exit
Exit (Example)
Deal Details
Investee
Fund:
Date of Investment:
Sector:
Deal Type:
Commada / Orange Madagascar
Aureos Southern Africa Fund (ASAF)
31 October 2005
Telecommunications
Replacement Capital
Shareholding Structure:
Aureos through SPV Commada: 5.0%
France Telecom: 33.6%, Societe Miaraka: 31.7%, Mauritius Telecom: 15.9%
Country:
Madagascar
Details of Returns
Original Cost:
$2 347 199
Deal Structure:
Equity (50% SPV Commada): $40
Shareholder Loan: $2 347 159
Cash Received:
$9 609 346
Cash Multiple
4.09
IRR:
43.14%
Details of Cash Flow
Money Paid
Money Received
2005
-2 347 199
150 423
2006
198 630
2007
370 105
2008
596 688
2009
416 550
Sep 2010
7 876 950
Summary
Risks and Challenges
Experienced
Teams
Local Presence
Integrity of
Sponsors /
Management
Investment
Processes
Industry
Exposure
Proprietary
Deal Flow
Deal
Structuring
• Cash Flow
• Currencies
• Legal Provisions
Track Record
Ke a Leboga
Thank You
This financial promotion is issued by Aureos Advisers Limited which is authorised
and regulated by the Financial Services Authority (“FSA”). All Aureos Funds (the
“Funds”) are defined as “Unregulated Collective Investment Schemes” (“UCIS”) and
the promotion of a UCIS either within the UK or from the UK is severely restricted by
statute. Consequently, this document is only made available to professional clients
and eligible counterparties as defined by the FSA and also to persons of a kind to
whom the Fund may lawfully be promoted by an authorised person by virtue of
Section 238(5) of the Financial Services and Markets Act 2000 and COBS 4.12.1R.
Shares or Interests in the Funds should only be purchased by persons with
experience of participating in unregulated schemes and any other person who
receives this document should not rely upon it.
Aureos Advisers Limited

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