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The Sunny Disposition of Private Equity in Today's COVID-19 World

Nov 18, 2020   •   by   •   Source: Proshare   •   eye-icon 1240 views

Wednesday, November 18,  2020 / 10:47 AM / FBNQuest Research / HeaderImage Credit: Mergers & Inquisitions 


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We listened with great interest to four prominent private equity playersin Africa in a discussion of prospects during and after COVID-19. The eventtook place in early November, and so was before the announcement by Pfizer andModerna on their vaccines to tackle COVID-19. The panel discussion was part ofthe Africa Debate, an annual event put together by an established London-basedbusiness association.


Private equity houses are generally optimistic and did not disappoint inthe discussion. They had to contend with the great returns available in Chinaand foreign exchange issues in several African markets before COVID-19 struck,yet were able to highlight many positives. One investor who follows the scriptof the emerging middle class noted that 70 per cent of their companies qualifyas essential businesses and have therefore remained open.


Another said that their investments in both telecoms and financialservices had performed well with COVID-19 whereas the record for consumer goodshad been mixed. His experience in Africa was that the crisis has helped largecompanies more than small operations, mirroring trends in advanced economies. Athird mentioned a successful investment in a remittance business, driven by ashift from sending cash across borders (now often closed) in taxis to digitaltransactions. There is the general point, made in the context of infrastructureplays, that the global slowdown has made valuations more attractive.


Without travel, investors have been unable to send specialist outside contractorsto factories for fire-fighting purposes. Whenever possible, they have sortedthe problems out on Zoom. COVID-19 has accelerated programmes to deepen localexpertise on the ground, while traditional due diligence has become highlychallenging without travel. At the other end of the transaction, an exit viaZoom requires good knowledge of the buyers. Nonetheless one investor hasconcluded two transactions in the past month, one of which is in the fintechspace.


In the Q&A session investors were asked about their target InternalRate of Return (IRR). The first to answer came up with between 15% and 20% net,and the three others were happy to nod their heads in agreement. Anotherquestion covered the integration of ESG considerations into investment decisions.One investor had already said that all their decision-taking incorporated theimpact on the climate. He argued that the valuation would suffer on a futureexit from a climate-unfriendly holding.


Expectedly, working practices have also had to change. One company hasworked hard to keep up morale as its employees work from home rather thannetwork in their office. Its responses have included organizing a party on Zoomto celebrate the appointment of three new partners. Some of the time saved fromtravelling has also been used to bring employees up to speed on the world ofEnvironmental, Social and Governance (ESG).


Overall, the momentum has slowed for the industry in Africa in terms ofnew deals, exits and fund-raising because of COVID-19. It was clear from thediscussion, however, that participants were confident about the futurepost-COVID, which point may well have been brought closer by the news onvaccine trials we have since had from Pfizer and Moderna in the US.


Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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Proshare is a professional practice focused on delivering research and information services to bridge the gap between investors and markets; by delivery on credible, reliable, and timely engagements through the following areas — Impact Research, Market Intelligence, Strategic Advisory, Stakeholder Relations & Digital Media.