How we made it in Africa’s ‘Due Diligence’ series asks top players in Africa’s private equity industry about how they are mastering the art and science of profitable dealmaking and fundraising. Doing the due diligence on those who do due diligence for a living.

This article is published in association with Africa Private Equity News, a one-stop source for industry-related information. Stay up to date by downloading the free Africa Private Equity News app: Android | iOS | Scan QR code from desktop

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Private equity firm Mediterrania Capital Partners focuses on growth markets in Africa. It invests in countries characterised by consumption-driven economies, pro-business policies, rapid urbanisation, favourable demographics and growing consumer classes.

In this interview, Albert Alsina, CEO and founder of Mediterrania, talks about the untapped opportunities for private equity investors in Africa and explains why a good company is not always a good deal.

1. What is the greatest investment lesson you’ve learnt?

An important lesson we’ve learnt is that a good company does not necessarily mean a good deal. Having a good business on the table is key, but making sure that you are paying the right price, the deal has the right structure, the exit strategy is clear and has been set up in alignment with the entrepreneur, etc. is even more important. Being able to differentiate between a good company and a good deal is crucial in any kind of investment in private equity.

Another important lesson we’ve learnt is that having full alignment with the promoter regarding the exit strategy and liquidity events before signing the deal is very important in order to ensure that they happen at the agreed time and your firm delivers good and timely returns to the investors.

2. Identify an untapped opportunity for private equity investors in Africa.

There are many untapped opportunities for private equity investors in Africa. For example, we usually find companies that are strong leaders in their country but which need strategic, operational and financial help to expand internationally. These businesses can greatly benefit from private equity investors’ operational expertise and market knowledge.

In terms of sectors, education and financial services offer huge opportunities. There is an increased demand for high-quality educational institutions from the growing middle class in Africa, which is still not being fulfilled and is set to continue. The financial services sector, too, is clearly underserved in Africa, and private equity can help to boost it considerably.

Last year we invested in Groupe Cofina, a meso-finance institution in West and Central Africa. Cofina helps entrepreneurs and small and medium enterprises to obtain medium- or long-term financing. Thanks to our support, Cofina is developing new products and services appropriate for these types of customers, whose needs have outgrown microfinance institutions but whose entrepreneurial structure is still considered insufficiently formal by traditional commercial banks.

3. What is the biggest misconception about your job?

The biggest misconception is that Africa is one continent and can be managed as such. In fact, Africa is a patchwork of 54 highly diverse countries with different languages, cultures, political contexts, economic development levels, working styles, customer demands, legal regulations, etc. Private equity firms need to be very strict with their choice of countries and companies in which to invest. Private equity firms operating in Africa need to have a strong understanding of the micro- and macro economics of the different countries and be capable of undertaking a thorough financial analysis of each potential investment. All of the legal aspects are very important, too. We must not underestimate the different worlds that exist within Africa.

4. Name the one deal you wish you invested in.

I can’t think of a deal we would have liked to invest in. Once, though, we invested in a company that performed extremely well and exited it a few years later with very good returns. In hindsight, we maybe could have kept it for a little longer, continued to work on it and perhaps sold it for a higher price.

5. Describe the skills needed to succeed in Africa’s private equity industry.

Firstly, I believe that you need a team with a strong in-depth local knowledge of the focus countries and their industries and players, economic and political aspects, market trends, etc. Then, as a private equity firm, you must apply a strong diversification strategy by country and by sector. Next, you must be disciplined in your investment strategy and meticulous when analysing the potential investments. Finally, in terms of deal-making and value creation, of course, you must invest in companies that are good deals, not just good companies … and ensure that you have the exit strategy and liquidity events well defined and fully agreed before the deal is signed.

This article is published in association with Africa Private Equity News, a one-stop source for industry-related information. Stay up to date by downloading the free Africa Private Equity News app: Android | iOS | Scan QR code from desktop