Due Diligence: African companies can be regional ‘blue chips’ by crossing language lines

Papa Madiaw Ndiaye (left) and Patrice Backer

Advanced Finance & Investment Group (AFIG Funds) is a private equity fund management company with two funds currently under management, the Atlantic Coast Regional Fund and AFIG Fund II. AFIG Funds makes growth equity investments across a diversity of sectors in West, Central and East Africa. The firm is registered in Mauritius with its main office in Dakar, Senegal.

We ask Papa Madiaw Ndiaye (CEO) and Patrice Backer (CIO) about the investment lessons they’ve learnt and to identify an untapped opportunity for private equity investors in Africa.

1. Explain your firm’s investment philosophy.

We decided to set up AFIG Funds using a vision of private equity in Africa anchored on the following assumptions:

  • African entrepreneurs have the potential to be regional “blue chips” when provided with equity capital and best practice advice: we believe businesses created in Africa represent the greatest source of alpha
  • The growth of an underserved middle class with a tangible impact on certain sectors – such as agribusiness, fast-moving consumer goods, industrial, financial services, etc. – has fueled a need for capital to help companies in these sectors grow and become more competitive in a global context
  • The West, Central and East Africa regions are attractive targets for private equity, especially given improvements in the political climate and accelerating regional integration

We are sector agnostic, and we invest in ticket sizes of $10 to 20 million in 32 countries across West, Central, and East Africa.

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

Turnarounds take longer and more resources than budgeted: we have learned from experience that they are not worth it for us. Historically, we have considered investing in turnaround situations, in companies that have had a few years of poor historical performance but are priced well and have J-curve potential when they turn around. However, turnarounds take intensive staff resources, and going forward we prefer to allocate bandwidth more evenly across portfolio companies, rather than taking a “squeaky wheel gets the grease” approach. We have a six-prong value add package which we provide to all portfolio companies, covering HR, finance and internal controls, IT/MIS, communications, ESG, and corporate development. We realise that going forward, while there can be great upside in turnarounds, they are generally not a good fit for our investment timeline and target returns.

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

We still see divisions between anglophone, francophone, and lusophone Africa, and we believe there is value to be uncovered by bridging these divisions and building regional champions. For example, we helped our agribusiness portfolio company, RMG Concept, expand from francophone Côte d’Ivoire to anglophone Ghana, and then further in francophone Senegal, Burkina Faso, and Mali. Due to the language barriers, as well as different regulatory systems, business and social networks, and cultures, it can be difficult for a company to expand from one language region to another without a partner. Given our multilingual team, we are well-placed to be that partner: we are equally comfortable in francophone, anglophone, and lusophone Africa and continue to help entrepreneurs expand their businesses across language lines.

4. What is the biggest misconception about your job?

People often think that our job is all about sourcing and executing great deals. While that is certainly an important part of the job, we find that we spend more of our time in portfolio work. To reach our target returns, we have to add true value to the entrepreneur, be it in helping him or her expand regionally, overhaul their HR systems and processes so that they can be ready to double in size, or help them put in place more rigorous financial controls and an ERP system. Top entrepreneurs today have choices: between equity and debt financing, and between multiple private equity funds. The companies we have invested in have welcomed our capital because they believe we can truly add value.

5. What are the skills needed to succeed in Africa’s private equity industry?

First and foremost, people skills: relationships are key to success in African private equity, and the ability to build and maintain genuine connections as well as add value are what sets apart the most successful professionals. All our deals to date, except one, have been proprietary, and that has been thanks to the quality of our relationships and network. Having such proprietary deals has allowed us to enter at relatively low valuations which has contributed to our returns; in Fund I, our average entry EBITDA multiple was less than 5x.