Due Diligence: Don’t get too distracted by Africa’s macro story, says investor

Romain Py, head of investments at African Infrastructure Investment Managers

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 | www.africaprivateequitynews.com

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Private equity firm African Infrastructure Investment Managers (AIIM) targets investments in the energy, telecommunications and transport sectors across Africa – areas where it sees the greatest disconnect between the demand for critical infrastructure and available capital for these projects. AIIM has raised over $2.1 billion across seven funds and invested in more than 56 projects in 17 countries since 2000.

Romain Py, head of investments at AIIM, tells How we made it in Africa why investors shouldn’t get too distracted by macro-economic indicators and reveals the biggest misconception about his job.

What is the greatest investment lesson you’ve learnt?

Overall, the investment opportunity is becoming more complex with African economies and the private equity industry still adjusting to the lower GDP growth environment. This has resulted in significant changes in the infrastructure needs across the continent as well as in a rationalisation and prioritisation of the project pipeline. This has also reinforced the importance of having a geographically-diversified portfolio. With increased political instability in a number of countries and the continent’s uneven performance in regard to economic, social and governance indicators, one should less focus on the macro as investments are more of a micro story.

In sum, don’t get too distracted by the macro story and focus instead on the execution risk and the practical challenges of implementing the business plan underwritten.

Identify an untapped opportunity for private equity investors in Africa.

The continent’s energy revolution is seeing rapid progress in off-grid and distributed power solutions that will enable African communities to leapfrog the old infrastructure and be at the forefront of new energy paradigm (innovative financing models are accelerating this change).

We recently invested into BBOXX, a pan-African next generation power utility platform providing affordable, clean energy to off-grid communities. We have also invested into Starsight Power Utility, a Nigeria-based energy services company offering solar-diesel-battery hybrid power solutions and efficient cooling to commercial and industrial clients.

What is the biggest misconception about your job?

One misconception is around the volume of deal-making. In private equity, if you execute one investment a year, that’s a lot. You can work on things for months but they can end up not bearing fruit. In investment banking, where I worked for years, you will not spend as much time on one project, but the velocity is greater. There is a much higher level of thoroughness in private equity both in terms of financial analysis and risk analysis, and thus it requires more patience. I always say to the juniors “don’t always believe what you see, keep on asking, check the reality on the ground and apply common sense for valuation”.

Name the one deal you wish you invested in.

The Benban Solar Park near the southern city of Aswan is a part of Egypt’s feed-in tariff programme, which is a major initiative to influence private sector capital and expertise, in order to support the goal of generating 20% electricity from renewable resources by 2022.

The first three solar projects with a total capacity of 150MW closed in 2017 with 32 more projects totalling 1,465MW of generation closed in the following year. The Benben Solar Park has definitively put Egypt on the map and promises to transform the country into a major solar energy player in the world. Historically, AIIM’s focus has been on sub-Saharan Africa; but we lately have started to look at North Africa.

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

Financial literacy is key, as is a sincere passion for the work we do and about investing in Africa. In addition, you need to have stamina, grit and humility – a nice person with a strong sense of integrity.

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 | www.africaprivateequitynews.com