Pan-African private equity manager EXEO Capital recently announced the final close of its second food and agribusiness fund, Agri-Vie Fund II, at $146 million. The fund has already completed five new transactions, ranging from aquaculture and beverages in South Africa to protein and packaging industries in East Africa.

Jaco Maritz caught up with Herman Marais, managing partner of EXEO, to discuss the unexploited opportunities for private equity investors in the continent and the dealmaking lessons he has learnt over the years. He also revealed the one deal that got away. Here are slightly edited excerpts from the conversation.

1. Explain your fund’s investment philosophy.

We do a lot of work to identify the top five company prospects in our chosen sectors and sub-sectors, and then we select companies through rigorous criteria. We are, therefore, quite proactive in our origination. And once we invest, we see it as a partnership to build out a successful business that will realise its potential. We accept that there will be ups and downs through the years and through the cycles, but we believe that if we connect with the right counterparts who share our partnership philosophy, we will see the investment through to success.

Apart from the usual investment decision-making criteria, I will single out that you can seldom escape from overpaying for a company. So structuring and the pricing at which we enter, together with the partnership philosophy, is what makes it work for us.

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

We’ve seen time and again that we need to trust our instincts, particularly if there is an indication that radical changes have to made in a business. Those radical changes often have to do with leadership in the business and what we’ve seen more than once is that you need to make those changes quickly and early on. If your instincts tell you that something is not right, then in all probability the longer you wait, the worse it will get.

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

So far we have been largely focused on the food and agri sector. So it’s a terrain that we know fairly well and we know there is still a lot to be done in the sector in Africa. We and other investors have barely scratched the surface.

Secondly, there is a lot of media and industry attention on the mega-deals, but at the mid- and smaller-cap level there are thousands of companies that can be looked at to identify the ones of investment grade. And this is not always known to private equity investors from the developed world.

Then lastly, although our main space has been food and agriculture, we certainly see attractive opportunities in non-food FMCG, business services and logistics (which mix closely with the food and agri theme). And then we are also monitoring opportunities in private education and healthcare.

4. What is the biggest misconception about your job?

The one I have encountered most often is that people who are less familiar with the industry think it is all about financial structuring and dealmaking. In reality, it is 80% about being able to drive change through people and business transformation. Where things get stuck or where they make progress is the ability to introduce and manage change for the better inside the businesses in which we invest, together with our partners.

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

We generally steer away from commodity businesses because commodities go through cycles, and if you get a cycle wrong, you can come out on the other side in not a good way. So, about 10 years ago we were presented with an opportunity in the branded tea sector, which is a big industry in East Africa. But because of uncertainty about the outlook for the tea commodity cycle at the time, we let that one pass. We realised later that if we had been more courageous at the time, it would have had a very good outcome because the tea cycle did very well in the years after that.

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

I would emphasise three particular skills. The first one is ingenuity and persistence in origination. Africa is a geography in which information about companies is very unevenly spread. So to get to the best quality targets takes a fair amount of ingenuity and persistence.

The second one I would emphasise is having persuasion skills. Even at the dealmaking stage, in this geography, one often has to overcome a lack of knowledge about the role that private equity can play in businesses. There is often a misunderstanding about private equity among family-owned businesses. So persuasion skills to penetrate through that is important.

And thirdly, I come back to a skill set around driving transformation inside businesses – change management and business transformation skills, to create and build value.