Due Diligence: ‘This is Africa’ not an excuse for underperformance

Michiel Timmerman

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


Mbuyu Capital Partners, with offices in London and Nairobi, invests directly in African companies through co-investment with lead investors and also in funds, through primary and secondary investments managing assets for institutional investors. Michiel Timmerman, managing partner of Mbuyu, tells us about his firm’s investment philosophy, Africa’s untapped opportunities and the biggest misconception about his job.

1. Explain your firm’s investment philosophy.

Africa will for the foreseeable future be a small part of any institutional investor’s portfolio. We believe that the best way for commercial investors outside Africa to benefit from the opportunities is through a diversified portfolio invested by a specialist firm, selecting from the entire universe of opportunities: co-investments and fund investments across private equity, credit and real estate.

To have commercial investors committing to African private equity means generating above median performance vs global growth market private equity. This means GPs need to be rigorous and realistic in selecting investment opportunities, with a laser-like focus on management quality, the business’s ability to achieve the growth targets needed to deliver the IRRs, companies’ resilience to adverse currency and macro events and minimising the gap between gross and net performance. “This is Africa” is not an excuse for underperformance vs global peers.

Consequently, we need to be highly selective in evaluating GPs and co-investment opportunities. This starts with access to abundant deal flow to build a portfolio. An exclusive focus on Africa and multiple touchpoints through fund investment, co-investment and involvement in operating businesses is essential to creating the network needed to generate that deal flow, evaluate effectively and therefore build a portfolio which maximises the chance of delivering returns which can compete with global growth investments.

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

I have two. First is that management quality is what matters most. But however impressively management have delivered in the past, be realistic about where they can take the business next. Evaluate whether what they say they can deliver and what is expected of them post investment correlates to their past experience. Around 10 years ago I made a co-investment in an emerging markets commercial farming business with an exceptional track record of growth and technical skills. But expanding this regionally stretched management beyond their zone of competence.

Second, never run out of cash, because you are then at the mercy of others. This has not happened to any of my investments, but during the 2008 financial crisis, some businesses came close.

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

There is currently a scarcity of capital investing in Africa, outside the development finance institutions (DFIs). So being a commercial investor able to be flexible and quick attracts a steady stream of opportunities.

I would like to highlight two areas. First, non-bank financial services. Banks in many countries are highly conservative and make a good return collecting cheap deposits, lending to large corporates and investing in local treasuries. This leaves a wide-open field of lending and providing other financial services to SMEs and individuals. Asset finance is one example. The leasing business in Tanzania which I co-founded 10 years ago and still chair has had no serious competition ever, yet is a profitable business with high demand for its products from SMEs around the country.

Second, technology-enabled businesses. Africa is exploding with high growth early-stage businesses using technology to disrupt (or deliver for the first time) services which are being held back by the poor infrastructure in many countries. The challenge is picking the winners.

4. What is the biggest misconception about your job?

That travelling around Africa looking at investments is a hardship and dangerous. It is a pleasure and it beats New York and Hong Kong any day.

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

The early telecoms deals, which made some people very rich and transformed lives in Africa. One of those rare examples of getting involved at an early stage of an investment theme can really pay off. Technology-enabled business models, which build on the telecoms infrastructure, may be another one.

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

As a commercial investor not raising capital from DFIs: an evangelical belief in the investment opportunities in Africa and willingness to convey this to developed market investors. Also tenacity, good local knowledge and networks and application of developed market rigour to evaluating GPs and investment opportunities, to identify those that can compete with the best outside Africa.


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