Adiwale Partners is a private equity firm based in Abidjan, Côte d’Ivoire. The firm manages the Adiwale Fund I, which invests in mid-size companies in French-speaking West Africa. Jaco Maritz asked Jean-Marc Savi de Tové, co-founder and managing partner at Adiwale, about investment opportunities in the region. Here are highlights from the conversation.
Sectors of opportunity
During the interview with How we made it in Africa, Savi de Tové emphasised growth opportunities for private education in the region. Prospects for the sector are driven by favourable demographics – the median ages in Côte d’Ivoire, Senegal, Mali and Burkina Faso are estimated at below 19 – and rising disposable incomes. As people’s financial means improve, they tend to spend more on their children’s education, according to Savi de Tové. “Governments in the region are pushing for better education and they are keen for the private sector to help them absorb the growing number of children who need to be educated each year. We like primary education, secondary education and universities.”
In terms of healthcare, Adiwale looks at businesses such as diagnostic centres and clinics.
While the firm is attracted to the retail sector, Savi de Tové says the valuations of retailers it has talked to, particularly those in Côte d’Ivoire, are too rich. He explains that many private equity players are interested in investing in the sector and the retailers know this, which leads them to value their companies at very high prices.
About half of the deals Adiwale looks at fall within the business services segment. These are companies that provide services to other businesses and include transport and logistics, construction, IT and internet services, outdoor advertising and waste management.
Savi de Tové is particularly bullish about the region’s logistics industry. Landlocked countries such as Mali, Burkina Faso and Niger depend on ports in Côte d’Ivoire, Togo and Senegal for exports and imports. This means goods have to be transported over long distances and creates opportunities for companies involved in transportation and storage.
Although Adiwale is enthusiastic about Côte d’Ivoire’s construction sector, its team doesn’t have the expertise to invest directly in building and development. However, Adiwale found a way to participate in the sector’s growth through a recent investment in air-conditioning company Maintenance Climatisation Technique, focused on the installation and maintenance of industrial, commercial and residential air-conditioning solutions. Demand for air conditioning in Côte d’Ivoire is driven by substantial new industrial and commercial developments as well as the refurbishment of existing buildings.
Opportunities in the manufacturing sector include, among others, pharmaceuticals, chemicals, fertilisers, building materials, plastics and foam. The region has relatively little industrial capacity and there is a strong dependence on imports. “We like everything tied to import substitution,” notes Savi de Tové, adding that the supply chain disruptions caused by Covid-19 have highlighted the need for additional local manufacturing ventures.
Potential in Burkina Faso and Mali
The Adiwale Fund I focuses on investments in Côte d’Ivoire, Senegal, Burkina Faso and Mali. Côte d’Ivoire and Senegal have bigger economies and are better known to foreign investors but Savi de Tové believes Burkina Faso and Mali also offer interesting opportunities. Both countries had solid economic growth from 2015 to 2019 – an average of 5.7% and 5.4% for Burkina Faso and Mali respectively – and have strong agricultural and mining sectors.
Adiwale seeks to invest in companies that leverage the natural endowments, such as agriculture, of Burkina Faso and Mali. It also focuses predominantly on companies that serve the local population. Consumer staples remain resilient even during times of political or security headwinds. Mali, for instance, has battled with Islamist terrorism and two recent coups. While Savi de Tové acknowledges these problems, he says the population of 20 million still requires food and other consumer goods, regardless of the political situation.
Burkina Faso and Mali had seen little private equity investment activity. One of the reasons is that companies in these countries are typically too small to absorb the capital private equity firms aim to invest. “Most companies are looking for investment of no more than $2 million which doesn’t fit the bill for most private equity investors on the continent,” notes Savi de Tové. He adds that experienced managers are in short supply in these countries, which means investors may have to bring in talent from elsewhere to run their portfolio companies.
Creating regional champions
There are considerable opportunities in French-speaking West Africa for companies to offer their products and services throughout the region, according to Savi de Tové. The West African Economic and Monetary Union nations – which all use the CFA franc currency – comprise Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo. These countries are relatively small with limited manufacturing capacity and import many goods from outside the continent. Companies that have achieved success in their home markets are therefore well-positioned to cater for the broader region.
Savi de Tové gives the example of a company in Côte d’Ivoire that started producing soap from crude palm oil. With a competitively priced product, the business became a dominant player and grew its footprint regionally. Today, the business generates substantial revenues by selling its soap beyond Côte d’Ivoire in countries such as Mali, Senegal and Togo.
When evaluating potential investment targets, Adiwale typically seeks out companies that derive at least 20% of their revenues from neighbouring countries.