Private Equity in Africa

Transcription

1 Private Equity in Africa Noro-Lanto Ravisy David Williams 9 April 2015

2 Fundraising for African Private Equity David Williams 9 April 2015

3 Introduction Fundraising in Europe the current climate The classic fund structure for European investors Marketing a fund in the EEA - AIFMD Current trends in structures and terms 2 / L_LIVE_EMEA2: v2

4 Fundraising An Overview A crowded market A long haul. How to raise capital successfully? Differentiation Familiarity Balance 3 / L_LIVE_EMEA2: v2

5 The Classic GP/LP Structure (1) Partnership-based structure Commingled investors Separate manager Blind pool Tax-transparent Economics Priority profit share/ management fee Return of capital, preferred return and catch-up Carried interest

6 The Classic GP/LP Structure (2) Management Principals INVESTORS LP Carry LP GP GPCo Investment Manager LPs GP IMA Fund LP (Limited Partnership) Holdco Structures Assets 5 / L_LIVE_EMEA2: v2

7 Variations on a theme The need for tailoring Master/feeder structures Single investor structures Parallel and mirror structures Co-investment structures 6 / L_LIVE_EMEA2: v2

8 Marketing in the EEA The Alternative Investment Fund Managers Directive Background Scope Impact on Marketing Choice of fund domicile Choice of management domicile 7 / L_LIVE_EMEA2: v2

9 AIFMD at a glance EU AIFM vs. non-eu AIFM: EU AIF Non-EU AIF EU passport Private placement regimes Authorisation conditions Application for authorisation Capital requirements AIFM authorisation AIF marketing AIFM conduct of business Rules of conduct Conflicts of interest Remuneration Risk management Liquidity management AIFMD Leveraged AIF Acquisition of major holdings and control of non-listed companies Investment in securitisation positions Specific investment provisions AIFM reporting and disclosure AIF service providers Valuation Depository: Eligible entities Role Liability Delegation by AIFM Reporting to regulator(s) Disclosure to investors AIFM annual reports 8 / L_LIVE_EMEA2: v2

10 Marketing Roadmap - EU AIFM 1. EU AIF Marketed in EU under new passport regime Must comply with all of Directive 2. EU AIF Not marketed in EU Ditto 3. Non-EU AIF Marketed in EU under NPPRs (at least until 2018) Must comply with all of Directive, except Depositary requirement (plus two extra conditions) 4. Non-EU AIF Not marketed in EU Must comply with all of Directive, except Depositary and AIFM annual report (plus one extra condition) 5. Non-EU AIF From 2015, marketed in EU under new passport regime, if granted Must comply with all of Directive plus three extra conditions re Non-EU AIF 9 / L_LIVE_EMEA2: v2

11 Marketing Roadmap - Non-EU AIFM EU AIF EU AIF Marketed in EU under NPPRs (at least until 2018) Not marketed in EU between 2013 to at least 2015 (see 7 as to 2015 and beyond) Limited compliance only. (Annual reports to investors, disclosure to investors and reporting to regulators (plus two extra conditions.) No AIFM authorisation needed No compliance required 3. Non-EU AIF Marketed in EU under NPPRs (at least until 2018) Limited compliance only (as for 1 above) 4. Non-EU AIF Not marketed in EU No compliance required 5. Non-EU AIF Marketed in EU under passport regime if introduced from 2015 Will be required to comply with all of Directive plus three extra conditions re non-eu AIF. Must obtain AIFM authorisation with Member State of Reference and appoint local Legal Representative 6. EU AIF Marketed in EU under passport regime if introduced from 2015 Will be required to comply with all of Directive. Must obtain AIFM authorisation with Member State of Reference and appoint local Legal Representative 7. EU AIF Not marketed in EU from 2015 if Articles 37 and 39bis activated Ditto (i.e. as for 6 above) 10 / L_LIVE_EMEA2: v2

12 Marketing in the EEA Other Factors Local implementation of AIFMD Other European level requirements e.g. Solvency II Local licensing requirements e.g. regulated activities Other local regulatory regimes e.g. financial promotion 11 / L_LIVE_EMEA2: v2

13 Current Trends in Structures Single investor funds the end of the commingled fund? Jurisdictions of choice Caribbean Channel Islands Luxembourg Onshore? 12 / L_LIVE_EMEA2: v2

14 Current Trends in Terms - Background Competitive environment Buyer s market? Community of interest fair play! 13 / L_LIVE_EMEA2: v2

15 Current Trends in Terms - Economics Management fees Reasonable in absolute and relative terms Basis of calculation Caps Transaction fee and other offsets Performance fees 80/20 remains acceptable Life of fund crucial Giveback and clawback Formation and Operational Expenses Focus on scope Caps Skin in the game 14 / L_LIVE_EMEA2: v2

16 Current Trends in Terms Other Terms (1) Structure Size AIVs Co-investment Governance Advisory Committee Disclosure and transparency Manager accountability no fault divorce Team Key man Successor Funds Termination 15 / L_LIVE_EMEA2: v2

17 Current Trends in Terms Other Terms (2) Side letters MFNs Information rights IFI issues Powers of attorney Transfers Confidentiality Excuse Disclosure Certification 16 / L_LIVE_EMEA2: v2

18 Private Equity transactions in Africa Noro-Lanto Ravisy 9 April / L_LIVE_EMEA2: v2

19 A continent of legal diversity Where civil law, common law and mixed legal systems coexist A challenge to gather reliable and clear information on the legal framework But many African countries have undertaken steps towards greater clarity and accessibility through an increasing synchronization of the applicable law 18 / L_LIVE_EMEA2: v2

20 OHADA Member States Organisation for the Harmonisation of Business Law in Africa ( OHADA ) Legislation with direct effect in each of the 17 OHADA countries Revised Uniform Act relating to Commercial Companies of January 2014 Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Republic of Congo, Ivory Coast, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal, Togo and Democratic Republic of Congo 19 / L_LIVE_EMEA2: v2

21 COMESA Member States Common Market for Eastern and Southern Africa ( COMESA ) Competition Commission: mergers having a regional COMESA dimension Acts as a 'one-stop-shop' for merger filings PE investments: Acquisition of a joint control Acquisition of a minority stake with veto rights over key strategic decisions 20 African countries: Burundi, Comoros, D.R. of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, South Sudan, Sudan, Swaziland, Uganda, Zambia, Zimbabwe, 20 / L_LIVE_EMEA2: v2

22 PE in Africa is primarily growth capital Limited financial leverage Focus on value creation, operational improvement and buy-and-build strategies Offering flexible investment structure will provide the PE fund with a broader access to market opportunities Mezzanine instruments with warrants, convertible bonds and hybrid securities are available in the OHADA zone 21 / L_LIVE_EMEA2: v2

23 PE in Africa essentially relates to minority stakes 80% of the PE funds had invested via minority positions in African targets 1. Family or strategic groups are generally reluctant to transfer control Governance and minority protections become a critical issue for PE investor. Revised OHADA Uniform Act of 2014 Simplified joint-stock company (société par actions simplifiée or SAS) Corporate entity with a flexible organisation and governance structure Differentiation of rights between financial shareholders and strategic shareholders Temporary restrictions on share transfers Obligation to sell shares (exclusion or drag along). Articles of association OR shareholders' agreement? 1 Source: Harvesting Growth How do PE investors create value? A joint study of PE exits in Africa by AVCA and Ernst & Young, / L_LIVE_EMEA2: v2

24 Investment Process for PE in African countries Due Diligence Broad scope of review Investigations on potential corrupt practices Deal terms Restructuring the target business Price adjustment based on completion accounts vs. Locked box mechanism Warranty and indemnity insurance vs. Escrow retention Contractual protections (MAC clause and force majeure provision) Bilateral investment treaty (BIT) protection 23 / L_LIVE_EMEA2: v2

25 Exits Investment hold period Africa is a place for patient capital A long-term approach To capture the entire value creation To adopt a flexible and pragmatic approach to exit at the right time To contribute to the ecosystem of the business sector. Exit routes Trade sales Secondary deals Stock sales on public markets Put Option granted to the PE firm 24 / L_LIVE_EMEA2: v2

26 Conclusion 25 / L_LIVE_EMEA2: v2

27 David Williams, Partner , Noro-Lanto Ravisy , Please join our next African webinar on Mozambique: Thursday 16th April 09-09:45am BST To register please contact Rachel Morley Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. 26 / B_LIVE_EMEA1: v1 Doc ID: L_LIVE_EMEA1: v1

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