Private Equity in Africa. April 2014

Private Equity in Africa April 2014 1

Content Introduction to the project Africa as an investment destination Private Equity in Africa Proposed Investment Strategy Conclusion 2

The Project Maera Capital, an investment and advisory firm specialized in Africa and with offices in London (UK) and Casablanca (Morocco), has asked a group of five INSEAD MBA students (Astrid Suermondt, Francisco Meneses, Helene Baudon, Jorge Fernández Vidal and Wafic Mounla) to assist them in the analysis of the Private Equity market in Africa, as part of INSEAD s Private Equity class with Professor Vikas Aggarwal In this project, we have tried to provide a brief overview of the Private Equity market in Africa and have outlined a potential investment strategy for Maera Capital For this purpose, we have carried out extensive desk research and have interviewed a number of PE practitioners in Africa, as well as consultants, academics and operators during the months of March and April of 2014 3

Sub-Saharan Africa has recently been one of the fastest growing regions in the world and it is expected to continue the trend Sub-Saharan countries GDP (current) $ billion 331 731 1.292 1.895 Real GDP per capita $ Population # billion 1.032 657 1.218 747 1.410 897 1.628 1.016 Africa is the fastest growing continent in the world, and its increasing income and population create significant opportunities for investors Fixed Investment $ billion 28 70 133 211 2001 2006 2013 2018 Source: Global Insight 5

Institutional reforms and an increasing middle class are creating opportunities for investment After years of headlines about Africa's poverty, its emerging middle class is now grabbing attention as a driver of growth and democracy and an expanding pool of consumers for market-hungry retailers Reuteurs, Africa's emerging middle class drives growth and democracy - 2013, May 10 More than two-thirds of African countries have improved their quality of governance, leading to a better business climate, improved basic services and expanded economic opportunities African Development Bank, Annual Development Effectiveness 2013 These structural changes have helped invigorate markets and commerce, creating an environment that is increasingly conducive to business and investment. Furthermore, widespread reform, together with steady improvements in political governance, the commodities boom, substantially increased levels of disposable income, urbanization and a rapidly developing services sector, have contributed to a continued and, what we believe to be, a sustainable growth path for Africa, Building Bridges - Africa Ernst & Young s 2012 attractiveness survey 350 million Africans now earn between $2 and $20 per day and are increasing the ranks of Africa s middle class African Development Bank, Annual Development Effectiveness 2013 6

Private Equity is set to grow rapidly across Africa, but there are some specific opportunities that should not be overlooked Demand for capital in Africa is expected to grow by 8% p.a. from 2014-2018 There are wide variations by country and industry and there seems to be a mismatch between supply and demand for capital Small and mid cap funds in East, West and Southern Africa (excluding South Africa) seem to be very attractive, with growing capital needs but relatively limited funding Source: Uncovering hidden investment opportunities in Africa, McKinsey & Company 8

Most PE investors (+60%) focus on growth, infrastructure, buyout and venture funds Preferred investment strategies for PE funds in Africa in 2013 % # of respondents Other 1 12% Real Estate 6% Growth 21% Natural Resources 7% Expansion / late stage 7% Infrastructure 16% Fund of Funds 10% Venture 11% Buyout 12% 1 Includes Co-Investment (4%), Early Stage (4%), Mezzanine (2%) and Infrastructure Fund of Funds (2%) Source: How do private equity investors create value, 2013 Study, EY and AVCA 9

Most deals are achieved via relationship or network, and funds typically take a minority stake Sourcing of deals Participation on deals % # of deals % # of deals Opportunities brought to PE 14% Other 5% Majority stake 20% Minority stake 80% Sector tracking 33% Relationship / Network 48% 9% of deals made through auctions (vs. proprietary deals) 80% of auctions took place in South Africa, but number is increasing in other countries as well Use of minority protection rights to influence management and direction of a company, : Board seats Veto rights on major decisions Right to change management Right to change auditor Importance of being comfortable with existing management team: Prior relationship with management team helps Due diligence of management is critical Source: How do private equity investors create value, 2013 Study, EY and AVCA 10

Southern Africa as a region, and the financial and industrial goods sectors have the highest share of exits in Africa Geography breakdown Sector breakdown % # of deals % # of deals 11% 25% 11% 42% 11% 118 exits between 2007 and 2012 South Africa, Nigeria, Egypt, Kenya and Ghana accounted for 74% of the exits Financials Industrial goods Food & beverage Agriculture Telecommunications Business services Technology Construction Health care Retail & consumer goods Utilities, oil & gas Travel & leisure Mining & metals Autimobile & parts Media 13% 9% 9% 8% 8% 6% 6% 5% 4% 3% 3% 3% 2% 1% 23% Source: How do private equity investors create value, 2013 Study, EY and AVCA 11

Local and regional strategic buyers are responsible for the majority of purchases from PE funds Exit route Breakdown of exits by trade buyer % # of deals % # of deals 2007 2008 4% 5% 12% 32% 52% 12% 18% 12% 12% 41% 25% 40% 40% 33% 40% 50% 40% 33% 33% 20% 25% 20% Local buyer Regional buyer Multinational buyer 2009 7% 7% 14% 21% 51% 0m-5m 5m-20m 20m-50m 50m+ 2010 12% 12% 29% 47% Average exit returns and drivers 2011 2012 11% 8% 11% 11% 4% 23% 14% 63% 55% 1,0 0,9 1,9 Creditors / banks IPO Stock sale on public market PE Private Trade Strategic & operational improvements Market return PE return Source: How do private equity investors create value, 2013 Study, EY and AVCA 12

African PE outperforms public markets. Returns relative to the market- MSCI Emerging Market Index Exits 2007-2013, Market return= Base 1 1.0 Market Return 0.6 PE strategic and operational improvement 1.6 PE Return Returns relative to the market- MSCI Frontier Market Index Exits 2007-2013, Market return= Base 1 1.0 1.1 2.1 From 2007-2013 African PE has returned 0.6x more than the MSCI Emerging Markets index and 1.1x more than the MSCI Frontier Markets index Performance is improving: these excess returns are higher in the 2010-2013 period, 1.1x (MSCI EMI) and 2.2x (MSCI FMI) respectively It s worth noting that most returns are based largely on equity, as there s little leverage in PE in Africa Market Return PE strategic and operational improvement PE Return Source: Broadening horizons: How do private equity investors create value, 2013 Study, EY and AVCA 13

as well as more established PE markets Relative multiples, Africa versus Europe and North America Exits 2010-2012, North America= Base 1 1.20 Africa 1.04 Europe 1.00 North America Exit multiples in Africa are higher than those of other established markets in Europe and North America (by as much as one-fifth) The higher multiples are explained by the positive outlook in the continent Although PE returns in Africa are higher (~15%- ~+30% depending on fund, sector and geographies), they are also commensurate with the higher risk of investing in Africa Source: Broadening horizons: How do private equity investors create value, 2013 Study, EY and AVCA; Team interviews 14

Successful PE deals in Africa seem to share some common traits How PE firms create value in Africa Introduction of best-practices in a wide number of areas (finance, IT, governance, operations, etc) Strengthening of management teams (new hires, incentive programs, etc) Focus on growth (increase in product offerings, expansion into new markets, etc) EBITDA improvements (cost reduction, focus on high-margin products, etc) Leverage the PE investor s networks and know-how to identify new customers, acquisition targets and potential buyers Selected case studies Case Study 1: Compagnie de Distribution de Côte d Ivoire (CDCI) Case Study 2: Vitalait Case Study 3: Southey Holdings Case Study 4: Société Internationale de Plantations d Hévéas Case Study 5: ABC Transport 15

Case Study 1 Company: Compagnie de Distribution de Côte d Ivoire (CDCI) Entry date: October 2007 PE Investor: Cauris Management Exit date: January 2013 Sector: Retail Returns: 2.0x How PE Helped the Business: The entry price for the transaction was attractive, as Cauris was able to source it on a proprietary basis through its network, developed over years Cauris brought in two institutional co-investors to help finance the growth Through the Cauris-initiated strategic committee, the focus shifted to higher-margin products and retail/semi-wholesale stores. There was also an improved allocation of resources within the stores Cauris implemented a new IT system to computerize stores, therefore increasing the quality and availability of information from outlets As a result, over the holding period, and despite important losses during the war and many store closures, turnover increased by 128% and the number of stores by 45%. Today, CDCI has the best footprint across the country Source: Broadening horizons: How do private equity investors create value, 2013 Study, EY and AVCA 16

Case Study 2 Company: Vitalait Entry date: September 2006 PE Investor: AfricInvest Fund I and Maghreb Private Equity Fund II Exit date: December 2011 Sector: Agribusiness, dairy products Returns: 2.2x How PE Helped the Business: Improved governance and reinforced the management team Created a strong local brand and diversified the product range from one SKU in milk to a wider milk and fresh dairy products Put in place a long environmental and social program reducing waste and improving the waste management process Put in place a large farmers empowerment program (the company buys milk from more than 5,000 families) Source: Broadening horizons: How do private equity investors create value, 2013 Study, EY and AVCA 17

Case Study 3 Company: Southey Holdings Entry date: July 2009 PE Investor: The Abraaj Group Exit date: May 2013 Sector: Industrials Returns: 48% (IRR) How PE Helped the Business: Southey consolidated its business operations in South Africa and focused on new markets in Africa. Under Abraaj s guidance, the company expanded into seven new country markets to a position where 40% of the Group s profits were generated from markets outside of South Africa at the time of Abraaj s exit With Abraaj s involvement, Southey created a sustainable business model by strengthening governance, including establishing a compensation committee, restructuring the business to better leverage African growth opportunities, implementing a comprehensive management information system, improving growth in terms of service and geography, and introducing new marketing strategies Abraaj s established an employee share trust to promote broad-based equity ownership and to further enable the institutionalization of this family business Source: Broadening horizons: How do private equity investors create value, 2013 Study, EY and AVCA 18

Case Study 4 Company: Société Internationale de Plantations d Hévéas Entry date: March 2005 PE Investor: Emerging Capital Partners (ECP) Exit date: July 2007 Sector: Agriculture/forestry Returns: 3.4x How PE Helped the Business: ECP s investment allowed the company to expand production and implement cutting-edge techniques. The funding, combined with ECP s support in establishing the right partnerships and management team, resulted in revenue growth of 44 % annually over ECP s two-year holding period ECP helped the company to become more attractive to investors by implementing standard financial reporting and identifying appropriate acquisition targets In 2006, ECP played an instrumental role in negotiating the acquisition of Michelin s rubber plantations in Nigeria in exchange for a 20% stake in SIPH Source: Harvesting growth: How do private equity investors create value, 2013 Study, EY and AVCA 19

Case Study 5 Company: ABC Transport Entry date: August 2003 PE Investor: African Capital Alliance (ACA) Exit date: February 2008 Sector: Transportation Returns: 4.7x How PE Helped the Business: ACA helped improve corporate governance and financial reporting and also assisted with recruiting senior management ACA introduced some key corporate customers ACA worked with management on expansion of the company s operations beyond Nigeria further into West Africa ACA worked with management to prepare the company for and ensure a successful listing on the Nigerian Stock Exchange Source: Harvesting growth: How do private equity investors create value, 2013 Study, EY and AVCA 20

Content Introduction to the project Africa as an investment destination Private Equity in Africa Proposed Investment Strategy Recommended Geographical Focus Recommended Sectorial Focus Potential Investment Vehicles Conclusion 21

We propose to use a broad and flexible investment strategy Details of investment strategy Geographic Focus Sectorial Focus Investment vehicle Deal Size Focus on a number of selected countries that have promising economic fundamentals and an adequate investment environment (i.e. Transition countries) Diversify geographical reach, but limited to a number of countries to build strong local networks and knowledge Target a broad range of diverse sectors to take advantage of upcoming opportunities and untapped markets Focus on one of Africa s biggest opportunities: the emerging consumer; around a wide range of sectors (e.g. pharmaceuticals, food and beverages, textiles, etc) Tap into these opportunities by investing in businesses with manufacturing operations targeting emerging consumers Choose the investment vehicle that better suits our investors needs and preferences (to be discussed with investors) Simplify initial investment strategy by operating on a deal-by-deal basis, with a view of creating a fund or dedicated investment firm in the future (potentially covering both debt and equity investments) Target small and mid transactions ( 5-30m) are the most underserved markets for a new investment manager (i.e. supply and demand mismatch; page #9) Remain flexible to invest or co-invest in larger transactions on a case-by-case basis 22

Content Introduction to the project Africa as an investment destination Private Equity in Africa Proposed Investment Strategy Recommended Geographical Focus Selected Opportunities by Sector Potential Investment Vehicles Conclusion 23

We have defined 3 criteria to identify African economies with high potential Criteria Rationale 1 2 Analysis of countries according to exports per capita and economic diversification 2014 Index of Economic Freedom by the Heritage Foundation We follow McKinsey s approach in the report Lions on the move (with updated data), where countries are distributed in homogeneous groups according to exports per capita and economic diversification (share of manufacturing and services in GDP) Studies show these variables are correlated with economic growth: Countries need to export to fund investments (including imports) in a sustainable manner Manufacturing and services sector expand as urbanization increases and as middle class rises, creating opportunities for investments in different areas Countries in transition (with increasing exports and economic diversification) are the ones with better prospects for investment We consider that certain countries lack a conducive business, legal and political environment for investment We look at the 2014 Index of Economic Freedom by the Heritage Foundation and exclude countries with an index below 50 (i.e. repressive) 3 Individual reports / interviews We believe economic data in Africa is not fully reliable so we consider a number of countries that according to studies and interviews appear to be attractive investment destinations, at least in selected sectors Source: Team Analysis 24

The first analysis allows us to clearly split countries into 4 categories Exports per capita vs. Share of Manufacturing and Services in GDP; Size of bubbles proportional to GDP Exports per capita ($) 2012 1 Oil exporters Pre-transition economies Transition economies Diversified economies 10.000 Equatorial Guinea Libya Gabon Congo, Rep. Angola Algeria Botswana Namibia Tunisia South Africa Mauritius 1.000 Nigeria Ghana Zambia Egypt, Arab Rep. Morocco Cote d Ivoire 100 Chad Burkina Faso Liberia Congo, Dem. Rep. Sudan Mali Uganda Tanzania Rwanda Kenya Cameroon Senegal Mozambique Ethiopia 10 0 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Share of Manufacturing and Services in GDP (%) 2012 1 1 When data for 2012 was not available, previous period were used (see backup) Note: Included countries with GDP in 2012 above $10 billion or GDP growth rate 2005-2012 above 7% Source: World Bank Economic Development Indicators; www.econstats.com; Lions on the Move (Africa), McKinsey Global Institute 25

Some African countries have Repressed Economies according to the IEF Country Score World rank Country Score World rank Country Score World rank Mauritius 77 8 Tunisia 57 109 Comoros 51 142 Botswana 72 27 Kenya 57 111 Guinea-Bissau 51 143 Cape Verde 66 60 Benin 57 113 Algeria 51 146 Rwanda 65 65 Seychelles 56 117 Sierra Leone 51 148 Ghana 64 66 Djibouti 56 118 Ethiopia 50 151 South Africa 62 75 Mali 56 122 Togo 50 152 Madagascar 62 79 Malawi 55 124 Lesotho 49 154 Swaziland 61 82 Senegal 55 125 São Tomé and Príncipe 49 157 Zambia 60 88 Niger 55 127 Angola 48 160 Uganda 60 91 Mozambique 55 128 Central African Republic 47 161 Gambia 60 92 Nigeria 54 129 Chad 45 167 Namibia 59 94 Guinea 54 133 Equatorial Guinea 44 168 Burkina Faso 59 98 Mauritania 53 134 Congo, Republic of 44 169 Morocco 58 103 Egypt 53 135 Congo, Dem. Republic 41 172 Gabon 58 105 Cameroon 53 136 Eritrea 38 174 Tanzania 58 106 Liberia 52 138 Zimbabwe 36 176 Côte d'ivoire 58 107 Burundi 51 141 According to the Heritage Foundation an Index below 50 represents a Repressed Economy Note: The Index is computed as a simple average of scores on Property Rights, Freedom from Corruption, Fiscal Freedom, Government Spending, Business Freedom, Labor Freedom, Monetary Freedom, Trade Freedom, Investment Freedom and Financial Freedom Source: 2014 Index of Economic Freedom by the Heritage Foundation 26

According to our pre-defined criteria, we have identified 8 countries with high potential for investment 6 transition economies Kenya Tanzania Senegal Ghana Cameroon Mozambique and 2 economies commonly perceived today as being attractive investment destinations Nigeria Oil exporter country with high level of exports per capita and currently making a significant effort to diversify its economy Ethiopia Pre-transition economy which is seen today as one of the most promising economies in Sub- Saharan Africa Source: Press Research; Team Interviews; Team Analysis 27

The countries we have selected have shown consistent growth of GDP and population (1/2) CAGR 2005-2012 Real GDP $ billions Population Millions Real GDP per capita $ Kenya 19 +5% 26 36 +3% 43 524 +2% 595 Ghana 11 +8% 18 21 +2% 25 502 +5% 724 Tanzania 14 +7% 22 39 +3% 48 375 +4% 483 Cameroon 17 +3% 21 18 +3% 22 915 +1% 964 2005 2012 2005 2012 2005 2012 Source: World Bank Economic Development Indicators; www.econstats.com 28

The countries we have selected have shown consistent growth of GDP and population (2/2) CAGR 2005-2012 Real GDP $ billions Population Millions Real GDP per capita $ Senegal 9 +3% 11 11 +3% 14 773 0% 797 Mozambique 7 +7% 11 21 +3% 25 313 +4% 417 Nigeria 112 +7% 178 140 +3% 169 804 +4% 1.053 Ethiopia 12 +10% 23 76 +3% 92 160 +7% 253 2005 2012 2005 2012 2005 2012 Source: World Bank Economic Development Indicators; www.econstats.com 29

There are multiple opportunities for PE investors in Africa across several sectors SAMPLE OF DEALS Consumer Goods Jun 13 Financial Services Nov 13 Logistics Dec 13 acquired acquired acquired Manufacturing Nov 13 Oil & Gas Aug 13 Utilities Nov 13 acquired acquired acquired Shell Ghana Source: Press Research 31

A large number of African PE investors have a sector(s)-specific investment strategy and it seems to be the trend going forward There is a growing trend toward funds that target specific sectors, largely to capitalize on opportunities in sectors benefiting from consumer growth as well as much-needed infrastructure investment (i.e., infrastructure, real estate and agri funds) Private equity roundup- Africa, Ernst & Young, Feb 13 With so many firms fundraising in the market, we are looking for teams that have deep sector expertise and know local markets very well DFI PE investment officer Being a generic private equity investor, a generalist, isn t going to deliver you superior returns. The only way to do that is through domain knowledge, deep understanding of sectors that you re interested in, and having the ability to bring other types of value-add to the party John van Wyk, Head of Africa, Actis The Africa Handbook, PEI Supplement, Sep 12 Source: Press Research; Team Interviews 32

There are a number of sectors that seem to attract a lot of attention from investors Agriculture Key sectors Consumer Goods Energy Infrastructure Financial Services Natural Resources However, we believe that the greatest opportunities for new investors are in the consumer space and, in particular, in consumer-focused manufacturing Manufacturing Real Estate Source: Press Research; Team Interviews 33

The African consumer will drive growth in the continent going forward, offering attractive investment opportunities Nominal Private Consumption Current US$, Sub-Saharan Africa 800 600 400 200 0 2000 2002 2004 2006 +9,3% 2008 2010 2012 2014 2016 2018 Real Private Consumption Growth Rate (%), Sub-Saharan Africa 24,9 10,9 7,5 4,4 4,3 4,7 4,6 4,8 7,1 5,6-6,3-0,2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Global Insight 34

By 2020, it is estimated that half of African households will have discretionary income Share of households in each income bracket %, millions of households 100% = Discretionary income Basic needs 163 6 8 11 18 29 34 196 14 21 32 24 244 12 17 23 29 18 Household income brackets $ PPP 1 2005 Globals (>20,000) Consuming middle class (10,000 20,000) Emerging consumers (5,000 10,000) Basic consumer needs (2,000 5,000) Destitute (<2,000) Households with income >$5,000 Million 2000 2008 2020F 59 85 128 Source: Lions on the move, McKinsey Global Institute

Consumer Resources Agriculture Infrastructure Total Trends indicate that consumer-facing industries in Africa are likely to outgrow most other sectors in the continent Estimated annual Revenue by industry in 2020, $ Billion Main drivers of growth in the consumer industry in Africa are: 520 110 220 130 980 1,380 540 500 200 2,620 Growth 2008-2020 ($ billion) Youngest population in the world (200 million people between 15 an 24) and increasing levels of education which will result in high levels of workforce Increasing levels of urbanization, which makes it easier to reach consumers and raises their income (with higher wages earned) Growing middle-class, shifting purchasing patterns from basic needs only to other products Technology development and higher penetration, with social media representing an important role in consuming, and with the creation of an opportunity for online commerce Improving business climate with stable levels of inflation and accelerated regional integration Source: Lions on the Move (Africa), McKinsey Global Institute ; African Consumers: Driving the African Private Equity Opportunity, FMO and Fairview 36

There are a wide range of alternatives to serve the emerging African consumer The Consumer Value Chain Recommended focus Potential sectors of interest Provision of Services Advertising Banking Insurance Mobile services Telecom Provision of Raw Materials Manufacturing Distribution Construction materials Food and beverages House appliances Pharmaceutical Retail Textiles Logistics and Market Linkages Infrastructure Transportation 37

We believe that the manufacturing sector represents an attractive and untapped investment opportunity for PE investors in Africa 1 African consumers demand African products: companies need to produce for the local markets, adapting to the local tastes 2 Africa has all the necessary inputs for a competitive manufacturing sector: low-wage labor, abundant and diverse natural resources, privileged access to selected high-income markets for exports, sufficiently large local or regional market to allow emerging producers to develop high-volume production 3 Africa s manufacturing sector can benefit from China s growth: China is shifting from an export-driven model to one more focused on domestic markets, creating huge opportunities for low-cost manufacturing locations like Africa 4 PE investors can make a difference in the African manufacturing sector: PE investors can provide their capital, best-practices know-how, strategic and operational skills and networks to yet-not-very-productive manufacturing business Source: African Consumers: Driving the Private Equity Opportunity FMO Fairview; Press Research; Team Interviews; Team Analysis 38

The African manufacturing sector is growing very rapidly Manufacturing Value Added Growth CAGR 04-12 1, Current US$ Ghana Ethiopia Tanzania Kenya Mozambique Nigeria Cameroon Senegal 16,3% 13,1% 12,2% 11,1% 8,2% 8,0% 5,7% 5,6% a quiet boom in manufacturing in Africa is already taking place. Farming and services are still dominant, backed by the export of commodities, but new industries are emerging in a lot of African countries The Economist, Feb 14 1 Mozambique includes 04-11 and Cameroon 04-07 data only Source: Press Research; Team Interviews; Team Analysis 39

The African manufacturing sector is attracting a lot of attention and investments in recent years from large corporates Cameroon Agro-processing Plant Nigeria Car Production Kenya Car Production Tanzania Food-processing Plant Nigeria Electrical Gear Plant Kenya Pharmaceutical Plant Ethiopia Textile Production Madagascar Chocolate Bar Production Mozambique Cement Plant South Africa Multi-category Manufacturing Plant Source: Press Research 40

as well as from PE investors Selected PE Deals in the Consumer/Manufacturing space in 2013 GP Company Country Sector Value Abraaj Group & Danone CapitalWorks Pearl Capital Partners and Voxtra Catalyst Principal Partners Fan Milk Ghana Dairy Products US$400m Construction Products Africa South Africa Construction Materials US$135m Pearl Capital Partners Freshco Kenya Ltd Kenya Agribusiness US$0.6m Catalyst Principal Partners Biyinzika Enterprises Uganda Food and beverages Yes Brands Ethiopia Food and N/A beverages Agri Vie Tanzanian Food Tanzania Food and Corporation beverages Chai Bora Tanzania Agribusiness N/A Centum Almasi Beverages Kenya Food and beverages US$4m US$4.9m US$5m Source: Private Equity Confidence Survey 2014, Deloitte and Africa Assets 41

The African manufacturing sector is very likely to continue to grow at a fast pace Growth drivers of the manufacturing sector in Africa Economic Growth Emergence of middle-class and increase in household consumption and discretionary income Trade Policy African products have preferential access to the USA and to the EU Urbanization Accelerating urbanization (50% of Africa s population will be urban by 2020) Investment Policy Increased public investment by governments and DFIs Attraction of FDI Human Capital Huge pool of young workers available for labor-intensive light manufacturing Regional Integration Opening up of markets, increased competitiveness and productivity Low-cost Base Africa is emerging as the new global provider of lowcost, low-skilled labor Natural Resources Abundant natural resources used as inputs in the manufacturing industry Source: Press Research; Interviews; Light Manufacturing in Africa World Bank Report 42

We believe that a pledge fund or a deal-by-deal structure might work better for Maera, given the challenge of raising a Fund Advantages Disadvantages Structured Fund Pledge Fund Deal-bydeal A structured fund might help in talent hiring and deal sourcing by giving prestige and credibility to investors GP doesn t have to worry about fundraising or availability of funds once the money is raised Relatively easy to form if the investor has access to a good network, given its flexibility, reduced cost and transparency Gives the investor some form of comfort about the availability of funds Gives LPs flexibility to invest on a deal-bydeal basis Freest form of investment for both GPs and LPs, allowing for total flexibility on investments Limited operating costs Source: Team Interviews; Team Analysis Difficult to raise money, particularly given limited track record Expensive and time consuming process (e.g. road shows, etc) Non-biding nature of the LP commitment does generate some uncertainty Sellers look for certainty of close and might have doubts about the investor s ability to raise the necessary funds GP might have a hard time raising funds for a particular transaction, both pre and post due diligence Sellers look for certainty of close and might have doubts about the investor s ability to raise the necessary funds 44

Our main conclusions Africa represents a great investment opportunity for a PE investor like Maera Capital, with very decent risk-adjusted returns and with plenty of value-creation opportunities for investors with the right skills and knowhow Consumer-facing industries seems to have a strong potential and is likely to be one of the greatest opportunities going forward. Serving the emerging consumer will require local products and local production, creating significant opportunities in the (light) manufacturing sector Finally, while we have recommended a specific investment strategy, we know very well that there s not a right answer to the question of how to invest in PE in Africa and believe that there are many other models that can work as well as or better than the one we have proposed 46

ANNEX 47

Economic data per country (1/2) 2012 Country Nominal GDP $ Nominal GDP per capita $ Real GDP growth % CAGR 2005-2012 Population Millions Share of Manufacturing and Services in GDP % Exports per Capita $ Algeria Angola Benin Botswana Burkina Faso Burundi Cabo Verde Cameroon Central African Republic Chad Comoros Congo, Dem. Rep. Congo, Rep. Cote d'ivoire Djibouti Egypt, Arab Rep. Equatorial Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia 206 5,348 2.6% 38 44 3 1,989 114 5,482 10.3% 21 37 3,295 8 752 3.9% 10 61 3 109 1 15 7,238 4.4% 2 68 3,221 11 652 5.8% 16 44 179 2 251 4.4% 10 52 22 2 3,695 6.0% 0 92 3 1,177 25 1,167 3.4% 22 69 3 340 2 483 6.8% 5 38 56 13 1,035 4.7% 12 33 305 1 831 1.7% 1 N/A 130 1 17 262 6.0% 66 38 145 14 3,154 4.8% 4 29 3 2,903 1 25 1,244 2.2% 20 71 3 635 2 N/A N/A N/A 1 96 3 514 263 3,256 5.0% 81 61 567 18 24,036 3.5% 1 21 3 20,280 3 504 1.6% 6 N/A 61 1 42 454 9.6% 92 45 64 18 11,257 3.4% 2 39 3 6,403 1 507 3.4% 2 72 145 41 1,605 8.0% 25 57 736 6 492 2.7% 11 54 3 146 1 494 2.1% 2 N/A 86 41 943 4.6% 43 63 257 2 1,193 4.8% 2 70 555 2 414 11.4% 4 48 134 (1) 2011 data (2) 2010 data (3) 2008 data Source: World Bank Economic Development Indicators; www.econstats.com; Lions on the Move (Africa), McKinsey Global Institute 48

Economic data per country (2/2) 2012 Country Nominal GDP $ Nominal GDP per capita $ Real GDP growth % CAGR 2005-2012 Population Millions Share of Manufacturing and Services in GDP % Exports per Capita $ Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe 93 15,853 5.2% 6 34 3 9,940 10 447 2.8% 22 73 3 116 1 4 268 3.5% 16 65 3 105 1 10 699 4.3% 15 55 3 218 4 1,106 5.5% 4 41 642 10 8,120 4.2% 1 89 4,448 96 2,902 4.9% 33 71 1,068 14 565 6.9% 25 71 3 168 13 5,786 4.5% 2 72 2,464 7 395 5.5% 17 48 98 263 1,555 6.8% 169 40 3 862 7 620 8.1% 11 57 82 0 1,400 4.8% 0 N/A 157 14 1,023 3.3% 14 73 249 1 12,783 4.6% 0 92 5,473 1 4 635 6.9% 6 37 3 80 1 N/A N/A N/A 10 N/A N/A 384 7,352 3.2% 52 81 2,077 59 1,580 2.3% 37 47 99 4 3,042 1.6% 1 93 2,147 28 609 6.8% 48 58 175 4 574 3.8% 7 62 223 1 46 4,237 3.4% 11 77 2,032 20 551 7.3% 36 55 128 21 1,463 6.6% 14 51 678 10 714 0.4% 14 68 316 (1) 2011 data (2) 2010 data (3) 2008 data Source: World Bank Economic Development Indicators; www.econstats.com; Lions on the Move (Africa), McKinsey Global Institute 49

Country Detailed Index of Economic Freedom by country (1/2) World Rank 2014 Score Property Rights Freedom from Corruption Fiscal Freedom Gov't Spending Business Freedom Labor Freedom Monetary Freedom Trade Freedom Investment Freedom Financial Freedom Mauritius 8 77 65 53 92 82 74 78 77 89 85 70 Botswana 27 72 70 61 81 70 69 70 72 83 75 70 Cape Verde 60 66 70 55 77 69 64 48 79 70 70 60 Rwanda 65 65 30 47 80 78 70 84 75 78 65 40 Ghana 66 64 50 40 85 83 63 60 66 65 70 60 South Africa 75 62 50 42 69 69 75 54 75 76 55 60 Madagascar 79 62 40 27 91 92 63 44 78 78 55 50 Swaziland 82 61 40 32 75 71 64 72 72 82 65 40 Zambia 88 60 30 31 72 83 75 50 68 85 60 50 Uganda 91 60 30 24 79 87 45 87 71 75 60 40 Gambia 92 60 30 32 79 80 57 66 71 65 65 50 Namibia 94 59 30 44 67 59 64 82 75 83 50 40 Burkina Faso 98 59 30 31 83 82 61 55 79 68 60 40 Morocco 103 58 40 33 71 64 76 31 78 59 70 60 Gabon 105 58 40 29 74 82 59 63 75 61 55 40 Tanzania 106 58 30 29 80 78 47 61 66 77 60 50 Côte d'ivoire 107 58 30 22 79 80 55 59 81 71 50 50 Tunisia 109 57 40 39 74 64 81 73 76 62 35 30 Kenya 111 57 30 21 78 75 56 64 75 73 50 50 Benin 113 57 30 30 68 86 51 51 75 60 70 50 Seychelles 117 56 50 48 77 62 68 68 75 33 50 30 Djibouti 118 56 30 31 81 63 43 65 77 55 65 50 Mali 122 56 20 28 70 82 48 63 77 73 55 40 Malawi 124 55 45 32 78 63 39 60 64 73 50 50 Senegal 125 55 40 30 65 75 48 41 82 73 60 40 Niger 127 55 30 26 77 88 35 45 88 66 55 40 Mozambique 128 55 30 26 76 65 65 37 81 76 45 50 Source: 2014 Index of Economic Freedom by the Heritage Foundation 50

Country Detailed Index of Economic Freedom by country (2/2) World Rank 2014 Score Property Rights Freedom from Corruption Fiscal Freedom Gov't Spending Business Freedom Labor Freedom Monetary Freedom Trade Freedom Investment Freedom Financial Freedom Nigeria 129 54 30 23 85 74 48 66 73 64 40 40 Guinea 133 54 20 19 69 86 52 73 64 61 50 40 Mauritania 134 53 25 24 82 76 38 53 76 69 50 40 Egypt 135 53 20 29 86 70 63 46 60 71 45 40 Cameroon 136 53 30 22 72 86 45 56 69 61 35 50 Liberia 138 52 30 34 84 70 62 47 73 64 40 20 Burundi 141 51 20 16 73 52 60 63 68 72 60 30 Comoros 142 51 30 22 64 85 49 50 75 73 35 30 Guinea-Bissau 143 51 20 20 89 87 41 61 74 61 30 30 Algeria 146 51 30 29 81 51 66 48 68 61 45 30 Sierra Leone 148 51 15 25 81 86 55 29 70 70 55 20 Ethiopia 151 50 30 27 77 90 58 55 59 64 20 20 Togo 152 50 30 24 70 82 43 43 79 63 35 30 Lesotho 154 49 40 37 67 0 54 62 76 69 50 40 S. Tomé Príncipe 157 49 20 33 87 28 53 45 68 75 50 30 Angola 160 48 15 18 88 55 48 40 64 70 40 40 CAR 161 47 10 21 65 93 34 40 72 52 50 30 Chad 167 45 20 16 46 80 25 43 70 55 50 40 Equatorial Guinea 168 44 10 17 75 63 43 42 75 54 35 30 Congo, Rep. 169 44 10 21 67 80 35 47 72 56 20 30 Congo, Dem. Rep. 172 41 10 18 69 75 30 39 63 63 20 20 Eritrea 174 38 10 23 57 66 19 64 58 69 0 20 Zimbabwe 176 36 10 19 63 64 35 22 73 54 5 10 Libya N/A N/A 10 18 95 0 50 78 67 N/A 5 20 Sudan N/A N/A N/A 10 85 90 55 49 56 56 15 N/A Somalia N/A N/A N/A 5 N/A N/A N/A N/A N/A N/A N/A N/A Source: 2014 Index of Economic Freedom by the Heritage Foundation 51