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Ron Den Besten 20 th October 2010 Case Study: Aureos Southern African Fund.

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Presentation on theme: "Ron Den Besten 20 th October 2010 Case Study: Aureos Southern African Fund."— Presentation transcript:

1 Ron Den Besten 20 th October 2010 Case Study: Aureos Southern African Fund

2 Aureos Capital Independent private equity fund manager focused on building mid-market companies Since its establishment in 2001, Aureos has increased its funds under management to over US$ 1.2 billion and extended its geographical footprint to over 50 emerging markets covering Asia, Africa and Latin America, by establishing 16 regional private equity funds. 184 transactions completed in the emerging markets since 1989 Unparalleled global infrastructure underpinned by strong local market intelligence Over 50 institutional investors Regions: - Central America - South East Asia - South America - South Asia - China - Pacific Islands - West Africa - East Africa - Southern Africa

3 The Lifecycle of a Private Equity Fund

4 Fundraising Launched:30 June 2003 Current Fund Size:US$50 million Regions:Johannesburg, SA Lusaka, Zambia Port Louis, Mauritius InstitutionInvestment in US$% Stake in Fund CDC Capital Partners Norfund European Investment Bank Canadian Investment Fund for Africa International Finance Corporation Nordic Development Fund

5 Fundraising Drawdown Fees and Expenses Capital for approved investments Follow-on investments Distributions Capital Income Exit Proceeds Returns Hurdle Rate – 6% 25% Catch - Up 20/80 Carry Investor Setup & Transaction Flow

6 Investment Period ASAF has 10 Deals Source of Deals: Proprietary Intermediary Watch list Initial Enquiry Initial Screening Final Screening Approved Pre - Disbursement RejectedDead Deals On hold Deal Pipeline / Approval Process Invested

7 Investment Period Business Integrity & Anti Money Laundering Check ESG CheckLegal Provisions Valuation Deal Structure, Portfolio Management & Exit Initial Screening Initial Screening Process ESG CheckLegal ProvisionsValuation Deal StructurePortfolio Management & Exit PlanFinal Approval Final Screening Process

8 Investment Period Investment Types  Management Buy-Outs  Management Buy-In  Expansion Capital  Public to Private  Privatisations  Black Economic Empowerment Industries  Across all industries (However utilise World Bank exclusions including: No investments in Tobacco, Liquor, Gaming and Child Labour related businesses) Investment SizeUS$0.5 – US$5 million Instruments  Equity  Quasi-equity/ Mezzanine  Loans Currency US$ and Local Currency Equity Stake  Significant minority stakes with requisite minority protections  Ability to take control Investment Criteria Fund (Vintage) ASAF (2003) Fund Size50.0m Investments to date42.0m Investments approved0.7m* Total42.7m % of Committed Capital85.4% No of investments10 No. of remaining investments 8

9 Investment Period Studies have indicated;  “Emerging market companies with the best governance practices generated a cumulative 5-year return 542% greater than firms that had poor governance” Gill, A. - CLSA Emerging Markets, 2001  “The best governed companies generated a return on equity that was 23.8% higher than firms with poor corporate governance” Brown, L & Caylor, M – Institutional Shareholder Services, 2004  “Portfolios of companies with strong shareholder-rights protections were found to outperform portfolios of companies with weaker protections by 8.5% annually” Gompers, P, Ishti, L & Metrick, A. – Quarterly Journal of Economics 118 no.1, 2003 Best Practice Corporate Governance

10 Investment Period

11 1/3 = Deal Structure / Leverage 1/3 = External Factors 1/3 = Factors that can be Influenced Value of Equity Investment at Entry = x Value of Equity Investment at Exit = 2x / 3x / 5x Value How much value have we left on the table? Where could we have done more? What could the multiple have been if we had extracted all potential value? Portfolio Management

12 PM is a very important stage of the investment which involves monitoring of the investment and constant reporting to the investors. The overall performance of the portfolio company is measured, tracked and corrected in this stage to ensure a successful exit. During this stage the Fund Manager provides growth, guidance and assistance to ensure an efficient portfolio management leading to attractive returns. Previous Action Plan Budget Valuation ESG Report Investment Valuation Report RCF Investment Financial Performance Portfolio Management: Summarized Revised Action Plan

13 Portfolio Management Passive Value AdditionActive Value Addition Setting aside time for Board Representation while focusing on primary activities e.g. deal execution Designating individual executives to focus solely on enhancing investment value and limited responsibility to 3-5 deals Reviewing outcomes on interventions from an ex- post perspective Reviewing inputs to interventions, examining progress and learning from outcomes Generating ideas that are suggested to Investee management for consideration Developing a comprehensive, integrated intervention plan, including target outcomes Contributing ideas to management during regular, but infrequent board meetings Frequent interaction with management, providing input on how to improve effectiveness of interventions

14 Portfolio Management  Personal relationships  Professional relationships  eg. Real People Investment Holdings (Pty) Ltd  Tasked with securing ZAR100m lines of credit in the first 18 months.  Managed to secure ZAR143m in 6 months  Introduced DFI’s  Strengthened Balance Sheet  Provided assurance to other credit line providers  Funding Facilities grew from ZAR 127m in 2007 to over ZAR 1bn in 2008 Leveraging Industry Networks Acquisition Strategies ASAF Entry  Building pan-regional businesses

15 Portfolio Management Industry & Competitor Analysis  Importance of Analysis and tracking competitors  Gather Intelligence  Eg; Understanding why competitor is managing 25% revenue growth pa vs our Investee growth of 15%  Identify opportunities and threats  Can make use of dashboarding here as well....

16 Turnover US$ 330m Over Employees Taxes Paid US$ 57m Exports US$ 16m Source: 2009 ASI Data (9 investments) Over US$ 0.9m spent on training Over US$ 112m on Investment mobilisation… ….. Of which US$ 34m was in investment in new Technology ASAF Portfolio Development Impact Portfolio Management

17 Exit Different Exit Methods There are different exit methods employed by the investing companies to exit from the invested portfolio company. Following are some of the exit methods employed by the Fund: Management Buy Out (MBO) IPO Trade Sale Buy Back Identification of a buyer Integrity Checks Valuating the Business Prepare Exit Paper IC Exit Approval Exit FundVintage Invested Fund Value Current (as at Q3 2010)Forecast (end of 2012) Capital Received Income Received Current Value of Fund Capital Received Income Received Exit Value of the Fund ASAF200342m10.3m11.9m49.2m1.5m7.4m72.4m 22.2m8.9m Current (as at Q3 2010)Forecast (end of 2012) IRRCash MultipleIRRCash Multiple 20.64%1.70x26.0%2.47x

18 InvesteeCommada / Orange Madagascar Fund:Aureos Southern Africa Fund (ASAF) Date of Investment:31 October 2005 Sector:Telecommunications Deal Type:Replacement Capital Shareholding Structure: Aureos through SPV Commada: 5.0% France Telecom: 33.6%, Societe Miaraka: 31.7%, Mauritius Telecom: 15.9% Country:Madagascar Original Cost:$ Deal Structure: Equity (50% SPV Commada): $40 Shareholder Loan: $ Cash Received:$ Cash Multiple4.09 IRR:43.14% Exit (Example) Deal Details Details of Returns Sep Details of Cash Flow Money Paid Money Received

19 Summary Local Presence Experienced Teams Proprietary Deal Flow Integrity of Sponsors / Management Investment Processes Deal Structuring Cash Flow Currencies Legal Provisions Industry Exposure Track Record Risks and Challenges

20 This financial promotion is issued by Aureos Advisers Limited which is authorised and regulated by the Financial Services Authority (“FSA”). All Aureos Funds (the “Funds”) are defined as “Unregulated Collective Investment Schemes” (“UCIS”) and the promotion of a UCIS either within the UK or from the UK is severely restricted by statute. Consequently, this document is only made available to professional clients and eligible counterparties as defined by the FSA and also to persons of a kind to whom the Fund may lawfully be promoted by an authorised person by virtue of Section 238(5) of the Financial Services and Markets Act 2000 and COBS R. Shares or Interests in the Funds should only be purchased by persons with experience of participating in unregulated schemes and any other person who receives this document should not rely upon it. Ke a Leboga Thank You Aureos Advisers Limited


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