Africa Lighthouse reviews private equity deals for P500m fund
Mbongeni Mguni | Monday September 13, 2021 06:15
BusinessWeek has learnt that the opportunities range from sectors such as manufacturing, healthcare, education and real estate to energy and others. The nine-year-old firm, founded by CEO Bame Pule, secured a P500 million private equity mandate from the Botswana Public Officers Pension Fund (BPOPF) in 2019.
Thus far, Africa Lighthouse has invested in Funeral Services Group and partnered with Minet Group for the acquisition of AON Botswana.
The firm’s investment specialists use a rigorous assessment strategy to identify high return opportunities in the local market, taking up equity and partnering with executive management in the targetted firms for the execution of growth strategies to drive returns.
On Wednesday, Africa Lighthouse chief investment officer, Kudzani Pickup told the firm’s annual investor meeting that careful selection would be applied in deciding which investments to make within the pipeline of 80 companies.
“The 80 companies could represent between P3 billion and P4 billion of capital, but we are looking only to invest P500 million so, we have to be quite selective,” he said. “It’s about getting the ones that you can make the most from and there’s a diversify of sectors.”
Of the 80 deals, one is at the stage of finalising agreements, while others are at various stages from pre-investment committee stage, external due diligence, signed Non-Disclosure Agreement stage to initial discussions. Africa Lighthouse’s investment criteria require that potential investment targets have EBIDTA or core earnings of P7 million and above, be fundamentally sound and market leading, have a proven business model with attractive economics and other factors.
The private equity firm typically aims for equity control ranging from 15% to 80% and invests between P30 million to P150 million although it can consider amounts larger or smaller. Africa Lighthouse invests for up to seven years and exits the investment via sale to other industry players, listings, sale to larger private equity firms, share buyback and other methods.
Pule said private equity firms consistently outperformed managers invested in the listed entities, due to the greater opportunities available in the broader economy and the higher detail applied in active investment.
He said private equity provided an opportunity to diversify away from the Botswana Stock Exchange (BSE) which has had poor returns over the past two decades. In addition, private equity, Pule said, is more representative of the economy and its opportunities, rather than the BSE whose capitalisation is heavily weighted towards banks and where some sectors are absent.
“Institutional investors cannot afford to ignore private equity,” he said. “Our portfolio is outperforming our investment committee’s forecast performance. “At Africa Lighthouse we give investors access to sectors such as manufacturing, health care, insurance which are not there on the BSE. “I’m informed that pension funds can have an exposure of 2.5% of their portfolio to private equity and over time, the difference between what the BSE and private equity can provide really starts to add up from the little risk to pension funds given the 2.5% restriction.”
He said while fund managers in listed companies were passive, having no influence on the companies they invest in, Africa Lighthouse as a private equity firm had control on returns through its presence on companies’ boards and engagement on strategy.
“We spend most of our time in value creation, not sitting at the Bloomberg watching prices, but working with executive management on performance,” he said. “We are active investors and we are always looking at what we can do to take a company from good to great.”
The local private equity market is seen as key to growing economic sectors that fall under the shadow of more traditional funding lines such as stock exchange listings and bank finance.