Please describe the private capital opportunity in North Africa today as reflected by Mediterrania’s focus on mid-market growth investments. How has the region evolved since you started in 2013 and what are your expectations for the next decade?
Initially, our investment scope centered on North Africa, but it has since expanded to include North, West and Central Africa. We started in Morocco, Algeria and Tunisia and later extended our reach to Egypt and Sub-Saharan countries such as Senegal and Ivory Coast, with our portfolio companies expanded to 26 African countries. This diversification was driven by the opportunities identified in these markets and our strategic shift from smaller SME investments to larger mid-cap companies, offering greater growth potential. The development of the banking system and other industries in Francophone Africa, combined with Egypt’s large population, further supported our expansion efforts.
Looking ahead, we maintain an optimistic outlook for the private capital opportunity in North Africa over the next decade. Anticipated growth and opportunities are particularly promising in sectors such as healthcare, FMCG and financial services. Cross-border acquisitions and growth are also drivers today. For example, some of our Morocco portfolio companies are targeting acquisitions in Europe. Continuing economic development, a new push for investment in infrastructure and favorable demographic trends will drive new opportunities for private investors in these markets.
Mediterrania completed a number of partial and full exits over the last year in sectors ranging from healthcare to financial services and construction. Please touch on the path to exit for some of those transactions – IPO, secondary sale, MBO – and how they reflect local market dynamics.
Moroccan capital markets are relatively deep which has allowed us to utilize IPOs as an exit route. The Casablanca Stock Market has provided an excellent platform for a public listing, facilitated by a strong regulator, an active investment banking community and local investor participation.
For example, TGCC, a construction company that builds residential complexes, hospitals, hotels and infrastructure projects in Sub-Saharan Africa, grew 40% year-over-year which allowed us to partial exit through a 22-times oversubscribed IPO. Another example is Akdital, a healthcare company that grew to become one of the largest private hospital groups in Africa, building 12 clinics in three and a half years. The underserved healthcare sector in Africa, along with government backing, allowed for accelerated expansion with fast-tracked approvals. We exited the company in December 2022 through a four times oversubscribed IPO.
Mediterrania has also executed secondary, or sponsor-to-sponsor exits. Groupe Cofina, a mid-sized finance company providing short-term loans to SMEs across multiple African countries was sold to Development Partners International (DPI), a leading African private equity firm, generating healthy returns and enabling Cofina to access additional capital for its expansion plans.
Another exit case study for us is Cash Plus, a Moroccan-based remittance business. We exited Cash Plus in two tranches, with the first exit occurring in 2019 through a partial sale to a strategic investor. This allowed Cash Plus to secure additional funding for expansion while retaining a stake in the company. The second exit took place in early 2021 when Mediterrania Capital Partners fully divested its remaining stake.
Following an investment from Mediterrania, Casablanca-listed construction company TGCC implemented policies to close the gender pay gap and provide mentorship for women employees (see GPCA Deal Case). What role does gender play in Mediterrania’s ESG strategy, and what are the challenges to implementing that strategy in the countries where you are investing? Please touch on additional deals.
Implementing a gender-focused ESG strategy very often comes with challenges. Cultural norms and societal perceptions can act as obstacles to achieving full gender equality. We typically receive many more applications from male candidates than female candidates when jobs are advertised, making it challenging to ensure gender balance in hiring decisions. Additionally, different roles within portfolio companies may require specific skill sets and experiences, influencing the gender composition of those positions.
However, we have seen increases in participation of women in the portfolio companies, particularly in sectors like healthcare, where female representation in middle management and board positions has significantly increased. We have also seen an increase in promotions for women in middle management, indicating progress in recognizing and promoting female talent. The most challenging area is still achieving gender equality at the board level because it will take time for more women to have the experience, to have a deep enough pool of candidates at that level of seniority.
You are now in the market with Mediterrania’s fourth fund, with a EUR350m target. Please describe the landscape of institutional investors that are focused on your region and strategy. What role do DFIs play? Is there increasing demand from impact-focused LPs globally? What about sources of capital from Africa or the Middle East?
Development finance institutions play a big role in the industry. As well as leading in capital deployment, DFIs play a crucial role in ESG development and sustainable investments, guiding GPs and direct investments across the continent. Thanks to DFIs, ESG is now firmly embedded across PE in the continent.
We are also seeing a trend towards more interest in co-investments with DFIs across many sectors. At Mediterrania, we delivered over EUR100m in co-investments for the MC III fund, and we are looking at delivering over EUR150m in co-investments for the MC IV fund.
Impact-focused LPs are a growing asset class in Africa. In turn, GPs are becoming more sophisticated at explaining how they create impact and at presenting their measuring and reporting methodologies – while following global sustainability standards.
Today, two relevant pockets of capital exist: with oil prices at an all-time high since 2008, the Middle East constitutes an important source of capital. Even though the excess capital may go into alternative class investments, unless one has a long-term relationship with LPs, attracting this capital for African investments is very difficult. A second source of capital comes from African countries. This depends greatly on the country itself, its stability and its regulations. There is a trend where local capital flows out of the country, potentially for investment in regional or pan-African funds. However, this is still not a straightforward process and the amounts for investment are fairly limited.