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COVID19 is ‘a natural filter for resilient businesses’ – CEO Mediterranea

By David Whitehouse
Posted on Friday, 25 September 2020 15:54

abidjan shoppers
Shoppers are seen in a supermarket, at the start of the coronavirus disease in Abidjan, Ivory Coast, March 18, 2020. REUTERS/Thierry Gouegnon

Private equity investor Mediterrania Capital Partners (MCP) is considering investments in supermarkets, health and education as the impact of COVID-19 whittles down the list of financially strong candidates, CEO Albert Alsina tells The Africa Report.

Before the pandemic, the firm was considering 50 possible investments. That has been reduced to 15 companies which have maintained strong balance sheets. COVID-19 has been “a natural filter for resilient businesses,” says Alsina. “It’s Darwinism at work.”

Supermarkets, he says, are a sound bet because “everyone needs essential goods”, especially as they are staying at home to eat. Meanwhile, “no-one is dropping out of school”, and companies which can deliver digital teaching are in a strong position. The most likely geographical areas for the new investments, he says, are Morocco, sub-Saharan Africa and Egypt.

READ MORE Coronavirus: Prosus shines with increased demand for food deliveries

In April, MCP closed its third African fund, Mediterrania Capital III. The fund attracted total funding of €286m, which exceeded the target of €250m. Investors include the French development financier Proparco, and the European Bank for Reconstruction and Development (EBRD).

  • The eight-year fund targets small and medium-sized enterprises in north, west and central Africa.
  • Investments so far include Moroccan construction company TGCC, Egyptian clinical lab services provider Cairo Scan and Tunisian food retailer Aziza.
  • So far, 70% of the fund has been deployed in six companies, leaving room for two more investments, Alsina says. Investments will take account of the need to diversify the portfolio, he adds.
  • Those two investments, each likely to be between EU20m and EU30m, should be made in the first half of 2021, or the end of 2021 at the latest, Alsina says.
  • That would be in line with the fund’s original four-year timeframe to complete its investments.

Cash Burn

This is no time to be looking for a bargain, says Alsina. “Good companies remain expensive,” he adds. “There’s no concept of buying cheap. We don’t want companies which need a capital increase to survive.”

The danger is that everyone will be chasing the same types of investments and push prices even higher: technology conglomerate Naspers, Africa’s biggest company, says it has a war-chest of $8bn to invest, and will be considering educational start-ups.

READ MORE Naspers still a discounted venture capital fund after Prosus listing

Local presence will be key for smaller funds. The pandemic has been an opportunity to get closer to portfolio companies, says Alsina, who is based in the Maltese capital Valletta. The firm has offices in Casablanca, Algiers, Cairo and Abidjan.

  • Being local has meant that the firm has been able to keep directly monitoring its investments through masked, face-to-face meetings, says Alsina.
  • The pandemic has led to a much stronger focus on reviewing balance sheets, liquidity and overdraft facilities.
  • MCP has broadened the use of the “cash-burn ratio”, a measure of how quickly a company is consuming cash, and for how long it can keep doing so.

MCP’s construction companies have dealt with the crash in hospitality by demanding an advance from clients in the sector in order to keep building.

If the customer can’t make the payment, then construction isn’t being allowed to continue, says Alsina.

Bottom line

Private-equity funds that can monitor the financial strength of companies on the ground will be the best placed to emerge from the crisis.

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