Africa’s arrival

BY Richard Summerfield

Private equity’s interest in the continent of Africa has never been higher, according to a new report from EY.

The firm’s report , 'Private equity roundup Africa', notes that PE has spread across many of the emerging markets with vigour in recent years. Indeed, many developing regions, including Latin America, Eastern Europe, India and Asia have attracted considerable interest from PE groups. However, PE’s interest in Africa is particularly strong.

Fundraising on the continent trended higher in 2014 than in recent years, as investors sought exposure to Africa’s seemingly unlimited potential. The value of transactions conducted in Africa nearly doubled over the course of last year, as PE firms across the continent put billions of dollars to work following significant fundraising activities. Exits continued to gather momentum in 2014, achieving an eight year high.

The outlook for the industry in Africa looks particularly positive, although the continent is still battling with political instability, economic torpidity and mass poverty. However, the emergence of a burgeoning middle class and the rise of consumer culture will play a transformative role in the economic fortunes of Africa.

Much of Africa’s recent growth has been marked by development in a number of consumer-related sectors - most notably the retail and consumer products space, the financial services sector and the technology, media and telecoms industries. This diversification of industries has had a positive effect on employment. Though we are a way off Africa becoming an economic power, the recorded growth, and potential for further economic development across the continent, are very real.

Investors in Africa will have obstacles to overcome in the years ahead, but the interest of both domestic and international investors across a range of industries will go some way to plugging the investment gap Africa has suffered for decades.

Report: Private equity roundup for Africa 2015

The times they are a-changing

BY Richard Summerfield

The insurance industry is changing at an unprecedented level according to a new report from PwC. 'Insurance 2020 and Beyond: Necessity is the mother of reinvention' reviews  developments in the industry set against PwC’s initial projections, and is based on interviews with more than 80 chief executives officers around the world.

The insurance space is at an important crossroads. Going forward, the industry will need to deal with significant changes to customer behaviour and acclimatise to technological advancements and new distribution and business models. More stringent local, regional and global regulatory developments will also contribute to the changing nature of the industry between now and 2020.

The report, which took five years to produce, notes that digital developments in particular have had a significant impact on the insurance space – an impact that is likely to grow over the next five years. Digital developments have helped insurers to enhance their customer profiling, develop sales leads, tailor their financial solutions to individual needs and, for non-life businesses, improve claims assessment and settlement.

Many of the firms surveyed said they have taken steps to improve their digital distribution channels. They have initiated new programs to help integrate their product lines into a client’s life, with pay-as-you-drive applications for smartphones just one example of such integration.

Going forward companies will be required to utilise ever more sophisticated sensors, big data analytics and communicating networks as the much lauded ‘Internet of Things’ becomes more commonplace. Jamie Yoder, PwC Global Insurance Advisory Leader, notes, “The emerging game changer is the change in analytics, from descriptive (what happened) and diagnostic (why it happened) analysis to predictive (what is likely to happen) and prescriptive (determining and ensuring the right outcome).”

Report: Insurance 2020 and beyond: Necessity is the mother of reinvention

Greece defiant following collapse of eurozone debt deal talks

BY Fraser Tennant

Greek prime minister Alexis Tspiras has called for “realism” from international creditors following the collapse of the latest round of debt deal talks in Brussels on Sunday.

The talks between the Greek government and EU officials saw Greece reject demands to make €2bn (£1.44bn) worth of spending cuts in able to secure a deal to unlock bailout funds. Also at issue was the looming deadline for Greece to repay more than €1.5bn of loans to the International Monetary Fund (IMF) by the end of June.

Mr Tspiras also rejected an EU request to make substantial cuts to pensions by saying his country's dignity would not allow for such an eventuality.

“One can only suspect political motives behind the institutions insistence that new cuts be made to pensions despite five years of pillaging by the memoranda," said Mr Tspiras in an interview with the Greek newspaper Efimerida Ton Syntakton. “The Greek government is negotiating with a plan, and has presented nuanced counterproposals. We will patiently wait for the institutions adhere to realism.”

Mr Tspiras also commented that his stance was not “a matter of ideological stubbornness” but was “about democracy”. In response, a muted European Commission (EC) said that although some progress had been made during the talks, “significant gaps” remained and time was running out for Greece to unlock bailout funds from the EU and IMF.

The impasse between Mr Tspiras and EU officials has intensified concerns as to the prospect of a Greek default in two weeks’ time. Furthermore, many believe that this could ultimately lead to Greece withdrawing from the eurozone altogether – a ‘Grexit’, as it has become known.

On the prospect of a Grexit, French president Francois Hollande said there was “little time” to prevent Greece from leaving the eurozone and that “the ball was now firmly in Greece's court”.

Mr Hollande said: “It's not France's position to impose on Greece further cuts to smaller pensions, but rather to ask that they propose alternatives. We have to get to work... everything must be done in order that Greece remains in the eurozone."

Next up for Mr Tspiras and the Greek government is a European Central bank (ECB) reassessment of continuing support for Greek banks in case of default (17 June); a meeting of Eurozone ministers to hammer out a deal that Greece can ratify by the end of the month (18 June); and the end of the Eurozone bailout with Greece and the deadline for a Greek €1.5bn debt repayment to the IMF (30 June).

News: Morning Agenda: Greek Debt Talks Break Down Again

CPPIB to acquire Antares from GE Capital in $12bn deal

BY Fraser Tennant

In a major transaction within the US lending sector, the Canada Pension Plan Investment Board (CPPIB) has agreed to acquire 100 percent of Antares Capital - the sponsor lending portfolio of GE Capital - in a deal worth in the region of $12bn.

The move to acquire Chicago-based Antares Capital, the leading lender to middle market private equity sponsors in the US (provider of more than $123bn in financing over the last five years), is being seen as a highly strategic, long-term platform investment for CPPIB Principal Credit Investments (PCI) group.

With a focus on providing financing solutions both globally and across the capital structure, CPPIB’s PCI group makes direct primary and secondary investments in leveraged loans, high yield bonds, mezzanine, intellectual property and other solutions.

“This acquisition exemplifies our strategy to achieve scale in key sectors through platform investments," explained Mark Wiseman, president & CEO of CPPIB. “It secures a market-leading business that is exceptionally well positioned to deliver value-building investment flows. In doing so, we are advancing the prudent diversification of our investment portfolio, strengthening the Fund even further.”

Upon the closure of the transaction, Antares Capital will operate as a standalone, independent business governed by its own board of directors, effectively retaining the brand that has built up a long and impressive track record in the US middle market lending sector.

“We are excited to partner with CPPIB," said delighted David Brackett, a managing partner at Antares Capital. “We couldn't imagine a better outcome to the sale process for our team or our customers. CPPIB brings deep understanding and knowledge of our market and permanent capital, which will allow us to serve our customers in both good and challenging times.”

The acquisition of Antares Capital, along with the retention of its managing partners, David Brackett and John Martin, will expand and complement CPPIB’s existing Principal Credit Investments portfolio, according to Mark Jenkins, senior managing director & global head of private investments at CPPIB. He said: “With this single transaction, we immediately acquire turn-key scale and a long-term partnership with the best, most experienced management team in the market.”

The Antares Capital transaction, subject to the customary regulatory approvals and closing conditions, is expected to complete during the third quarter of 2015.

News: General Electric to exit banking sector with $12bn sale of finance business

Divestments key to capital strategy, growth

BY Richard Summerfield

In 2014 divestments became one of the most important weapons in the arsenal of corporates. By getting smaller, many firms gave themselves the room, and the financial muscle, to grow.

Increasingly, leading companies are utilising divestments to further their capital strategy and facilitate growth. According to EY’s latest Global Corporate Divestment Study, many more companies are waking up to the benefits of divestitures, with more than half of those firms surveyed - some 71 percent - expected to join the swelling ranks of strategic sellers over the next 12 months.

Much of the renewed interest in divestments as a corporate strategy has been predicated on the return of M&A to the corporate agenda. 2014 saw the level of M&A activity across the global economy achieve pre-financial crisis levels as firms adapt to the shifting sands of modern corporate life, with its complex compliance obligations and rising costs.

Activist investors are also having a significant impact on corporates and their willingness to divest assets. Forty-five percent of executives noted that shareholder activism influenced their decision to divest some of their assets. A unit’s weak performance, position in the market can also trigger a divestment, as can a unit no longer being part of a company’s core business or a need to generate cash.

For those companies that have decided to take the plunge and divest a unit, the process represents an excellent opportunity for growth. Seventy-four percent of respondents said they are using divestitures to fund corporate growth, while 66 percent said they saw an increased valuation multiple in the remaining business after their last divestment.

When undertaking a divestiture, organisation and planning can play a pivotal role in increasing shareholder value. Fifty percent of respondents noted that by starting the preparatory work behind the deal at an early stage, they were able to complete their transaction on time. Taking shortcuts in deal preparation only elongates diligence work, and delays closure times. For divesting firms, speed is the key.

Report: Global Corporate Divestment Study 2015