05.09.2019 Article

The What, Why & How

What Anyone Seeking International Investment Capital Into Sub-Sahara Africa For Business Growth Needs To Know -A Ghanaian Market Perspective
By Albert Owusu PGD MBA
The What, Why & How
LISTEN SEP 5, 2019

I left Ghana for the United Kingdom, back in the early 80s. I have since returned for holidays to Ghana over the years. In 2015, I made the bold decision to leave my employment as an AVP (Leadership) Commercial & Retail Banking, Barclays Bank, UK, after 12 years, to begin a whole new way of working as a Financier and consultant. I had also decided, I wanted to focus more on Ghana & Africa -my attempt at “giving back”, through skills set sharing and knowledge acquired, taking investments into Sub-Sahara Africa (SSA). I had prior to Barclays, worked as an Investment Banker, for then Swiss Bank UBS on the London stock exchange & London International Financial Futures & Options Exchange, trading equity & financial derivatives for about 10years through the 1990s

I have built up a plethora of investment contacts and knowledge in the UK over the years, this is an advantage, I believe- I learnt on my many trips to Ghana, the gap/disparity between the hundreds of Private Equity (PE) funds collectively, USD $30bn (2017) looking for investment opportunities in SSA private enterprises/ SME space primarily, and the greater numbers of private enterprises/ SMEs, entrepreneurs, advisory firms, brokers based in Africa, also desperately looking for growth capital is quite wide

Private equity typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies that are not publicly traded, they then sell (known as “exit”) them for a profit.

Here’s an account of some experiences & knowledge gained over the last few years. The objectives are for readers to find the information herein useful, share knowledge, offer Wadams services. An overview of a WHAT, WHY & HOW is the methodology.

- The What


equity investments focusing on Sub-Sahara Africa (SSA) into Small Medium Enterprises (SMEs)


Wadams Capital is an independent Intermediary -, specializing & focusing on identifying, sourcing, inviting Private sector investments into SSA and the emerging issues of the knowledge-based economy and Enterprise Development in the region.

Wadams Capital also engages in activities linking the primary players that comprise the knowledge-based economy creation in the region: government, industry, academia, civil society & the Diaspora. It aims to engage networks, arrange policy forums and Policy reviews, and works with partners aiming for reforms and concrete actions in support of rapid SME Development in the region

It’s been four years since starting operations in the region; primarily focused on Ghana, Nigeria, Kenya, South Africa and to some extent Ivory Coast and yes! has it been a roller-coaster ride indeed!

The Reality on the Ground: For instance, an advisory firm mandated to advise & prepare Investor Memorandums to raise capital (mixture of equity & debt; mezzanine or quasi-debt typically) for their client’s business expansion tend to design and structure proposals which, are overly geared in their client’s interest. Yes, this maybe right, however the goal is to attract investments and if it’s too risky or unfavourable to the potential investors, then they (potential investors) may shy away. An existing business, with assets of USD

$20M, seeking, USD $10M to invest in a new project, for growth/expansion for their client; the advisors had structured their proposal as a Special Purpose Vehicle (SPV) where the investment capital would be placed and carry the risk; this approach isn’t favourable to investors, as they carry all the risk, in the event of future poor performance, whilst the going concern with assets- approximately USD 20M remains 100% owned by the

client in this example. The old adage in banking circles: “skin in the game” (a client looking for investment is

expected to invest their own capital, thus sharing the risk in the venture) is missing from this example. Investors often would seek some form of collateral, sometimes twice the value of borrowing, in the SPV scenario. Investing in Sub-Sahara Africa can sometimes be challenging, because of higher execution risk, elevated transaction costs, and greater information barriers. The nascent state of this segment and a persistence of information barriers also make valuation of businesses difficult, which leads to gaps in perceived valuation between investors and their potential partners. Many entrepreneurs therefore shy away from equity financing because of a lack of familiarity with equity and exit mechanisms, differing views on valuation, resistance to governance structures, an unwillingness to cede control to external partners, and a reluctance to change the owner-manager culture at their firm.

The SPV is a distinct company with its own assets and liabilities as well as its own legal status. Usually, they are created for a specific objective, often which is to isolate financial risk. As it is a separate legal entity, if the parent company goes bankrupt the special purpose vehicle can carry its obligations.

Fig. 1


Source: Corporate Finance Institute (CFI)

Risk Sharing: A corporation’s project may entail significant risks. Creating an SPV allows the corporation to legally isolate the risks of the project, and then share this risk with other investors.

Securitization: For example, when issuing mortgaged-backed securities from a pool of mortgages, a bank may separate the loans from its other obligations by creating an SPV. The SPV allows investors in the mortgage-backed security to receive payments for these loans before the other debtors of the bank.

Property Sale: For example, If the taxes on property sales are higher than that of the capital gains, a company may create an SPV that will own the properties for sale. It will allow them to sell the SPV instead of the properties and pay tax on the capital gains instead of the property sales tax.Asset Transfer: Certain types of assets can be hard to transfer. Thus, a company may create an SPV to own these assets. When they want to transfer the assets, they can simply sell the SPV as part of a mergers & acquisition process

Benefits of an SPV

  • Isolated financial risk
  • Direct ownership of a specific asset
  • Tax savings, if the vehicle is created in a haven, such as Cayman Islands
  • Easy to create and set up the vehicle

Risks associated with an SPV

  • Lower access to capital at the vehicle level (since it doesn’t have the same credit as the sponsor)
  • Market to Market accounting rules could be triggered if an asset is sold and thus impacts the sponsor’s balance sheet
  • Regulation changes could cause serious problems for companies using these vehicles
  • The optics surrounding SPVs is sometimes negative

Some business owners often opt for debt financing over equity, given that they understand the risks associated with bank financing and do not have to accept externally instituted changes in management culture and control, associated with PE Investors. The introduction of credit referencing systems in Ghana, some 15 years ago, is also supporting increased investor appetites- investors, use this tool well; I on the other hand, had to learn the hard way: some business owners aren’t aware or sometimes don’t fully appreciate how the credit referencing system works, thus, they don’t always share vital information with the advisors/ intermediaries. Ghanaweb the online Ghanaian news & information medium, on the 17th May 2019, reported: The first quarter banking sector report published by the bank of Ghana shows that the private sector (made up of private enterprises & households) accounted for 96.9% of the total Non-Performing Loans (NPLs) within the Industry. This total NPL reached Ghs 6.63bn as at February 2019. Private enterprises/SMEs make up 76% of the 96.9%. NPL is a loan in default or close to being in default, typically after 90days, though there are variances, dependent of contract terms.

Credit reports of SMEs/Business Owners then are vital to the attractiveness of the opportunity to International Investors, secondly, it also have a bearing on the content of the term sheet, that may be offered. Congruence in historical credit behavior/default history from commercial banks in the country plays a significant part, in capital raising efforts, more than some SMEs/Business Owners may be aware of.

Governments enter the international financial markets to borrow for development projects, this is often termed as Sovereign debt. According to Journal of Economics, business & management: Sovereign credit ratings measure a country’s ability to meet its financial obligations. An indication of economic, financial & political situation of the country. The determinants of sovereign credit ratings are important because they determine the interest rate that a country qualifies for in the international financial markets and perhaps, have a constraining effect on the ratings assigned to institutions like banks & companies in the given country. GDP per capita, external debt, level of economic development, default history, real growth rate and the inflation rate, are all relevant factors determining a country’s credit rating.

The highest rating is “AAA” and the bottom “D” (the lower the rating, the bigger the probability of default & vice versa). Furthermore, arithmetical symbols (+ and -) are used to differentiate between sovereign states in each category. Sovereign states rated above “BBB” are considered investment grade & those below are considered speculative grade.

It has been argued that non-macroeconomic variables (such as rule of law, property rights…) tend to impose specific preferences of governance features. Macroeconomic factors perhaps, are limited in ensuring investor protection, because economies where non-macroeconomic frameworks are properly instituted, helps create an enabling environment that demotivate corporate managers from being overly self-centered & opportunistic with the overall result of mitigating the risk of mismanagement, to foster investor protection. In essence, an environment insulated by good non-macroeconomic structures, corporate managers are guided by external disciplinary measures enshrined in corporate governance as well as the broader legal regime that may boost investor protection.

According to Quartz Africa, December 2018 edition: Global PE Investors remain bullish on prospects in investing in Africa. 76% plan to increase or maintain provisions to African investments over the next three years, whilst 53% anticipate increasing their allocation to the continent, from a survey conducted.

Investors are experienced with great understanding of the SSA markets and are always on the lookout for the next great investment opportunity. Nearly two-thirds of Investors viewed Africa as more attractive for ventures than developed markets over the next 10 years. In 2016 USD$3.8bn was invested in 145 deals across Africa, up from USD$2.5 in 2015. West Africa continues to attract the biggest portion of monies, with most going to Nigeria. Southern Africa increased in 2018 from 35% in 2017 to 44% in 2018.

The diagram below illustrates, Investors’ appetites across Africa

West Africa @ 85%; East Africa @ 72%; North Africa @ 43%; Central Africa @ 7%



Data: African Private Equity & Venture Capital Association (AVCA)

In relation to attractive sectors for investment, Financial services & Fast-Moving Consumer Goods (FMCG) continue to remain popular. Technology has risen to third, compared with its position as sixth in AVCA’s 2017 survey.

Advisors must keep proposals/ teasers/Investor Memorandums (IM), audited financial accounts over the last three years, 5-year projections, as accurate as possible, without exaggerating projections, with unrealistic Internal Rate Return (IRR), if the current performance isn’t anything to “write home” about. On IRR; for an Investor to achieve 30% IRR over the course of their investment is very attractive for SSA.

The “big” advisory firms present in Ghana, are excellent in putting together IMs, providing advisory services etc., Pwc & KPMG spring to mind.

What we have learnt has enabled me to share our experiences and perhaps improve PE & Investment accessibility for businesses in the region.


-The HOW

How do Wadams engage.

Wadams have successfully delivered over USD$150M of investments across the SSA region

We have access/relationships with a plethora of Private Equity funds, Sovereign wealth funds, Family offices, Venture Capital Funds. Most of these funds have large amounts of Investment Capital looking specifically for businesses/ Projects in Sub Sahara Africa to invest their capital; according to the African

Venture Capital Association (AVCA) the total value of African Private Equity transactions between: 2007-2014 was USD $34.5bn.

The attractiveness of Sub-Saharan African investment in recent years (last 15yrs) has been energized by four main catalysts:

  1. Improved Political Governance
  2. Improved Fiscal Management
  3. Improved Microeconomic Reforms
  4. Discovery of more natural resources.

This has resulted in a rising middle class & growing skilled labor force, with more disposable income.

We provide advisory services to the sell side, from teaser preparation, sourcing and matching investment, advising on hedging against currency fluctuations and support throughout the Due Diligence process.

Our offices are in the UK and Accra, Ghana. We collaborate with different partners based in Africa to identify businesses/ Projects, Entrepreneurs looking for growth capital.

There is a commitment fee to engage on any project; however, deals can be structured to fit the client’s requirements. Once the teaser/IM is ready, Wadams Capital will go into the market place, share the opportunity with pre-screened Investors who specialize in the sector of the opportunity presented.

We don’t share the opportunity blindly with a “trail of investors”, but methodically, invest time and energy into working with Investors to give your opportunity every chance of success. We endeavour to provide

feedback where opportunities aren’t successful. The process of matching your opportunity to the right investor can take between 1-6 months. Once your opportunity gains the attention of the right Investor; we usually revert with questions or seek clarity on the opportunity. The investors often tend to lean towards opportunities with a positive EBITDA, a strong management team. They invest for the long term, 5 to 10+yrs and seek typically 18-35% Internal Rate Return (IRR) over the term of the investments.

Most monetary transactions are still conducted through direct exchange of cash for goods purchased or services rendered in Ghana. The onset and take-up of mobile money transactions have been exponential, as the country continues on its digital transformation. It’s interesting the Commercial Banks seems to have overlooked and left a gap for the mobile operators to fill. The concept of commitment fee; earnest money- often required by official procurement processes to demonstrate that the applicant is serious and willing to demonstrate an earnest of good faith about wanting to complete the transaction; upfront fee; aren’t welcome and frowned upon by SMEs/Project managers seeking credit/equity financing from international markets. A plethora of reasons exist from their experiences and the macro environment as a whole.

In the international debt/credit financial markets, where cash is negligible/zero, these fees are

commonplace and “part and parcel” of deal origination.

Once an investor has been identified, we link the investor to the client, through arranged phone calls or face- to-face meetings. When the investors & client decides they want to proceed, Due diligence (DD) is ordered by the Investors/or client. The DD process is usually undertaken by any one of the “big four” advisory firms. The cost maybe borne by the investor, sometimes, the client maybe required to bear the initial DD cost or/and monies returned on closure of transaction. Some investors may request a commitment fee/earnest money after agreeing and signing a Letter of Acceptance (LOA) from their issued Term sheet; In this scenario, typically debt, mezzanine or quasi-debt is guaranteed into the clients account between 75-90days from signing LOA. This allows the investor to go into the market place/investment schemes to retrieve the agreed investment for the client. Some clients have been known to change their mind (which is fine), however, they may have to forfeit the commitment fee/earnest money, to cover incurred costs.

Investors often would value the opportunity from Book value multiples perspective. This enables the investor to ascertain the real price of stock; whether under – or overpriced. Private Equity Investors strategic approach determines whether they opt for majority or minority shareholding.

They commit to some/or more of the following in equity investments:

  1. Board Participation by experienced International Directors
  2. Business strategy & strategic marketing Inputs
  3. Financial, Structuring and General business planning advice
  4. Provide access to extensive business networks and general guidance
  5. Active hands-on management

Please note, the above isn’t an exhaustive list, but merely to provide insight…

The Investors usually look to exit after the term of their Investment, through a trade sale; listing on the currently illiquid stock exchange is also an option, but rarely used. Profitability is the one main criterion for evaluating Private Equity/ investments, though; they are also a tool for mobilizing additional Investments

and play a key role in developing local economies. Alongside this tangible and quantitative impact, it also has a qualitative impact, which represents an opportunity to make Private Equity a tool for development with wider economic impact.


Please send any feedback/comments to my email: [email protected]

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