The Roll of Private Equity in Africa
"Our ability to find a unique way of collaborating with the community to ensure upliftment in the investment areas through being open and honest with them about our ability in a project."
The Roll of Private Equity in Africa
An interview with Nico Oosthuizen, Nio Captial
Mr. Oosthuizen, can you share a brief overview of your role at NIO Capital and your professional journey leading up to it?
My role and mandate as CEO is to ensure that all deployed capital invested is carefully managed and that each investment asset’s operational activities are closely monitored. To ensure that our clearly defined investment strategic growth plans are followed through the identification of the right investments and management of our key analysts. Our local funds exceed R3.2 billion, and I work closely with the investee companies’ operational and financial management to ensure that we achieve the medium and long-term goals of the fund.
The African private equity landscape has developed quite significantly over the last 20 years, especially in South Africa. We aimed to identify specific long-term capital growth investments with a dividend yield that is aligned with the Family Office’s vision. In our South African allocated investment funds, the key focus is on capital growth with a strong focus on mitigating the exchange rate deterioration. It is not easy, especially with the geopolitical risks the continent is facing at the moment.
Could you discuss the foundational values and principles that shape your firm’s private equity strategy?
We believe in a balanced approach with a strong focus on integrity and transparency throughout our investment portfolio.
Our ability to find a unique way of collaborating with the community to ensure upliftment in the investment areas through being open and honest with them about our ability in a project. To ensure that we can deliver on the initial forecast for both the fund and the community at large. Communities that need the upliftment will usually embrace the assistance and thereby ensure that there is a symbiotic relationship that delivers long-term results for everyone involved. Sustainability is deeply ingrained in everything we do.
Could you shed some light on NIO Capital’s investment strategy and philosophy, especially regarding the balance between risk and reward?
Our long-term asset investment strategy is always thoroughly researched to ensure that the investee companies are able to withstand any future market fluctuations.
With the positions we hold in other listed entities, there is always a strategic intent to be able to later exit an investment either through a buyout or by way of an IPO. We will also do a merger of similar investments into an already listed entity, making our future exit much simpler. Most of our industry consolidations are based on legacy assets from a first-generation entrepreneur. NIO found a way to create a long-awaited exit for these owners that had limited succession plans in place for the business. In typical PE strategy will be to consolidate a couple of businesses to cut costs and, as a result, drive sales and optimisation of business processes.
On your website, it’s mentioned that NIO Capital focuses on specific sectors. Please elaborate on why you chose these sectors and what potential you see in them.
- Energy & Mining, specifically renewable energy
- Food and Water Security,
- MedTech,
- FinTech, and
- Property sectors. (Development and listed entities)
NIO Capital plays a significant role in financial services, providing support for listings, restructuring, mergers, and acquisitions. Could you describe your approach to these services?
Our historical experience in the private equity sector has helped us to be able to identify future potential investee assets long before we invest. Through the services we offer, we can ensure that the vision and values of the management are aligned with our fund. This will make a good foundation for further involvement from the fund to invest.
How does NIO Capital decide when to take an active equity position through direct investment versus when to offer services for equity?
Once we have analysed the IM(Investment Memorandum) and completed our due diligence, we will assess if we can make a significant difference in the current position of the business. We use our established network to establish what we can do to improve on the current figures without making too many changes to the business or staff. Balance Sheet optimisation is at the heart of what we do to create a strong footprint to drive the future growth of the business.
What are the key factors you consider when evaluating a potential investment in a company? Are there specific qualities or criteria a company must meet to fit your investment mandate?
First is if it falls in our mandate and our sectors of investment. Secondly, we look at the balance sheet to assess what shape it is currently in and how additional capital will play a role in the growth of the business. Management plays a critical role in our decision. Without good management, the transaction will, most of the time, just be too risky.
In what ways does NIO Capital contribute to the growth and development of its portfolio companies post-investment?
NIO Capital contributes to growth in our investments through our deep sector knowledge of the sectors we have identified to be on our balance sheet for the long term. We only invest in sectors we understand thoroughly and have the in-house skills to add value to these investments.
How does your firm approach Environmental, Social, and Governance (ESG) factors in its investment decisions?
The firm has an ESG policy that we strongly believe in. The African landscape makes it difficult to navigate through these dangers, but through our extensive network in Sub Sahara Africa and the UAE we can quickly assess any possible investments that will not fall into our framework.
What trends are emerging in the private equity and financial services sectors as we move forward? How is NIO Capital preparing to navigate these changes?
In South Africa, there have been some regulatory changes where the regulators will implement Regulation 28 of the Pension Funds Act, which imposes limits on infrastructure investments, and the investments must be reported to the Financial Sector Conduct Authority. Direct infrastructure exposure across all asset categories cannot exceed 45% of a fund’s total assets, previously 30%. New limitations on direct asset infrastructure exposure across all categories of a fund’s total assets.
South African laws are evolving to ensure we know exactly who we’re dealing with in each transaction. FICA(Financial Intelligence Centre Act) now requires fund managers to conduct deeper due diligence on all beneficial owners and disclosure, which could include due diligence on the ultimate beneficial owners of the investors in a fund and transactions.
About NIO Capital South Africa and Mauritius:
NIO Capital is a South African and Mauritian based Private Equity firm focusing on providing private equity investments to a broad spectrum of companies across the
- Energy & Mining,
- Food and Water Security,
- MedTech,
- FinTech, and
- Property sectors. (Development and listed entities)
NIO Capital provides corporate finance services and serves as advisors to various key players from different industries, and prides itself as a strong company that focus on often overlooked opportunities within the financial services sector, such as industry consolidation structures, Balance sheet optimisation, and business model strategies, all of which require proficiency and the right people as per requirement.
Our current network provides us with an ever-increasing ability to assess, formulate and manage business strategies, particularly customised for the needs of each individual client.
NIO Capital is an investment and management company focusing on our family office and the expansion of our investments globally.
NIO Capital builds long-term relationships and mutually beneficial partnerships with our progressive and collaborative corporate culture. Sustainability is deeply ingrained in everything we do. Our experienced team manages many important relationships with leading clients, corporates, businesses, and Banks. Associating with the best employees, partners, and suppliers ensures everyone benefits together.
Our funds are structured into the following categories:
- Renewable Energy and Mining - Hydrogen and electricity generation.
- Food Security and Water Security:
- Information Technology -Artificial Intelligence, MedTech and Fintech, Quantum Computing.
- Financial Services (Pre and Post Investments cycle) - Listings, Debt Raising, Securitisation, Fund of funds investing
NIO is a truly private equity firm at its heart.
NIO has a number of investments in the non-listed as well as the listed space in various exchanges.
Listed Investments with strategic intent.
With the positions we hold in other listed entities, there is always a strategic intent. Most of our industry consolidations are based on the legacy assets of a first-generation entrepreneur. NIO found a way to create a long-awaited exit for these owners that had limited succession plans in place for the business.
Coal to Renewable (CTR)
During our last 8 years of investments, the group has always envisaged the switch to renewable and alternative energy sources. Coal remains the most available energy source around for the development and the fast population growing countries. Renewable projects’ costs have been reduced dramatically but are dependent on historic distribution networks that are, in some cases, old and unreliable.
Renewable Investments Strategy in Africa:
Since 2015 our various private equity funds have actively participated in the funding and development of various renewable energy projects. South Africa is currently in a big energy crisis that revolves around the lack of generation capacity due to a lack of maintenance. Fueled by internal political issues, businesses and the public have started resolving the issue themselves.
MedTech and Information Technology:
Our long-term strategy is to focus on the constantly growing advancement in medical technology and the overall application of that in our business models for sustainable growth and profit. The result of these rapid changes is its effect on the mortality extension.
