Harnessing Synergies: Responsible Private Equity Investment in SMEs

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Noah Beckwith, Partner – Economics and Development - Aureos - UK

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Harnessing Synergies: Responsible Private Equity Investment in SMEs

  1. 2. Harnessing Synergies: Responsible Private Equity Investment in SMEs Noah Beckwith, Partner, Aureos Advisers TBLI Paris, November 2006
  2. 3. SME Private Equity: An Evolving Perspective CDC Funds 1989-2000 <ul><ul><li>10 Aureos SME PE Funds: 2002-06 </li></ul></ul><ul><ul><li>US$600m under management </li></ul></ul>Aureos Funds 2001 — Private equity ≠ Development Development Impact: Profitability = Precondition Holistic NDPs CDC Funds Group  Aureos Capital International Development Community
  3. 4. Reconciling Commercial with TBL Objectives <ul><li>Aureos and Development —Three Tenets </li></ul><ul><li>Developmental and commercial objectives are mutually reinforcing. </li></ul><ul><li>Developmental criteria are intrinsic to investment process. </li></ul><ul><li>Development objectives are pursued within a commercial framework. </li></ul>Developmentalism v. Commercialism Commercial Viability Private Sector Development SME Sustainability
  4. 5. Sustainable Outcomes: The Acacia Fund <ul><li>Three levels of development impact </li></ul><ul><ul><li>Microeconomic </li></ul></ul><ul><ul><ul><li>Access to capital, increased sophistication, technology and know-how, sectoral development and integration, economic linkages , export development. </li></ul></ul></ul>
  5. 6. Economic Linkages
  6. 7. Sustainable Outcomes: The Acacia Fund <ul><li>Three levels of development impact </li></ul><ul><ul><li>Microeconomic </li></ul></ul><ul><ul><ul><li>Access to capital, increased sophistication, technology and know-how, sectoral development and integration, economic linkages , export development. </li></ul></ul></ul><ul><ul><li>Macroeconomic/market </li></ul></ul><ul><ul><ul><li>Sales, consumption, fiscal contributions, export generation, investment mobilisation, multipliers, externalities, demonstration effects . </li></ul></ul></ul>
  7. 8. The Acacia Fund —Aggregated Indicators
  8. 9. The Acacia Fund —Contribution to Growth
  9. 10. The Acacia Fund —Regional Expansion of Investees
  10. 11. Sustainable Outcomes: The Acacia Fund <ul><li>Three levels of development impact </li></ul><ul><ul><li>Microeconomic </li></ul></ul><ul><ul><ul><li>Access to capital, increased sophistication, technology and know-how, sectoral development and integration, economic linkages , export development. </li></ul></ul></ul><ul><ul><li>Macroeconomic/market </li></ul></ul><ul><ul><ul><li>Sales, consumption, fiscal contributions, export generation, investment mobilisation, multipliers, externalities, demonstration effects . </li></ul></ul></ul><ul><ul><li>Socio-economic </li></ul></ul><ul><ul><ul><li>Poverty alleviation , sustainability. </li></ul></ul></ul>
  11. 12. Socio-economic impacts: A broader definition of poverty <ul><li>What is poverty? </li></ul><ul><ul><li>More than starvation, malnutrition and premature mortality. </li></ul></ul><ul><ul><li>“ Pronounced deprivation in well-being” (World Bank Group) . </li></ul></ul><ul><li>A broader definition </li></ul><ul><ul><li>Opportunity: promoting opportunity for employment, enabling the poor to generate wealth and to accumulate assets. </li></ul></ul><ul><ul><li>Empowerment: reducing vulnerability to exogenous shocks which hit the poor hardest. </li></ul></ul><ul><ul><li>Security: equitable access to market opportunities and opportunities for the under-skilled and unskilled. </li></ul></ul>
  12. 13. Growth, Wealth Creation and Poverty Alleviation Aureos Equity Investments in SMEs Informal Sector Semi-Formal Sector Formal Sector Poor/ Marginalised Groups Middle & Upper Income Groups Low-Income Groups Kiosks/micro-enterprises Small enterprises Medium enterprises Business Development - growth and profitability -professionalisation - formalisation Socio-economic Impacts - asset accumulation - opportunity, security, empowerment - inclusion and enfranchisement Economic Impacts - private-sector development - forward/backward linkages - investment generation S U S T A I N A B I L I T Y Income Generation Wealth Creation Poverty Alleviation
  13. 14. Sustainable Outcomes: Lake Harvest <ul><li>Kariba, north-east Zimbabwe </li></ul><ul><ul><li>Harare: 350km </li></ul></ul><ul><ul><li>Zambian Border: 7km </li></ul></ul><ul><li>Environs: within a National Park </li></ul><ul><li>Transport Links: Road, Air Strip </li></ul><ul><li>Population of Kariba (est.): 30,000 </li></ul><ul><li>Local Unemployment Rate: 80% </li></ul><ul><li>% of Population HIV+ (est. 20-30%) </li></ul><ul><li>Date: September 4th, 2002 </li></ul><ul><li>Deal Type: Management Buy-Out </li></ul><ul><li>Investment Size: US$285,000 </li></ul><ul><li>Stake: 38% </li></ul><ul><li>Instrument: 3,800 Ordinary Shares </li></ul><ul><li>Other investors: Management Team (36.5%), Comafin (25.5%) </li></ul><ul><li>Exit specification: Trade Sale to Strategic Investor </li></ul>The Location The Investment
  14. 15. Sustainable Outcomes: Lake Harvest
  15. 16. Breeds Tilapia With Its Own Parent Stock
  16. 17. Currently Producing up to 2m Fry per Month
  17. 18. Transferred to Floating Cages
  18. 19. Tilapia Kept in Cages Until They Reach Harvest Size
  19. 20. In-house Training Ensures Top Quality Tilapia Product
  20. 21. Designed Own Packaging, With Security Features
  21. 22. Packaging – UK Retail
  22. 23. Advertisements in Trade Magazines
  23. 24. Sustainable Outcomes: Lake Harvest Lake Harvest Aquaculture Healthcare Employment Training Output Multipliers Management Health & Safety Environment <ul><li>informal economy ↑ </li></ul><ul><li>demand for housing ↑ </li></ul><ul><li>local contractors used </li></ul><ul><li>fish feed plant estab- lished nearby </li></ul><ul><li>good governance </li></ul><ul><li>improved systems & administration </li></ul><ul><li>reduced corruption </li></ul><ul><li>skilling of local staff </li></ul><ul><li>workers perceived as stakeholders </li></ul><ul><li>staff more employable </li></ul><ul><li>demand ↑ </li></ul><ul><li>exports ↑ </li></ul><ul><li>taxes paid ↑ </li></ul><ul><li>↑ jobs </li></ul><ul><li>↑ income </li></ul><ul><li>↑ jobs for women </li></ul><ul><li>demonstration effect on nearby croc farm </li></ul><ul><li>resource preservation </li></ul><ul><li>steady meals provid- ed so nutrition ↑ </li></ul><ul><li>first aid provisions </li></ul><ul><li>hygiene ↑ in homes </li></ul><ul><li>nutrition ↑ </li></ul><ul><li>HIV/AIDS awareness ↑ so vulnerability ↓ </li></ul><ul><li>counselling provided </li></ul><ul><li>access to HIV testing </li></ul>

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