StrategyTLG Capital is a leading private equity investor in frontier markets . . .
. . . with a focus on sub-Saharan Africa. We see significant growth and opportunity in Africa: McKinsey Global Institute Africa Report 2010 estimates that collective GDP is to grow by 63% from 2008 to US$2.6tr by 2020; and consumer facing sectors are already growing 2 to 3x faster than OECD countries. TLG also recognises that metrics like GDP may not always gauge the vibrancy of Africa’s consumer spending, and we look at other statistics to determine the size of the consumer class in Africa with disposable income. For example, whilst less than 5% of Ugandans have a bank account, mobile phone penetration is closer to 30%.
As such, TLG invests in companies that are cash generative and well placed to benefit from the rise of consumption of the middle class in frontier markets. Our focus sectors are healthcare, real estate, food processing, retail and consumer goods.
TLG believes that the most compelling and robust opportunities in frontier markets are in companies requiring less than $15m for capital growth – transactions that evade the radar of mainstream funds. Typically, we invest $4 to $6m per transaction. We also invest across the whole capital structure to optimise risk-reward trade-off: a debt element to provide security and income yield, and to incentivise disciplined management; and a convertible or equity component to capture potential upside. We avoid outright majority stakes to ensure management and partners are sufficiently motivated, work with best-in-class local and international partners to reduce risk, and always have TLG representation in the company.
The fund follows two core investment themes:
- Growth capital in the “missing middle space” – Domestic sub-Saharan African businesses without collateral have limited access to funding from banks. Micro-finance organisations are too small to facilitate their needs. TLG operates in this vacant middle space, where transactions of less than $15m are the norm
- Transmigration of technology to sub-Saharan Africa – Particularly from India, a market that has thrived despite being beset by similar issues in terms of governance, infrastructure, bureaucracy and income
TLG has completed seven investments since its inception in September 2009. They include an investment in QCIL, in partnership with: Quality Chemicals Uganda, a local distributor of medicines; Cipla, an Indian generic pharmaceutical company with a market capitalisation of US$5.7 billion; and the Ugandan government. QCIL has become the first sub-Saharan pharmaceutical plant to receive Good Manufacturing Practices certification from the World Health Organisation. Providing a steady supply of affordable, life-saving AIDS and malaria drugs, the plant is an indigenous solution to diseases that claim several million lives in the region every year.
Another of TLG’s investments was the creation of the Swedish Ghana Medical Centre, the first European-standard cancer treatment facility in West Africa. The fund partnered with: Elekta, a leading Swedish innovator of cancer treatment technology; Scandinavian Care, a global healthcare developer; Fidelity Capital, a West Africa focused private equity fund; and Swedfund, a development finance institution owned by the Swedish Government.
In the summer of 2010, TLG invested in India’s largest and fastest growing cartridge re-filling and laptop repair company, Re-feel Cartridge Engineering Pvt. Ltd. With a member of the TLG team on the ground in India and part of Re-feel’s management, Re-feel intends to export its business model to sub-Saharan Africa, where demand for high quality, affordable and environmentally-friendly cartridge re-filling and laptop repair services remains unmet.
In the last quarter of 2010 TLG Capital closed two more investments including its third in the African healthcare space. The investment in The Snapper Hill Clinic, the only medical facility to have survived both of Liberia’s civil wars, further emphasises the healthcare theme as a core focus of the firm. Proceeds from TLG’s investment will allow for expansion of the clinic’s services as well as improvement of existing medical equipment.
TLG also invested in Vero Food Industries, a Ugandan agro-food processing venture whose primary focus is the production of mineral water and rice. The firm is set to be amongst the largest producers of these products in the region, with the ability to produce over 42,000 bottles of mineral water a day.
In November of 2010 TLG Capital invested in Iroko Financial Products Limited, which includes two companies: Iroko Securities and Sphynx Capital Markets PCC. Iroko is a financial services institution based in London acting as an agent for sub-Saharan African companies seeking debt finance, while also providing a link to international investors. They also focus on the provision of financial solutions for specialised and challenging credit situations. Iroko has strong ties to Francophone Africa and a proven track record of closing deals in the region. Since 2005 they have transacted over $1.3bn of financing in sub-Saharan Africa.
Past Deals
