Actis buys back UK government's 40% stake

The transaction values the emerging markets private equity investor's franchise at £20m and gives the government a share in future carried interest.

Actis, the emerging markets private equity and infrastructure investor, has bought the remaining 40 percent stake in the company held by the UK government for £8 million (€9.8 million; $13.0 million). The government will claim a share of future profits when Actis’s investments are realised, according to a statement.

Actis was set up under the new Labour government in 2004 to attract private capital to countries historically dependent on aid. It has since invested £1.7 billion in over 70 companies in Africa, Asia and Latin America. The firm was formed as a spin-out from CDC, the UK government’s direct finance institution – at which point a 60 percent stake was sold to the Actis management team for £373,000. That deal didn't give the government a share of future carried interest and was criticised by some UK politicians in the past as one that failed to appropriately benefit UK taxpayers.

Actis and the UK government issued statements notably differing in tone today. Actis senior partner Paul Fletcher said “successive governments have shown real vision backing a private sector model like Actis” and said the firm had returned £3.1 billion to CDC “and by extension the British tax payer”.

However, UK international development secretary Andrew Mitchell said:  “Today’s agreement represents a much better deal for the taxpayer. While Actis has generated significant profits, the previous shareholding structure meant the taxpayer and government did not receive any direct financial return at all.”

“This sale now gives the British taxpayer an opportunity to share in the future profits of the funds managed by this highly successful business,” he added, and predicted that the government’s independent financial advisers estimated the deal could be worth more than $100 million over time.

In a statement on its website, the Department for International Development said the profit sharing element of the deal would comprise a 10 percent share of carried interest profits from Actis Emerging Markets Fund 3 and Actis Infrastructure Fund 2 – which have so far invested in a combined 34 businesses – and a 7.5 percent share of carried interest profits in Fund 4, which is currently being raised.

Actis currently has $4.6 billion in funds under management, including $2 billion invested on behalf of CDC.