This article appears as part of Private Equity International‘s December/January Emerging Markets special supplement.
It was a very difficult time which no one saw coming,” says Shamel Aboul Fadl, chairman and founder of deal-by-deal investor Compass Capital, remembering the firm’s first investment in 2011 – the $40 million acquisition of pharmaceutical company RAMEDA. It was also the last transaction on the Egyptian Exchange before it shut for three months following the 2011 uprising that led to the overthrow of then-president Hosni Mubarak.
“We had the combination of a distressed asset and a distressed country. It was quite challenging for us for the first few years; what we decided to do was to keep our head down and focus on our strategy,” Fadl recalls.
That focus led to a series of fortunate events for Giza-headquartered Compass. There were only a handful of firms investing in Egypt and it was able to hire management and expand RAMEDA’s market share. Moreover, there was less competition on the buyside because private equity firms focused on well-managed companies instead of distressed assets.
Compass has invested 1.2 billion Egyptian pounds ($74 million; €67 million) since 2011, which is today worth close to 7 billion Egyptian pounds, says Fadl. The firm has made four investments of which two have been exited, the latest being financial services company CI Capital, which generated an average IRR of 102 percent in Egyptian pounds (108 percent in US dollars) and a money multiple of 3.22x (3.37x in US dollars) over Compass’s more than two-year ownership.
The firm continues to invest on a deal-by-deal basis but is mulling moving into a blind-pool fund, although discussions with its LPs are in the early days, Fadl says.
“After a turbulent period between 2011 and 2014, Egypt has had an aggressive reform programme on the fiscal and monetary front. At the same time, the currency is stable and there’s a clear legal framework on the ground.”
Recent business reforms include strengthening minority stake protections by increasing transparency, improving access to credit and making insolvency easier by granting creditors greater participation in meetings, according to the World Bank’s Doing Business 2019 report. Real GDP growth in Egypt was 5.3 percentage points last year, the highest rate in a decade, while unemployment also fell to 10 percent.
“Economic reforms and a new investment regime have improved the business environment, supporting foreign direct investment and improving the confidence of private equity players,” Enitan Obasanjo-Adeleye, head of research at the African Private Equity and Venture Capital Association told PEI earlier this year. The country also has a large demographic – close to 100 million – that offers a lot of significant opportunities for consumer facing operations, Fadl adds.
Fundraising for vehicles solely focused on Egypt has been patchy: EMPEA data show no funds were raised between 2001 and 2014. But in 2018 $143 million was raised for three vehicles dedicated to the country.
Egypt is considered the third most attractive country for private equity investment in Africa over the next three years, according to AVCA’s 2018 LP survey.
Paris-headquartered manager Amethis is looking to capitalise on renewed LP appetite: the firm is set to come back this year with its fifth Africa vehicle, which will invest up to €15 million per company in Egypt, Morocco and Jordan.