^{Sam Senbanjo (A.P. Moller Capital) co-authored this publication.}

Please give us an overview of your experience in Europe and then Africa. How has that shaped your perspectives on PE in Africa?

I started off my African PE journey back in 2010 with Helios Investment Partners. I was with Helios for about five years, which was a great experience, working up to being a principal, and leading transactions in the energy and digital infrastructure sectors.

I started to get much more involved in infrastructure and, having initially joined the board of HTN Towers, I transitioned into a role as its Chief Commercial Officer and led the sale of that business to IHS in 2016. Following the sale, I decided to stay in Nigeria to enhance my local relationships, and started a business working with and providing growth capital to local startups. Then, in 2020, I had the opportunity to join A.P. Moller Capital and to work with some former colleagues, which brought me to Dubai.

Have you always had a focus on Africa?

I didn't intend at the outset to have a particular Africa focus, and was initially focused on developing and funding renewable energy projects across Europe with HgCapital. However, I always recognized the huge opportunity for investing in Africa and, as an African, I am excited and driven by being able to make investments that have a positive and long-lasting impact on the continent.

At A.P. Moller Capital, we focus on infrastructure opportunities that enable food security, increase trade flows between Africa and other regions and within Africa itself, and improve access to power and digital communications.

Opportunities for technology leapfrogging are common in Africa. Legacy ways of doing things aren't in place and there are significant capital constraints, which drives the need for innovation. Technology offers the opportunity to add value to many people in a relatively low-cost way, and I believe that enabling digital communication infrastructure is one of the most important things that we can do to accelerate the growth of African economies.

Where is Africa today in terms of digital communication infrastructure?

It is very much still developing. Of course, one cannot talk about communications without talking about power and access to electricity. Only about 40 percent of telecoms infrastructure in Africa has been divested to third-party specialist tower owners. The rest is still in the hands of mobile network operators (MNOs). One tends to see less investment and higher operating costs when tower infrastructure is still in the hands of the MNOs because they are not able to realize the benefits of sharing the tower infrastructure across multiple MNOs.

As third-party specialist tower owners become involved, one starts to see greater investment into things like hybridization—moving away from diesel toward using batteries and solar—and in the future toward mini-grids. Increasingly, towers are being built in rural communities and the opportunity exists to install greater power generation capacity than the tower itself needs, so that the surplus can be distributed via a mini-grid to local communities.

Mini-grids can also be deployed across a portfolio of towers. If one has 50 or 100 telecoms towers that are not too far from each other, one can build a 1 to 2 MW solar plant and connect all the towers. This creates an opportunity for significant cost savings and, instead of paying about US$1 per kilowatt hour for diesel-generated power, that cost can be reduced to approximately 10 cents per kilowatt hour. Of course, one also benefits from emissions reduction as well.

How do you manage risk in your investments?

There are two important dimensions. The first is about how we run the company, and the policies and procedures that we put in place. We are part of the A.P. Moller Group, a diversified group of industry-leading companies with employees and operations across almost all countries in Africa. We have never experienced significant governance issues across the group, thanks to a robust governance framework that all group companies adopt.

The second dimension is the investment itself. We invest on behalf of pension funds, insurance companies and others who are not Africa experts, and so we manage risk in a holistic way. We look at insurance that can help mitigate political risk and adverse currency fluctuations. If we can fund our businesses in local currencies, then that also makes them less susceptible to global shocks. We standardize quite a lot so that we can leverage learnings from our previous investments and our hundred-plus years of operating in Africa.

What investment policies and criteria do you set for businesses? Are they sector-specific? Are there areas that you'll completely avoid or, conversely, focus on?

Our underlying investment philosophy is about doing well while doing good. We focus on finding opportunities where we can generate a positive impact re the environmental, safety and governance (ESG) aspects of a target company as an enabler of returns. As an example, our first investment of our first fund was an opportunity to commercialize flared gas in Nigeria. This turned a negative ESG story into a positive one and has been highly profitable for us, as we were able to procure the flared gas at nominal rates.

Another good example is Kenya-based KEG Holdings, which owns the largest LPG import and distribution business in East Africa. We are evaluating an opportunity to replace the petrol tuk-tuks that KEG uses to deliver LPG cylinders to consumers with electric tuk-tuks, which will both reduce emissions and reduce the potential for road traffic accidents—the batteries in electric tuk-tuks give them a lower center of gravity so they are much more stable.

What are the most important effects of expanding Africa’s digital telecommunications?

Expanding digital telecommunications in Africa allows more people to work from home and make money online that otherwise they would not have been able to earn. There is also a significant educational impact, as a lot of learning happens through online channels, benefiting people who can't get to school or where educational facilities are not great. The third really positive impact is the ability to electrify remote regions, giving more people access to electricity.

In what other kinds of industry sectors are you active?

We're involved in a cold storage chain solution in South Africa, which addresses a problem area that also exists in the rest of Africa and in many other markets with hot climates and growing populations. Food security and reducing food waste are core needs we can meet. In Egypt, we support exports through our ownership of HAU logistics, which has cold chain air cargo handling facilities at Cairo International Airport. Fruit and other agricultural products grown in many parts of Africa never reach market because they get spoiled in transit, and so we are proud to be able to help to fix that.

Key to all of this is the transition to renewable energy. How does Africa fit into the global green energy transition?

Renewables are a key area for investment. About 80 percent of Africa's energy generation is from fossil fuels, and roughly 25 percent of that is from coal. That will likely flip by 2030, with about 75 percent of Africa's energy then coming from renewables and only 25 percent from fossil fuels.

Capital costs of solar and other technologies are coming down. That's phenomenal for Africa because many renewable sources don't have ongoing fuel costs. Once the hurdle of deploying the initial capital is cleared, it's the most cost-effective source of power generation available. This is crucial when you're dealing with economies where household income and GDP per capita are as low as in most of Africa.

Also, we expect that about 27 percent of energy access in Africa will be through standalone installations. In many cases, customers can adopt a pay-as-you-go model through using mobile money rather than having to bear the capital costs upfront. Many companies are emerging to develop this part of the market, such as ZOLA Electric, which specializes in providing off-grid homes and businesses with power through their "solar as a service" model.

What challenging M&A experiences have you had in Africa, and what lessons did you learn from them?

There are so many aspects to answering that question. One challenge is that founders often have a hard time letting go of control of their businesses, which is obviously not unique to Africa. A way in which one can have a smoother transition is by using a more structured equity product that uses less of the equity. As an investor, this reduces your downside risk but it might mean giving up some of the upside. On the other hand, it might mean the difference between getting the deal done or not with a founder who is worried about being marginalized in the business that they founded.

The second crucial challenge is governance and how that will be managed. I believe strongly that this needs to be agreed upfront. We seek to front-load the agreement to address aspects, such as the rights each side will have in relation to various aspects of decision-making and exit. Most deals tend to fail because of these points rather than the due diligence kicking up something that makes you think you don't want to be involved with the other party.

So before spending money on due diligence, I want to really understand who I will be partnering with in this business for the next five, six or seven years. How will we run the business together? What do they feel strongly about in terms of rights that they want to retain? Why do they feel so strongly about that? What are the risks? How are we going to run the business together and make it successful?

The biggest risk lies in getting the wrong partner. So, I need to understand who I am dealing with. Are the people I'm talking to the real principals, or are they fronting for somebody else? Do they have integrity? This is really the first aspect of any deal we will diligence using networks within the group, as well as third-party diligence providers such as Risk Advisory or Kroll.

When we get down to due diligence, I know things are not going to be perfect. Areas will be found that need improvement and we must then agree on a plan for how to fix those issues. One wants to be in a position where one never needs to look at the shareholder's agreement later because things are not going well.

How optimistic are you about Africa’s prospects generally over the next few years?

Probably not as optimistic as I would like to be, what with global geopolitical trends, rising interest rates and other macro-economic issues. It's a fact that Africa imports so many goods and products from other countries, so imported inflation is a real concern. De-globalization is also having an impact. As an example, US fund managers seem far more interested right now in Mexico than in Africa.

These factors mean that in Africa one must focus on finding regional solutions and opportunities. Improving inter-regional trade is an example. We spend a lot of time looking at ports, particularly those related to exports. Africa is very rich in minerals and resources, many of which don't exist elsewhere. These can feed into manufacturing and other activities that generate local economic activity. Logistics within Africa is, on a per-unit cost basis, one of the costliest anywhere in the world. We believe we can add value by finding opportunities to reduce those costs and through increasing the efficiency of supply chains and networks.

Are there any countries within Africa where you are especially optimistic?

Given that currency risk is such a challenge, countries in West Africa that use the CFA franc, such as Ivory Coast and Senegal, stand out because that currency is backed by the French treasury and pegged to the euro. Also Morocco, where the currency is pegged to a basket comprising the euro and the US dollar. This, together with its proximity to Europe, makes that country especially interesting. We like Egypt, even though it does have its own economic challenges because its location is attractive for trade between Africa and Southeast Asia. There is also South Africa. Its challenges in its energy infrastructure and its logistics sector create significant opportunities for investors like us.

Do you have any comments on exits?

Exit issues are sector-dependent. Investments in renewable energy platforms are probably the easiest sector to exit at the moment because a lot of renewable energy and energy transition funds have been set up recently. Generalist PE players and those focused on fossil fuels are having to reinvent themselves. It's more challenging to exit successfully if you've got fossil fuel-related investments, because then you are limited to strategic buyers.

With transportation and trade-related investments, we're seeing a lot of opportunities. Right now, roughly ten big, global multi-modal logistics companies are looking to expand their footprints and their networks. We're getting a lot of queries about our businesses in those areas. For instance, we have a great business portfolio that we acquired less than three years ago, and we weren't thinking about selling it for another few years, but we might sell it next year because of the unsolicited queries that we are getting about it.

The final point I would make is that exits take a lot of planning. One must start two years beforehand. The first step is to agree on what we're trying to do with local shareholders. Secondly, to begin spreading the word about our portfolio so that potential buyers, who probably already have their eye on the company, will know when it will become available.

The third step is to engage with potential buyers and their advisors to understand how they view the business, and the risks and opportunities, so that it can be correctly positioned. The fourth step is to think about the funding. In Africa, one can't simply rely on a buyer making a cash offer. So, how can we help the right buyer with financing to make it as easy as possible for them to buy the business?

And then obviously the final step is to run an efficient process. Where there is just one obvious buyer, then it might not be necessary to run a full process although it's important to create some sort of competitive tension. When we're talking to two or more interested buyers at the same time, then it is more typical to run a full process.

How did you maintain personal well-being? You are always so positive and energetic. How did you maintain balance in life?

The opportunity to build infrastructure that has a long-lasting positive impact on Africa and its people is immensely rewarding. I was born in Nigeria and so I am proud of this lasting legacy that our investments create in Africa, for Africans. When it comes to maintaining balance and focus, it's trying at a personal level to focus on what is important rather than what's urgent. So, a lot of that is deciding what not to do to make space for what is important. I've also started to try to take extra days off around my work-related travel, particularly to countries that I have not visited before. Just to look around and engage a little bit more with the culture. That's one new way in which I'm trying to get to a little bit more personal balance. Not sure how my wife feels about that, though!

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