Deal flow
2011 was a successful one in terms of private equity deal flow,
especially direct deals, where our ongoing efforts to profile our
expertise in our focus sectors were particularly fruitful. The
majority of our direct deals were in energy, infrastructure and the
financial sector. Direct investments outnumbered investments in
funds.
Our activity was also boosted by a general pick-up in the
private equity market and the fruition of our long-standing
relationship-building efforts with fund managers.
We completed 11 new direct investments and increased our
exposure in six existing direct investments in companies. Most of
our direct investments were in Africa. Fund investments, were
mainly in Asia, where we made five of the year's 10 fund
investments.
In terms of sectors, our investments became more diverse in
2011. Although the main sectors were energy and financial
institutions, we also invested in industries such as telecoms and
railways. Last November saw us close the Addax bio-ethanol
project in Sierra Leone. Our energy and private equity teams have
worked long on this challenging transaction to finance the
processing of sugar cane into biofuels.
In line with our strategy, the vast majority of our direct deals
were co-investments with partners. These included our first
co-investment with the Renewable Energy Asia Fund, a wind energy
transaction. We co-invested with Egyptian fund manager Citadel
Capital's African Joint Investment Fund l in East Africa's Rift
Valley Railways. This major upgrade of a neglected yet important
transport link involved the navigation of sensitive environmental
and social issues, such as the railway's passage through one of
Nairobi's largest slums.
FMO realized three attractive private equity exits in 2011.
These included the partial sale of our stake in the Kenmare
titanium mine in Mozambique, the divestment of part of our stake in
Botswana consumer finance company Letshego, and the sale of part of
our investment in African Reinsurance Corporation. We also
benefited from profitable exits in our funds portfolio, notably the
initial public offering of internet company Yandex, which was only
partly sold. Yandes is a portfolio company of Baring Vostok's
Russian funds.
For most of our funds and direct investments, however, the exit
environment continued to be perceived as difficult. This led to a
delay in our exit program despite the fact that some portfolio
companies are ripe for divestment.
Although we were satisfied with our deal flow and exits, the
tough global economic conditions took a toll. Commercial investors
have become more risk-averse, and their caution slows the
establishing and closing of some private equity funds. We also had
to mark down the fair value of a number of investments as global
markets declined. Though this was unwelcome, in most cases it
reflected stock exchange fluctuations rather than any structural
deterioration in the underlying businesses.
In order to strengthen our business in our focus sectors, we
made some internal organizational changes in the Private Equity
department. Besides our dedicated financial institutions
specialists, we now have two energy and infrastructure specialists
who are spearheading investment activity in their sectors, and are
responsible for building knowledge and liaising with our debt
colleagues on sector themes.