Despite the economic crisis linked to the coronavirus, private equity activity continued to develop in 2020. Investments thus increased in number and in value compared to 2019. However, divestments have been postponed, while the companies have time to fund management to catch up on the realization of the business plans of the companies invested. This does not prevent them from looking for new business, with a current investment capacity of 3.2 billion DH.
Good prospects for private equity in Morocco for the next 3 years. According to the Moroccan Association of Investment Capital (AMIC), 3.2 billion DH would still be available for investment outside infrastructure. Of this amount, management companies plan to invest 1.35 billion DH this year, 905 million in 2022 and 630 million in 2023.
In total, 21 investments should be made this year, against 13 exits, according to the 2020 activity report presented yesterday by AMIC. “Management companies are looking for good deals,” said Omar Benchakroun, Senior Consultant at Fidaroc Grant Thornton, the firm in charge of the study that gave rise to the AMIC activity report.
The outlook is also promising for the fundraising events planned for this year. These should reach 2.9 billion DH, according to the association and will be mainly invested in information technologies, services and health which are at the top of the targeted sectors for the next 5 years. While waiting to verify the fulfillment of these forecasts, it is important to note that private equity activity did not decline in 2020, contrary to what one might have imagined. On the contrary, the pace of investment has accelerated. Thus, 20 operations were carried out last year (including 18 investments and 2 reinvestments), against only 9 in 2019.
The amount of investments made is also increasing: 804 million DH in 2020 against 765 million a year earlier.
The priming kills the pawn in the transmission / reversal
Thus 140 million DH have been invested in start-ups in seed and risk capital, particularly in new technologies. “These two categories continue to gain ground,” says Benchakroun.
The seed capital, long shunned, more than doubled in value in one year, going from 74 million DH invested at the end of 2019 to 172 million at the end of 2020. The venture capital, him, reached 484 million DH at the end 2020, against 440 million at the end of 2019.
For the current generation of invested funds (the 4th), which covers the period 2017-2020, the transmission and turnaround phases have quite simply given way to risk-priming which represents 43% of acts. The rest (53%) concerns companies in the development phase. Services and transport monopolize 28% of this generation’s investments, followed by the agri-food industry (16%).
Minority holdings take over
The changes observed in this generation also concern the tranches of capital acquired in the target companies. Compared to the previous generation (2021-2016), majority shareholdings have given way to minority shareholdings.
Thus, the acquisition of shares ranging from 5 to 34% went from 1.26 billion DH for the 3rd generation to 1.91 billion for the 4th. On the other hand, investments fell from 874 million DH to 630 million for the 30% -50% tranche and disappeared for the 50% -67% tranche. They also fell to 190 million DH, against 317 million for the portion of more than 67%. The average investment ticket for this generation of funds comes to 5.8 million DH. It is 10 million DH for the seed phase and 94 million for the development phase.
10 acts of divestment in 2020
Due to the crisis, several divestments initially planned for 2020 have been postponed (see box). Finally, only 10 decommitments were finalized last year for an amount of DH 220 million. This brings the total to 132 acts of divestment at the end of 2020 for an amount of 5 billion DH.
The secondary market and manufacturers represent the main exit methods at the end of 2020 and each account for 30% of divestments in value. The gross IRR stood at 13% at the end of 2020 for a multiple of 2.
What impact of the pandemic on invested companies and the sector?
The impact of the health crisis on the performance of companies no longer needs to be demonstrated. And those with private equity holdings are no exception. However, it is clear that the impact on their activities is lower than that of other companies. Thus, underlines Slimane Ed-dafali, teacher-researcher at the University of CHouaib Doukkali, ENCG El Jadida, out of 108 companies supported by private equity, the average decrease in 2020 turnover compared to 2019 is 20% against a national average of -32%. Compared to the forecast turnover for 2020, the average is -24%. And for good reason, 33% of fund management companies (SDGs) have set up a special committee to monitor the impact of the pandemic on the companies in which they hold stakes. In addition, 56% of the companies invested increased the number of meetings of their strategic committees and 28% held more Boards of Directors than usual. In addition, 56% of the SDGs have implemented specific governance actions: monitoring unit, negotiation of new customer deadlines, debt collection, postponement of bank installments, etc. In addition to the impact on the companies invested, the crisis also triggered changes in the private equity business. Thus, 11 planned investments and 19 planned divestments were postponed or canceled. In addition, 6% of SDGs report a postponement of the injection of donor funds and 22% say that they had to start discussions or negotiations of a modification of the investment policy with the donors. These changes include a decrease in investments dedicated to exporting companies (12% of respondents), an increase in investments dedicated to exporting SMEs (53%) and a concentration of investments in favor of local SMEs (24%). Overall, optimism remains in order among professionals in the sector: 83% of respondents expect their activities to return to normal during this year or later.
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