KINGS OF CAPITAL

Nigeria 2019 | FINANCE | VIP INTERVIEW

TBY talks to John Opubor, Managing Partner of Coronation Capital, on identifying opportunities, Nigeria's capital markets, and his outlook for 2019.

Can you give us some background into your business and activities?

Coronation Capital is focused on the key sectors of Financial Services, Consumer Goods & Services, and Technology Solutions in Nigeria and other West African economies. We bring together dynamic businesses and strong management teams which together can create stable platforms for future growth and expansion in home markets and throughout West Africa and the entire continent. Our goal is to create African champions. All businesses in Africa, even those that have performed well over time, require a great deal of work to develop into champions. For us, a major component of that success comes from focusing on environmental, societal, and governance issues (ESG). We believe strongly that in order to create a sustainable and successful business one must be focused on successfully addressing ESG issues. We spend a great deal of time working with companies to inculcate these vital aspects of a modern business.

What is your strategy to identify companies with attractive investment opportunities?

We focus on our strengths. For example, we actively seek to invest in the financial services sector where we have deep institutional knowledge and a history of real leadership from both an operations and investment perspective. We are also focused broadly on consumer products and services. For us, consumer includes food and beverage, retail, and quick-serve restaurants, as well as light manufacturing, education, and healthcare. The consumer space is important for us, because a large part of the Nigerian and African story are the attractive demographics. These demographics speak to a growing, youthful population moving into the middle class that demands products and services. Additionally, we look at technology-enabled solutions. This includes fintech, insurance products that are online, or any innovative way that solves a problem we find in our market.

How large is the typical company you invest in?

We typically look to write equity checks of USD10-25 million. If we are investing in a platform we may scale that investment over time with add-on acquisitions. This generally translates into companies with USD15-50 million. We are able to structure our transactions in a way that meet the needs of investee company shareholders and also provide us the flexibility to optimally manage our investments and exits.

What is the role of capital markets in the economic development of Nigeria?

This is an interesting and vexing question. Our capital markets are not as robust as they could be. Capital markets are a way that many companies around the world finance their operations. However, the lack of IPOs is a real challenge in this market. It is a multifaceted issue, and there are different ways to tackle it. As a nation and as individual market participants, we are trying to find ways to advance the ball. For example, we have a budding pension industry in Nigeria, which is broadly modeled on the Chilean system. This model has proven to be a huge success in Chile. At one point, there were 20 or so pension businesses, though over time regulations and business development whittled this down to a handful of strong players. The contribution scheme is such that pension funds have to invest a large amount of capital into the Chilean stock market. This created a robust capital market in Chile, and it has been an engine of growth in the country. We hope for something like that to occur here. We still have many pension businesses, though there will be a great deal of consolidation over time. The pension regulator has done well facilitating the industry, and it is looking to the future. We would like to see more focus from the pension businesses in capital market investments as well investing in alternative assets like private equity. This is a two-way issue though, because we need enough businesses to invest in, as well as a desire and capacity to invest. We also need an environment that encourages this investment. We need other policy solutions to ensure capital markets work properly. There are a number of things that need to be put in place to encourage capital market expansion.

How would you assess the environment for entrepreneurs and businesses people in the country seeking equity investments?

I think the country would benefit from a broader investment ecosystem and this includes support for companies in their early development stage. When this system is robust, there is greater specialization, which creates a deeper and more diverse pipeline for investment. Part of what we need is a more mature ecosystem, and this is a challenge. There are few businesses outside of the oil and gas industry that are large enough for a USD50 million equity check. For a country the size of Nigeria there should be many more companies of scale than are currently present. That said, Africa as a whole is extremely entrepreneurial and the amount of drive and innovation taking place now is inspiring.

What is your outlook for Coronation Capital in 2019?

We are extremely bullish. The coming election has its own challenges and opportunities. Generally, pre-election years see strong demand to get deals done. We are seeing the same trends now. The currency seems to have stabilized, and this is a positive indicator. For us, 2019 looks positive.