The Diversified Industrials Conference 11 June 2014

Antitrust Trends in Diversified
Industrials
Ros Kellaway and Lesley Farrell,
Eversheds LLP
11 June 2014

Overview
• What are the biggest antitrust cases in the
sector?
• Focus on Information Exchange
• Implications
– Fines
– Individual liability – new CMA, new UK cartel
offence
• Recent developments in the private enforcement
of competition rules in the UK and the EU
• Focus on collective actions
• Possible implications

Two Fundamental Rules in the EU
• Article 101(1) TFEU / Chapter I Prohibition Competition
Act 1998 (CA98): prohibits agreements or concerted
practices between businesses that restrict
competition and affect trade in the EU/UK
• For example:
• Price fixing
• Market sharing
• Customer allocation
• Bid rigging
• NB. Information Exchanges
• Article 102 TFEU / Chapter II Prohibition (CA98):
prohibits abuse of a dominant position that
affects trade in EU/UK

Update – Biggest antitrust cases in
the sector
Decisions
• TV and computer monitor tubes: December 2012, Commission fined tube
producers €1.47 billion for participating in one or both of two price fixing,
market sharing and customer allocating cartels
• Ball bearings: March 2014, Commission fined 5 automotive suppliers €953
million for price fixing
• Automotive wire harnesses: July 2013, Commission fined 5 harness
manufacturers €141.8 million for cartel behaviour
• Polyurethane foam: January 2014, Commission fined 5 foam producers €114
million for price fixing and market sharing
Investigations
• Capacitors: June 2014, Commission announced investigation into capacitors
– regulators in China, Japan, US and Korea also investigating
EU commitment to enforcement
• “we have a powerful and resilient array of tools to detect and sanction the
companies that take the ill considered decision to set up a cartel…we will not
rest on our laurels…the fight against cartels is and will remain a priority”
Vice President of the European Commission responsible for Competition policy, April 2014

Focus on information exchange (1)
• The focus is on “strategically
useful” information
• Some information by its nature
regarded as being “strategically
useful”:
– future prices
– future quantities
• Private exchanges of individualised
data regarding future prices or
quantities may be treated and
fined as cartels
• N.B. what is “private data”

Focus on information exchange (2)
Hot topics
• Trade Associations:
– beware of unlawful exchanges occurring through the
association – involvement of an association does not
legitimise an otherwise unlawful exchange
– use agenda, minutes and (if necessary) lawyers at
trade association meetings to avoid competition law
issues
• Online exchanges: LIBOR, EURIBOR and Platts
• Investigation creep:
– globally - authorities taking inspiration from, and
sharing information with, one another (Capacitors)
– across behaviours/industries (information
exchanges, investigations into indices/benchmarks)

Implications of
Infringing Competition Law
• For the company:
– Dawn raids
– Lengthy, intrusive and disruptive investigations
– Fines of up to 10% of group worldwide turnover
– Agreements void and unenforceable
– Damages actions
– Other costs - management, legal, publicity
• For individuals:
– Director disqualification for up to 15 years
– Criminal cartel offence, jail for up to 5 years...
– Extradition

Changes to criminal cartel offence as part of
UK Competition regime reforms (1)
• New offence only applies to agreements
made on or after 1 April 2014
• Removal of ‘dishonesty’ requirement
• “An individual is guilty of an offence if he dishonestly
agrees with one or more other persons to make or
implement, or to cause to be made or implemented” a
hard core cartel arrangement
• Scope of the offence:
– need an “agreement”
– arrangements must contain a reciprocal restriction on
pricing, supply or production
– applies where undertakings are at the same level in the
supply chain

Changes to criminal cartel offence as part of
UK Competition regime reforms (2)
• Existing exclusion for bid rigging still applies
(person accepting bids needs to be have been
given “relevant information”)
• New exclusions: if parties have (i) notified their
customers; or (ii) published details of
arrangements before they are implemented in a
suitably accessible form
• New defences: where there is no intention to
conceal the nature of arrangements from: (i)
customers; or (ii) the CMA; or (iii) where the
defendant, before making the agreement, took
reasonable steps to obtain legal advice
(external/internal)

OFT Ongoing Criminal Investigations
2013/14
• Galvanised steel water tanks – one individual
charged with market sharing, price fixing and bid
rigging between 2004 and 2012
– reporting restrictions apply
• Building sector product supply cartel –
– Searches carried out in March 2013 at a
number of locations across the UK
– Seven individuals arrested
• CMA priority and part of global trend to
individualised enforcement

Recent developments in the rules
relating to the Private Enforcement of
Competition Rules at UK and EU level
Background
• 1984 – Garden Cottage Foods v Milk marketing
Board (1984) 1 AC 130
• 2001 – Courage v Crehan (2001) ECR 1-6297
• Numerous Green Papers, White Papers and
consultations at both UK and EU level in relation
to private enforcement of competition law

Current context
• OFT research shows that private enforcement of
competition law is one of the least effective parts of
the competition regime
• Private actions complex and expensive
• Beyond the resources of businesses (particularly
SMEs) and consumers
• Commission research shows that only 25% of
Commission’s decisions finding a cartel or other anti-
trust infringement between 2008-2012 were
followed by damages actions
• Actions concentrated in three Member States of EU
• Nearly all claims brought by large companies

UK - The response
• A consultation on options for reform of private
actions in competition law – January 2013
• The principal aims:
– Empower small businesses to tackle anti-
competitive behaviour
– Enable consumers and businesses who have
suffered loss due to anti-competitive
behaviour to obtain redress
• Consumer Rights Bill – Schedule 8

UK - Reforms
• Establish the Competition Appeal Tribunal (CAT)
as a major venue for competition actions in the
UK
• Fast track procedure for SMEs
• Introduce an opt-out collective claim procedure
• Promote ADR
• Enable private regime to work effectively with
the public enforcement regime

UK - Collective Actions
• Opt out collective claim procedure before CAT for
individuals and businesses
• Subject to a number of safeguards in order to
prevent frivolous or unmeritorious claim
including prohibition on triple damages and
contingency fees and requirement for judicial
certification
• New opt-out collective settlement regime
(modelled on Dutch Collective Settlement Act
2005)

EU - The Response
• Directive on rules governing actions for damages
under national law for infringements of the
competition law provisions of the Member States
and the European Union
• Adopted by Commission and approved by
European Parliament in April 2014. Awaiting
approval by the Council
• Aim is to facilitate antitrust damages actions in
Member States

EU – The Directive
• Harmonise certain procedural rules throughout
member States of the EU
– Access to evidence
– Effect of a competition authority decision
– Limitation periods
– Joint and several liability
– Passing on defence
– Rebuttable presumption that cartel infringements
cause harm
– Relationship between public/private enforcement

EU - The Recommendation
• Commission Recommendation on common
principles for injunctive and compensatory
collective redress mechanisms in the Member
States concerning violations of rights granted
under EU law
• Adopted 11 June 2013
• Applicable to competition law and other claims
• “Opt in” collective claim

Conclusions
“The proposal for a Directive on antitrust damages actions is a
milestone in the evolution of competition law enforcement in the
EU.”
Joaquin Almumia
European Commissioner for Competition
“There is a good deal of competition in the area of international
competition litigation, much of this work does come to the UK, as
things stand but we do have at least two active competitors
within the EU. Others are gearing up. We cannot be complacent
if we wish the UK to remain at the forefront.”
Sir Gerald Barling
Former President of the Competition Appeal Tribunal

Conclusions
• Increase in private enforcement of competition
law claims
• Emergence of collective claim mechanisms in the
UK and the EU?
• Continuing focus on follow on claims?
• End to forum shopping or emergence of some
Member States as premier venues for private
competition law claims?

Diversified Industrials Conference –
11 June 2014
For further information on this conference and any future
Eversheds’ Diversified Indsutrials group events please
contact Sally Jenkins on:
sallyjenkins@eversheds.com or 0845 498 4018

Diversified Industrials Conference
Commercial Contracting Pitfalls
Tony Andrews, Doncasters
Gary Pellow & Tom Bridgford, Eversheds LLP

Good contracts
• Tacitus’s law:
“Inquissima haec bellorum condicio est: prospera
omnes sibi indicant; aduersa uni imputantur”
(Agricola 27:1 - 98 AD)
• “Victory has a thousand fathers and defeat is an
orphan” (JFK 1961)

Copyright Doncasters Group 2014
Strictly Private & Confidential3
Commercial contracts
– an industry view
Tony Andrews
Group Commercial Director
Doncasters Ltd
Eversheds, London, 11 June 2014
ver 10/Jun/14

"I am not in the office at the moment.
Send any work to be translated“
"When they're proofing signs, they should really use someone who speaks
Welsh," said journalist Dylan Iorwerth.
Lost in Translation
Swansea council, Morriston, Asda store, 31 Oct 08, www.bbc.co.uk

Doncasters Group Overview
4,500 employees
c. $1.2bn Gross sales 2013
30 Operating Businesses

Doncasters operates out of 30 locations in North America, Europe
and China servicing primarily the Aerospace/IGT market
Aero/IGT
58%
Other
10%
Industrial
9%
Construction
5%
On/Off
Highway
18%
Casting
50%
Fab./
Machining
20%
Fasteners
21%
Forging
9%
North
America
40%
Europe
33%
UK
18%
ROW
10%
End Markets GeographyMfg. Process

Strictly Private & Confidential
Through our varied manufacturing processes Doncasters is
able to produce most components of value in a turbine engine
Compressor
airfoils
Structural
castings
Turbine
airfoils
Rings &
casings
Combustion
components
Fabrication & exhausts
SuperalloysRotor
Bolting
7

Product diversity

Contract Life Cycle
9
Issue
Recognition
ResolutionFormalising /
Signing
Roll-out /
Appraisal
Red-lining
wording
Standard
T&Cs
Show-stoppers
Trade-offs

Key protocols
10
• Clearly define Scope of Work
• Nail down everything related to money
• Ownership of work
• How will changes affect pricing !! (“change control”)
• Whole agreement
• Process for changing the agreement

1. “Must do”:
 Group policies, protocols
 Reference library
 Bid approval policy
2 . “Assistance”:
 Guidelines, checklists
 Suggested best practices
 Links, contacts, further refs
Contractual support (1) - online
 Central repositary for contracts
 Sharing platform
 Latest docs status
 Approval routines / Exec summs

• Facilitate sign-offs
RAG list
Approvals required?
CAF & Exec CAFTraining
• Categorise issues
• Focus negotiations
• Red: show-stoppers
• Amber: address
• Green: typos, etc
Contractual support (2) – training & ownership

1) ‘3 level’ review of contracts:
• “Bronze” – eg, ROM
• “Silver “ – opps progressing
• “Gold” – final negotiations
• Internal & external legals
13
2) Post-award of contracts:
• Formalising ‘roll-out’
• Who does what, awareness
• Responsibilities, sign-off
• Back-back, supply chain
• Change management
Contractual support (3) – central response / post-award

Convergence process
14
• Early engagement of “contracts” in process
• Alignment of people involved (internal & external)
• Efficiency of decision–making
• Adherence to a process
Exec protocols
Focus: “Cost” / downside risk “Value”
Contractaward
Exec sanction

Complexity
15

Key contract provisions
16
• Liabilities
– Limitation of Liability
– Warranty
– Lateness damages
– Indemnities
– Insurance
• Termination provisions
– Buyer commitment
• Pricing - change control
- Cost drivers re current design
- Design changes
• Intellectual property

Contract pitfalls
17
1. Contract Management process
– Resources
– Negotiation skills, agenda
– Post-Award management
2. Certainty of intent
– Clarity of terms / variation changes
– Binding v get-outs
3. Remedies
- Multi-dipping
4. Risk
- Appetite, apportionment, flowdowns

Any Questions?

Contracts – key success factors
23
1. Internal
• Early engagement & alignment of individuals
• Decision-making, collaboration, support
2. Contract management
• Resources; post-award ownership; diligence
3. Buyer / Supplier relationship – complex supply chains
• “Value” – recognition; capturing it
• “Risk” – re-address attitudes, mutual mitigations
• Collaborative long-term, rather than adversorial
Objective:
“Fit for purpose” contracts = enhance value of future benefits

IACCM research
• More collaborative/partnering approach
• Carrot rather than stick
• Focus more on sharing benefits
• Less on defensive, risk averse, compliance based
contracts
• Improved governance and flexibility
• Success defined not on signature but over life of
contract

IACCM research
• Conflicting pressures of need for speed vs
concerns over regulatory compliance,
reputational risk and sustainability
• Need to consult growing number of stakeholders

IACCM research
Most negotiated term Most important term
1 Limitation of liability Scope and Goals
2 Indemnities Responsibilities of the parties
3 Price / Charge Price / Charge
4 Intellectual Property Delivery / Acceptance
5 Service levels Service levels
6 Warranties Payment
7 Performance guarantees /
Undertakings
Performance guarantees /
Undertakings
8 Service withdrawal / termination Communications & Reporting
9 Liquidated damages Change management
10 Delivery / Acceptance Limitation of liabilities

Discussion
• “Poor execution”
• “Contract discussions too late in the process”
• “Missing the nasties”

Discussion
• “Lack of consideration of relevant risks”
• “Optimism bias”
• “Contract seen as obstacle to getting business
done”
• “The business wants to secure the deal”

Discussion
• “Weak contract management”
• “Change in commercial circumstances – not
anticipated”
• “Leaving it too late to raise an issue”
• “Lack of realism – what can the contract actually
deliver”

Contract risk management
Regular
debriefs
Training
programme
Contract tools,
protocols &
processes
Improved
contract
management
Enhanced
contracts
Reduced
Claims

Success factors
• Get right negotiating team - beware silos; who is
over all lead?
• Leave enough time
• Engage legal team early
• Identify key areas of risk up front
• Look at it from other side’s view – try to get win
win
• Don’t just focus on getting it signed – needs to
be successful over life of contract

Success factors
• Be realistic; be careful not to over negotiate or
over complicate
• Balance need for long term contract with need
for flexibility
• Clear protocols and processes with top down
support/enforcement
• Clear financial modelling
• Agreement over key issues such as spec,
warranties
• Actively manage issues post signature

Responsible Care‘you can’t live without us’‘you can’t live without us’ Responsible Care
Energy costs – opportunities and challenges
Nick Sturgeon, CIA

Responsible Care‘you can’t live without us’
UK chemical and pharmaceutical industry statistics
• Turnover tops £58 billion
• UK is the tenth largest global producer
• Export surplus £6.0 billion
• Direct employment of 170,000
• R&D: chemicals = £689 million pharmaceuticals = £4,850 million
• Capital expenditure £1,704 million
• Largest energy consumer - 16% of manufacturing

Chemistry fuelled growth strategy
- 50% increase in value added by 2030
 Competitive and secure energy
- New feedstock sources : unconventional gas,
waste, bio, CO2
 Accelerating innovation
 Rebuilding supply chains
• Chemistry enabled GHG reduction solutions to
others sectors of the economy
• Reducing emissions from our own energy use:
process improvement, CHP, CCS
 Implementation by Chemistry Growth Partnership
(Joint chairs Michael Fallon - BIS, Neil Carson – JM)

Global climate solutions from the chemical industry
- net abatement 2005 MtCO2e
0
40
Sub-total
Insulation 2,400
700Lighting
220Packaging
190Marine antifouling
130
1,600
Synthetic textile
120Automotive weight
80Low-temp. detergents
70Engine efficiency
70Piping
60Wind power
District heating
Green tires
40Solar power
230Other
4,410
60
6,010Total
1 : 1
8500 : 1
3,560 5,160Net
Fertilizer & crop protection
Net
abatement
volume per
chemical
application
Not explicitly calculated
No realistic alternative
w/o fertilizer & crop protection

Energy trilemma
• Decarbonisation
• Security
• Affordability
 Competitive and secure supplies a pre-requisite for growth
strategy

UK chemical sector energy efficiency
60
70
80
90
100
1990 1992 1994 1996 1998 2000 2002 2004 2006
Voluntary
Agreement,
18% since 1990
CCA,
20%
since 1998
35%
Improvement
since 1990
Index

Chemical sector Climate Change Agreement
(Part A activities - Environmental Permitting Regs)
• DECC proposed 13.5%
• CIABATA negotiated
11.2%
• 230 sites, individual
targets as per survey
• £50m p.a. Climate
Change Levy saving
- 90% power
- 65% gas
• £25m p.a. CRC Energy
Efficiency Scherme
saving
0.800
0.850
0.900
0.950
1.000
1.050
Energyefficiency target , 2008=1.000

Emissions trading schemes
• CRC Phase 2 (1 Apr 2014 to 31 Mar 2019) is simplified, features
include:
– Simpler registration / no overlap with the EU Emissions Trading Scheme
– Reduction of the number of fuels covered - electricity and gas only
– Abolishment of the Performance League Table
– Allowances in Phase 2 will be £16/tonne CO2 (all use of gas and power)
• EU Emissions Trading Scheme Phase 3: 2013-2020
– Free allocations to exposed sectors – list confirmed to 2019
– cross-sector correction factor of 5.73% in 2013 rising to 17.56% in 2020,
– Price intervention by back-loading 900mtCO2 emissions
– Further reforms for post 2020 under discussion

Indirect climate policy impacts on power costs
(£/MWh, 2010 prices)
UK mitigations (for most electro-intensive):
- Carbon Price Floor compensation
- Electricity Market Reform exemptions

Climate policy impacts on power prices
• Carbon cost compensation payments for
– EU ETS impacts from Jan 2013 onwards
– Carbon Price Support (CPS) compensation – state aid just received
• Exemption from CPS on inputs to electricity from Combined Heat
and Power from 1 April2015
• Carbon Price Floor freeze (EU ETS +CPS) at £18/tCO2 from 2016/17
• Compensation for other decarbonisation subsidies from 2016/17
– Electricity Market Reforms - Contracts for Difference
– Renewables Obligation
– Small scale feed-in tariffs

UK power generation margins could fall to 2% by 2015
Electricity Market
Reforms
• Contract for Difference
• Capacity mechanism
Gas generation strategy
/ security of supply
• Office for
Unconventional Gas and
Oil (OUGO)
• EU energy market
liberalisation 2014/15
• Maximise North Sea
output

Demand side response opportunities
• DUoS Unit Charges - Time of Use (TOU) charges (and critical
peak pricing)
• Night/day rates
• Red rate tariffs
• DUoS Fixed Charges - Peak Demand Charges – Available
Capacity
• TNUoS - TRIAD Avoidance
• STOR – Short Term Operating Reserve
• FCDM – Frequency Control by Demand Management
NEW – Demand and supply side balancing
Coming soon - capacity mechanism

Gas prices, US$/BTU
(World Bank commodities data bank)
0
2
4
6
8
10
12
14
16
18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US
Europe

UK gas supplies
Good diversity of
supplies and import
capacity infrastructure
Gas price reflects oil
indexed price on
mainland EU
High and volatile UK
price spikes in winter
due to uncertainty
Indigenous supplies will
help security

Forward gas prices, p/therm
As offered during previous winter
62
64
66
68
70
72
74
76
Oct Nov Dec Jan Feb Mar
W12-13
W13-14
W14-15
W15-16
W16-17

Unconventional gas potential
• British Geological Survey estimate 40 trillion cubic
metres of shale gas in the Bowland Basin = 40 years of
demand; Weald Basin central estimate is 4.4 billion bbl
of shale oil
• CI growth strategy calls for exploitation of
unconventional gas for feedstock as well as energy
commercial flows by 2017
• Incentives, legislation, planning
and permitting guidance
• Major players joining in but
supply chain needs developing
• Cross-party support for shale gas
development providing there is a
“social license to operate” locally
• CIA support to promote economic
benefits including Shale Gas: The
Facts leaflet

UK and EU Carbon reduction target developments
• UN “Durban Platform” implementation 2020, if talks are successful
• EU 2030 energy and climate strategy
– Carbon only reduction of 40% proposed, renewables target 17% EU level
only consulting on energy efficiency
– Talk of industrial renaisance but insufficient action
– Decision by October 2014 on target to 2015 UN discussions in Paris
• Review of UK fourth carbon budget (2023-2027)
– Set at 50% reduction on 1990 levels with 2014 review if out of step with
EU targets (Treasury driven)
– Committee on Climate Change have advised support
– Government decision by summer 2014?

EU positioning
• EU should not impose unilateral cost increases that harm its
own industry
• EU carbon targets should be conditional
• Renewable subsidies, are leading to a “lock in” of expensive
low-carbon solutions; need more R&D
• EU ETS proposals would result in unilateral increases in the
costs to industry
• We need effective protection against investment leakage:
based on a “dynamic allocation” of free allowances

UK heat strategy for energy intensive industries
• ID future abatement opportunities and where policy change /
support is needed for Energy Intensive Industries’ (EIIs’) carbon
reduction to 2030 & beyond
• Part of EII strategy, backed by BIS and DECC and chemical industry
growth strategy
• Cross-cutting technologies
– Recovery and use of waste heat
– Incentives for new CHP
– Carbon capture and sequestration
• Work on chemical industry pathways and roadmaps for 2050
– 9 month project concluding Nov 2014

« M&A in Africa»
Rafik Mzah, AfricInvest
rafik.mzah@africinvest.com
Jawad Fassi-Fehri, Eversheds LLP, Africa Group
jawadfassi-fehri@eversheds.com
11 June 2014
Eversheds
1

1. Background on speakers
2. Although there are still problems/instabilities in few countries, the reality is
that in Africa, the economic and political situation is gradually getting more
stable and more dynamic.
3. Indeed, few aggregates about Africa today and by 2020, Africa appears as
a huge market with many potentialities and many needs in all sectors.
Introduction
22

1. Africa is the second largest continent in the world in terms of both
land mass and population:
a. Over 1 billion people, or 15% of the world’s total population,
b. 52 cities with more than 1 million people, which is equal to or
greater than Europe, the United States and India,
c. Larger land mass than the United States, China and India,
combined.
2. Africa’s middle class has grown to over 310 million
people, representing nearly a threefold increase
since 1990.
1. Why Africa – the current picture
33

3. While Africa benefits from a large and growing natural resource
endowment and has benefited from increased commodity prices,
less than one-third of real GDP growth over the past
decade has been attributable to natural resources.
4. Instead, the vast majority of growth has been, and is expected to
continue to be, driven by consumer spending, manufacturing, and
service industries with an increasing emphasis on the domestic
market.
5. The most dynamics countries (accounted for about 85% of the
consuming in Africa):
Morocco South Africa Nigeria
Tunisia Angola Ghana
Algeria Mozambique Ivory Coast
Egypt Kenya Senegal
Tanzania DRC
Ethiopia Gabon
1. Why Africa - the current picture
44

We can divide the Continent into 3 areas
2.1. The French speaking countries
• North Africa countries (Morocco, Algeria, Tunisia, Mauritania) and
sub-saharian countries (around 21 countries).
• These countries represents around 25 countries (among 54
countries) and 400/500 million people.
• Business is made in French and legal documents and contracts are
in French.
• In all of these countries, the rules and laws are deeply inspired
from French laws.
2. Main characteristics
55

2.2. The English speaking countries
• Egypt, South Africa + sub-saharian countries (around 20 countries).
• These countries represents around 20 countries (among 54 countries)
and 550/650 million people.
• Business is made in English and legal documents and contracts are in
English.
• In all of these countries, the rules and laws are deeply inspired from
British laws.
66

2.3. The Portuguese speaking countries
• Mozambique, Angola, Cape Verde and Guinea Bissau.
• These countries represents 4 countries (among 54 countries)
and around 45 million people.
• Business is made in Portuguese and legal documents and contracts are
in Portuguese.
• In all of these countries, the rules and laws are deeply inspired from
Portuguese laws.
77

Even if there are still many improvements to achieve, the Sub-saharian
countries have made significant efforts to improve the legal and the
economic framework.
3.1 OHADA (UNIFIED BUSINESS LAWS FOR AFRICA )
17 countries have uniformized a wide part of their business law. Same
rules in these 17 countries in:
• Corporate matters,
• General business law,
• Pledge/guarantee law,
• Arbitration rules
• Accounting rules,
• Insolvency and bankruptcy rules,
• Debt-Recovery rules.
3. Legal environment - Uniformisation ?
8
However, this uniformization
doesn’t include
• tax rules,
• foreign investments rules,
• social and employment rules,
• specific rules (oil and gas, TMT
etc.).
8

3.2. Central banks and currency
Amongst the 21 African French speaking countries:
• 8 western African countries have the same currency (CFA Franc) and
are submitted to the same central bank with the same rules for the banks:
• UEMOA (Senegal, Ivory Coast, Togo, Benin, Burkina Faso, Mali, Guinea
Bissau (Pr), Niger).
• 6 central African countries also have the same currency (CFA Franc) and
are submitted to the same central bank with the same rules for the banks:
• CEMAC (Cameroon, Gabon, Congo, Chad, Central African Republic and
Equatorial Guinea).
99

• the banks belonging to each area are submitted to the same regulations.
• the currency exchange parity is fixed with the Euro
= no problem of change fluctuation.
• freedom to transfer money in each monetary union.
1010

3.3. Morocco – Algeria – Tunisia – Lybia and Mauritania – Arab
Maghreb Union
• Even if these countries are culturally close, the trade between these
5 countries is very low.
• Investment approach in these 5 countries must be done as 5 different
individual investments / They don’t have the same currency.
• Regulations for foreign investors are:
• very restrictive in Algeria an Lybia,
• medium in Tunisia, and Mauritania,
• open in Morocco.
• Morocco and Tunisia try to be a hub for companies for
their investment in Africa.
1111

• Infrastructures are more developed in Morocco:
• harbor of Tanger Med : one of the two biggest in Africa and
Mediterranea for Transshipment.
• industrial offshore zone (only for exportation) close to the harbor
Tanger Med, with tax incentive.
• one of the 3 majors stock exchanges place in Africa
• good highway network (more than 1,100 kilometers) and highspeed
train between Tangier – Rabat – Casablanca in 2015.
• good newtwork (through Royal Air Maroc) from
Casablanca to join major cities in Africa.
• Casablanca finance city : financial hub for africa
with incentives
3. Legal environment - Uniformisation
1212

3.4. COMESA (common market for eastern and Southern Africa)
• A Free Trade Area between :
• 19 states (DRC, Rwanda, Burundi, Djibouti, Comores, Madagascar,
Libya, Ethiopia, Soudan, Zimbabwe, Zambia, Eritrea, Malawi,
Swaziland, Mauritius, Seychelles).
• Population of around 400 million.
• Annual import bill of around US$32 billion with an export bill of US$82
billion.
1313

3.5. East African Community
• 5 countries (Kenya, Tanzania, Uganda, Rwanda and Burundi).
• Population of around 135 million.
• Common market treaty for free circulation of people, goods and capital in
the area (custom union and common market).
• Current negotiations for the East African Monetary Union, which
commenced in 2011 .
1414

4.1. Accelerating Urbanization
1. In 2016:
• more than 500 millions of African will live in cities and urban areas
(and by 2030, the continent’s top 18 cities are expected to have
combined annual spending power of $1.3 trillion).
• there will be around 65 cities of more than 1 million people.
2. Continent average growth between 2010-2020 is around 6.5% pa with
highest projected growth rates in the world for 2020 onwards.
3. Urbanization is a key economic growth driver as urban populations have
higher incomes and consume more goods and services (e.g., while only a
third of Africa’s population is urban, this segment currently accounts for
80% of total GDP).
4. Why Africa - Growth
1515

4.2. Consumption
4. In 2020, Mc Kinsey estimates:
• to 1,400 billions $ the consumptions spend in Africa,
• that consumer goods (telecoms, banks, trade), naturals resources,
agriculture and infrastructures will generate a revenue of 2,600 billions $,
• around 130 million African households will spend more than 50% of their
income on other things than food and accommodation.
5. Private consumption in Africa is already higher than in India or Russia; and
rose by >$550 billion between 2000 and 2010 and is expected to increase
by an additional $410 billion by 2020.
6. It is projected that by 2060, the African middle class will grow
to 1.1 billion, representing 42% of the continent’s population.
1616

4.3. Favorable Demographics
7. Africa has the youngest population in the world, with over 200 million
people between the ages of 15 and 24, which is expected to double by
2045.
8. Africa currently has over 500 million working age people, which is
expected to double by 2020, creating the largest labor force in the world,
surpassing both China and India.
9. Education levels are improving among young people and it is projected
that by 2020 nearly 100 million young people will have had secondary
education (vs. 69 million in 2010).
1717

4.4. GDP Projection 2013-2018
Projected GDP Per Capita Growth Per Country, 2013-2018
0.17
0.2
0.23
0.27
0.28
0.3
0.35
0.46
0.46
0.47
South Africa
Angola
Senegal
Uganda
Nigeria
Tanzania
Ethiopia
Zambia
Ghana
Kenya
Source: Renaissance Capital, IMF
Source: IMF, World Economic Outlook
18

Going forward, Africa should continue to present highly
compelling fundamentals for growth:
• Attractive macroeconomic fundamentals and favorable
demographics.
• Accelerating regional integration and improving regulatory
environment.
• Large number of sectors that are experiencing hyper growth
and/or rapid structural change.
• Improved governance and new democracies leading to a more
stable political context.
19

Needed are in all sectors, but the highest growth are in the
following sectors
• Energy, mining, and oil and gas:
• Given the Africa’s existing resources as well as new discoveries,
these sectors offer many attractive investment opportunities,
including the opportunity to take advantage of local content
requirements.
• Special attraction for service companies providing support in the
value chain for large operators, as opposed to extractive businesses.
• Manufacturing and agribusiness:
• African businesses targeting the African continent, Europe and/or
other markets and,
• Ventures with international companies from Africa, Europe, the
Middle East, Asia and America that are increasingly off-shoring
some of their activities to the Region.
5. Sectors in growth
2020

• Education:
• There is an increasing need for investment in quality private education
as the public sector cannot always balance quality with affordability,
which has become increasingly apparent as a result of the rapid growth
in population.
• Private education is taking a larger market share in several African
countries.
• Financial services (consumer credit, insurance, specialized financial
services, etc.):
• In addition to opportunities on banking services in countries that are
still lacking a developed financial sector, there are real opportunities on
non-banking financial services.
2121

• Distribution and retailing: The modernization and specialization of
distribution and logistical networks that is starting to take place Africa offer
several highly attractive investment opportunities.
• Petro-chemical and plastic industries: These industries specialize in
emulsions and solvent production, polyethylene preforms production, and
packaging. Oil and gas-producing countries have a clear competitive
advantage in these sectors.
• Construction and construction materials production and
distribution: Many African countries are lacking adequate infrastructure
and housing, generating opportunities in services and raw materials used
by this sector. This includes indigenous construction companies, cement
and other raw materials plants, production of ready-to-use concrete, and
transportation.
2222

• Business Process Outsourcing: Some African countries are uniquely
positioned to serve European and U.S. markets. Following the model of
India’s development as an outsourcing hub for business services, countries
like Ghana, Senegal, Mauritius, Morocco and Tunisia could all position
themselves as competitive alternatives.
• Pharmaceutical and private hospitals: generic drug production,
research as well as medicine distribution. Private hospitals in countries
where governments are supporting the private sector in this field.
• Transportation and Logistics: The sector is in the process of being
deregulated and offers many attractive investment opportunities.
2323

• Telecom and technology: There has been extraordinary growth in
telecommunications in Africa, as more than half of Africans now own a
mobile phone, which has allowed for dramatic innovations in e-business
and e-payments. The expansion of international technology suppliers into
Africa, reduction of distribution intermediaries due to technological progress
and need to respond to international market requirements are increasing
the focus on access to modern technology. There are many opportunities to
develop service providers to this sector, which has been growing but has
yet to achieve maturity.
2424

• Target: mid-sized businesses that exhibit significant potential for
improvement and growth:
o More than 95% of companies in the Region have revenues of less
than €70 million,
o Significant untapped potential for enhanced performance and
growth,
o Attractive Entry Valuations Relative to Growth Potential,
o Increasing Deal Flow.
• Pan-regional approach.
• Proactive deal sourcing initiatives by the Investment Team.
• Duplication of successful business models and strategies
from one region to another and cross-regional development
initiatives.
6. Sourcing deals in Africa
2525

• Co-investment: bringing-in fund investors and other private equity players
to co-invest in many transactions. These relationships constitute a
significant sourcing channel.
• Network: recognized and credible professionals including industrial
families, lawyers, accountants, professional advisors, investment banks,
commercial banks, merger and acquisition specialists, consultants and
development agencies.
6. Sourcing deals in Africa
2626

7. Structuring an acquisition
27
• Tools:
• Equity-linked debt instruments.
• Ensure that the Fund’s quasi-equity investment has liquidation
preference and is paid back together with any dividends or interest
before distributions to other shareholders are made.
• Majority stakes, when commercially feasible, or substantial minority
equity stakes with significant control.
• Governance:
• At least one seat at the board of directors of Portfolio Companies.
• Provisions requiring approval of the Fund for key decisions relating to
such matters including: the constitution of the board of directors and
management; business objectives, strategy and tactics; material
investments and disposals; employee contracts; budgeting and
reporting; as well as audit rights.
• Transfer of Shares:
• Rights of first offer, tag and drag-along rights, Put option, sale
restrictions, and
27

8. Creating value and assisting the
management
28
• Prior to investment, develop detailed operational, financial and
strategic initiatives and corresponding action plans.
• Sit at board of directors and plays a highly active.
• First Phase: consolidation and improvement of operations in the
company’s existing local market.
• Second phase: assist the business in expanding further into domestic
markets or into new markets within the Region.
28

management
29
Ensuring the management team is strong and aligned:
• Highly motivated and experienced management teams.
• Invest in IT and Enterprise Resource Planning (“ERP”) systems to
optimize monitoring.
• Develop and implement a coherent growth strategy.
• Identify and exploit domestic and international market opportunities,
• Management invest a significant amount of their personal resources as
evidence of their commitment.
29

management
30
Implementing modern management practices and governance
measures:
• Strengthen corporate governance structures.
• Professionalization of financial reporting.
• Standardization of procedures and policies.
• Recruitment of independent members with industry expertise.
• Establishment of various committees that meet frequently (including
strategic, audit, ESG, and compensation.
30

management
31
Restructuring and/or consolidating operations:
• Typically, family-owned groups are heavily diversified into numerous
and unrelated, business interests.
• Focus resources and capital most effectively.
Improving profitability:
• Performance targets and milestones in order to measure progress.
• Drive improved margins through a variety of initiatives including:
• changing the product mix and pricing strategies,
• optimizing working capital management,
• improving production efficiency/capacity,
• improving supply chain management,
• outsourcing non-core functions,
• negotiating more favorable contracts with suppliers and vendors,
• increasing labor productivity.
31

9. Exit Strategies
32
Sale to strategic buyers:
• These types of sales remain the most likely sought source of exits
in Africa. Potential strategic buyers are, depending on the size and
the markets, firms from Africa, Europe, the Middle East and
America.
Stock exchanges:
• The Casablanca, Lagos, Johannesburg, Cairo and Nairobi stock
exchanges present excellent routes for exit. Algeria is also
encouraging listings.
• These stock exchanges have shown strong growth and liquidity
during the last few years. The current high multiples should provide
good returns to investors in companies seeking to float their shares.
A listing on local or international stock markets is now possible
given the growing economies and the increasing interest of local
and foreign investors in public securities.
32

9. Exit Strategies
33
Sale to financial buyer:
• These types of sales will also become a more likely source of
exits for “regional champions,” as late-stage funds and buyout
funds become more common in Africa. Additionally, Arab and
South African financial holding companies are increasingly
seeking to gain exposure to the Region. The size and scope of
“regional champions” makes them more attractive targets for
these financial players.
Innovative schemes for the Region, such as leveraged
management buyouts:
• With the availability of larger cash flows and more substantial
asset bases, regional champions are better candidates for
exits through leveraged management buyouts (“LMBOs”).
33

The main hurdles:
1. Foreign exchange regulations are restrictive.
2. In some countries (ie Algeria or Tunisia), a foreign investor cannot hold
more than 49.9% of the share capital of the local entity.
3. In some cases and in some legal areas, regulations are:
• no longer appropriate/old / not detailed enough,
• absent : no regulations /lack of rules (PPPs).
4. The administrative processes are quite random, tricky:
• to register a company/ to carry out formalities,
• to obtain a licence,
• to buy a plot of land,
• tax controls can be arbitrary.
5. The time is not the same : things take more time...
6. Local law firms are not usually up to date /market practice of the
operation
10. Main difficulties to invest in Africa
3434

Eversheds in Africa – largest legal network
36 offices on the ground in 32 countries

Eversheds in Africa – 32 EALI members
36

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The Diversified Industrials Conference 11 June 2014