Finance News Weekly: For more than 20 years, Morocco has achieved significant performance in the private equity sector, which has favored the emergence of a number of renowned players in various key areas. What can you tell us about it?
Khalid Doumou: First of all, you should know that the size of the Moroccan private equity market, taken alone, cannot significantly impact the private equity market on a regional or global scale. In its five market segments, seed capital, venture capital, development capital, transmission capital and turnaround capital, the amounts invested at the end of 2023 barely exceed 2.542 billion dirhams. We are at the end of the fourth generation of funds in Morocco. After a decline in the share of Moroccan investors between the first and third generation of funds (from 73% between 2000 and 2005, to 25% between 2012 and 2016), the capital raised from Moroccan investors recorded a marked increase between 2016. and 2023, thus representing 45% of total fundraising over the period. Fundraising reached a total amount of 9 billion dirhams over the period 2018-2023, more than double the funds raised over the period 2012-2017. You should know that the average holding period for investments is 5.8 years. Outflows made over the last 6 years (2018-2023) reached 4.62 billion dirhams, more than the amount recorded during the previous period (2012-2017) which was 1.98 billion dirhams.
For 2023, disinvestments reached 1.012 billion dirhams. By mode of disinvestment, after a marked fall between 2012 and 2017, IPOs have experienced renewed activity over the last 6 years, increasing from 9% between 2012 and 2017 to 14% for the period extending from 2018 to 2023. You should know that when the exit of the fund coincides with an IPO (Initial public offering), this means that the rapid growth sought has been achieved in a limited period of time, and that the company has reached a degree of maturity allowing it to enter the stock market. And when we consider the internal dynamics of this type of alternative investment vehicle, which is private equity, we realize that 41 investment acts were carried out in 2023, 25 being new investments and 16 reinvestments. Eight new investments took place in the seed and venture phase, and more particularly in the new technology sectors (Fintech, Health tech and Ed tech), which highlights a greater appetite for investment in rapid growth technological startups under our skies. It should also be noted that two records were recorded in 2023. On the one hand, the total capital raisings mobilized reached a total of 3.009 billion dirhams, including a record investment for the financing of construction projects. business growth in Morocco. Yes, well-founded investment capital can be very impactful, and help create new national champions in many areas, and particularly in NICTs (new information and communications technologies).
FNH: According to the Moroccan Association of Capital Investors (AMIC), at the end of 2023, investments made in 280 companies amount to 14 billion dirhams. What reading do you make of it?
Kh. D. : The new investment charter aims to maximize the impacts of investment, particularly in terms of stable job creation, equitable development of territories, prioritization of promising sectors for the national economy and sustainable development. Moroccan private equity is an investment vehicle made up of 13 management companies and 11 investment funds which should help meet the objectives of this charter. But the private equity ecosystem in Morocco remains small. At the end of 2022, investments made in 260 companies amounted to 11.4 billion dirhams. A year later, 20 more companies were invested, for a total amount of 14 billion dirhams. This market is therefore on an upward trend. In a country in a rapid and multi-sector development phase such as ours, being able to raise investment capital funds for the strategic sectors of health and education is an achievement that we can only applaud with both hands. . The same goes for the financing of major infrastructure projects that Morocco needs in the short and medium term. But for the financing of innovative startups, a great effort must still be made so that young Moroccan geeks, developers and other quants can express themselves in a more impactful way in innovative companies “Made in Morocco”.
FNH: How could current trends in private equity influence the development of key sectors such as healthcare, ICT and services in the future?
Kh. D. : Current trends are upward, but many challenges await Moroccan investment companies that would like to attract local capital from institutional investors, banks and family offices (management of family wealth) and other high net worth individuals (very wealthy individuals). in development projects with a return on investments deemed satisfactory. In the fields of health, education and the construction of large-scale infrastructures, we have some interesting feedback which can be of value as an example, but for high-tech, Moroccan companies are late to realize their full growth potential. Of course, it is easier to invest in companies that have a strong presence and a track record (sales history) that speaks for them. Good family management is that which favors average returns, with financial risk coefficients considered reasonable. However, in private equity, the best returns on invested capital generally go to investors who have a high appetite for risk, and who dare to advance significant funds even if the probability of success may seem, at first glance, minimal. Because in reality, private equity is the ability to support companies in their development, without the tyranny of the end of quarters where companies must present their activity reports to their shareholders and the media (companies listed in Sotck exchange). But of course, Morocco must work on its own success factors, that is to say by focusing on well-targeted, targeted, controlled, and above all well-executed investments.
Private equity remains above all a “People’s business”, that is to say a fungible activity which depends on the good or bad management of funds made available by professional shareholders more or less committed and disciplined in the support for entrepreneurs wishing to succeed in activities that are often either completely new or carried out in a highly capital-intensive and hyper-competitive field. Private equity is a growth accelerator for companies which, in 5 or 6 years, can do what they could do alone, but in 10 or 15 years. You should know that capital investment in companies not listed on the stock exchange is virtuous, because these are sums directly invested in the real economy, but the downside of this is that this capital investment market is by illiquid nature, because the investor cannot resell his shares or bonds whenever he wants on a market organized for this purpose. Newly created companies do not distribute dividends, but create value by
internal, which value will be reinvested in the company to boost sales as quickly as possible. And the added value of the individuals forming a company will be able to be clarified when they transfer their shares to other funds, or in the context of M&A (mergers or acquisitions). The financial system, with the Ministry of Economy and Finance, the Budget Department, the Central Bank, secondary banks, the Mohammed VI Fund for Investment, CDG Invest, Casablanca Finance City, the Stock Exchange and investment companies wealth and investment management and the various regulators, constitutes the backbone of our economy. The profit-taking of our Moroccan banks in 2023 reached profitability records, according to the Fitch rating agency. According to data from this agency, the 7 largest Moroccan banks recorded a substantial increase of 28% year-on-year in their aggregate net income for the first half of 2023. This increase can be attributed mainly to an increase in revenue, with a growth
notable net interest income of 7%. Borrowing rates have reached their highest levels since 2017, contributing significantly to this financial success. The international rating agency Fitch Ratings has maintained Morocco’s rating at “BB+” over the long term with a stable outlook. The Kingdom’s sound macroeconomic policies have made it resilient in the face of successive shocks that have impacted Morocco, and enabled Morocco’s “BB+” ratings. In the field of Private equity, our country is still lagging behind countries such as Egypt, Nigeria, Kenya, and Madagascar. Our political stability and that of our currency, as well as the vitality of our economy and the improvement of our business climate represent all major assets for attracting venture capitalists to us.
The energy transition mydial and the web represent new challenges and opportunities for private equity. In the field of so-called green investments or with positive social and environmental impact, in offshore wind, solar, hydrogen and green ammonia, water desalination, electric batteries, studies and implementation of resilient plant species in arid environments (so-called succulent plants), the processing and sale of cannabis with therapeutic effects, numerous opportunities are still available to the most visionary and daring of investors. According to the report from Bain & Company, one of the world’s largest strategy and management consulting firms, private equity benefits from an unprecedented level of equity. At the end of 2022, Dry Powder (x uninvested capital or the “standby” money that private equity firms have at their disposal for future investments) reached $3.7 trillion, up from $3.2 trillion billion dollars from the previous year. Despite a difficult environment marked by inflation and rising interest rates, the long-term outlook for private equity remains strong. However, the current uncertainty could dampen transaction activity, particularly for the largest transactions that require the most leverage. The PitchBook report, for its part, highlights that the difference between the capital deployed in startups and the capital raised by venture capital funds reached 84.2 billion euros in 2021 and 74.6 billion euros in 2022. With capital flowing out of funds at record rates in recent years, challenges in maintaining fundraising levels to finance future investments could emerge. Dry powder levels could decline and a capital shortage could occur in the coming years.
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