The Impact of Private Equity in Emerging Markets Case Study: Main One Cable Company (Africa) The Company Main One’s Story

Essentials In early 2009, the inability to access high-speed internet in Ghana and Nigeria Company: Main One Cable Company remained a significant barrier to doing (www.mainonecable.com) business. Even though internet usage reach end users, leading to slower than expected was growing, the absence of undersea uptake of Main One’s services. In addition, new Countries: Nigeria, Ghana, Benin, Burkina cables linking West Africa to global entrants to the market cut prices even further in Faso, Togo internet hubs meant that connection a push to capture market share, causing prices Sector: Infrastructure speeds were slow and often unreliable. to fall below Main One’s initial projections. Business focus: Undersea fiber-optic An aspiring information and communications To counter these challenges, the management technology (ICT) entrepreneur, Funke Opeke, who team made two strategic decisions; first, Main broadband cable network and wholesale had previously spent two decades working in the One began developing terrestrial last-mile infra- broadband internet services United States, recognized that the connectivity structure and expanded its network footprint and GP: Harith General Partners, an Africa-focused hurdle could be overcome by linking the region customer base to include large corporate and en- private equity firm specializing in infrastructure with the rest of the world through fiber-optic terprise clients. Second, the company diversified investment (www.harith.co.za) undersea cables. To build this infrastructure, Ms. its offerings to include value-added services such Opeke launched Main One Cable Company in as collocation, video networks—which transfer Date of investment: March 2009 2009 with equity funding from Harith General video content from producers and broadcast- Investment: Harith invested US$30 million Partners, Africa Finance Corporation, Skye Bank ers to end-users—and data hardware storage and First Bank of Nigeria Capital, and debt from centers. These services leveraged the company’s for a 25% stake (US$6 million in equity and a consortium of local and international banks. existing infrastructure and offered stable, sticky US$24 million in shareholder loans) and largely price-inelastic revenue streams. By July 2010, construction of the undersea cable and terrestrial landing sites was completed, link- Today, Main One serves as a conduit for approxi- Impact Highlights ing Accra and Lagos to a connecting station in mately 60% of broadband bandwidth into Nigeria, Seixal, Portugal, which joins the London Internet and its customers include ISPs, corporate clients, Main One built an undersea 1.92 terabit- Exchange. Main One began selling bandwidth to universities and government offices. The company per-second fiber-optic cable linking land- internet service providers (ISPs), and drove an 80% has been expanding its terrestrial infrastructure in ing sites in Accra and Lagos with Portugal fall in prices for international connectivity services West Africa, with services now being offered in for onward connection to London in Nigeria and Ghana. But a lack of local terrestrial Benin, Burkina Faso and Togo, and plans to reach infrastructure meant that ISPs were struggling to Côte d’Ivoire and Cameroon in the near future. An estimated 60% of Nigeria’s 25 million internet users access the World Wide Web through Main One’s lines as of February 2014 Harith provided strategic and operational guidance to Main One as increasing com- The Role Played by petition reshaped the ICT landscape; as a result, Main One has developed high- margin, value-added services such as data Private Equity centers to diversify its revenue streams The difficult business environment brought From Harith’s perspective, Main One was Main One has partnered with schools and about by the global financial crisis in 2008 a perfect fit because it aligned with the universities in Nigeria to provide affordable and 2009, when Main One was looking firm’s strategy of investing in infrastructure internet access projects that have the potential to unlock to raise US$240 million to construct its The company has also partnered with economic growth. In addition, Harith was undersea cable, meant that the company the Lagos State Government, the United impressed by the vision and capabilities of needed a partner that could see beyond States Trade and Development Agency short-term challenges and understand Ms. Opeke and her team, and thought Main One could be a reliable long-term partner. and Google, among others, to extend its the company’s business proposition. With infrastructure network across Nigeria its experience as an investor in long-term As the only non-Nigerian investor in Main One, infrastructure and ICT investments in Harith brought an outside perspective to the Africa, Harith struck the Main One man- company. Leveraging its experience with invest- agement team as an ideal investor. ments in South Africa, Harith helped Main u

February 2014 Percent of Population Accessing the Internet 50 Rest of Africa Nigeria Ghana 47.4 The 40 world 32.9 30 22.0 17.1 Company 20 14.3 10 Percent of population Percent 2.4 3.6 View 1.8 0 2005 2006 2007 2008 2009 2010 2011 2012* * Estimate. Year Source: International Telecommunication Union.

“In 2009, there was very little—and intermittent—broadband internet “Once a business has in West Africa. Even businesses were accessing the internet via 512 been touched by private kilobits-per-second connections, which was entirely inadequate. From both a development point of view and financially, we identified the equity, something in its investment in Main One as an attractive opportunity. And with Funke at structure changes. Harith the helm, we found a partner of our dreams.” has helped create a very Sipho Makhubela, Senior Investment Director, Harith General Partners strong corporate culture where we can focus on the day-to-day operations, knowing that somewhere u One build a governance and management prices to plummet, Harith and Main One crafted structure that was well suited to respond to a response strategy that focused on quality in the background there the unique challenges of ICT in Africa, includ- rather than competing on price, and on sourcing is a nurturing, guiding ing accelerating demand, increasing competi- clients that valued fast, reliable internet access. tion and a shortage of last-mile infrastructure. As a long-term investor, Harith saw the potential presence.” Harith is represented not only on the Main One to create economic value through enhanced board, but also on all three board subcommit- Kazeem Olawale Oladepo, efficiencies in the core business of bandwidth tees: audit, finance and human resources. General Counsel and provision, and helped Main One develop its data Harith additionally provided strategic guid- center operations. The fund manager identified Company Secretary, ance as Main One expanded services beyond its and vetted a South African firm to provide engi- Main One Cable Company core business of bandwidth provision. As the neering, design and project management advice entrance of new bandwidth providers caused on Main One’s data center construction projects.

Beyond the Bottom Line

Four years ago, in the absence of reli- Main One has also provided free internet access able high-speed internet, commercial to schools and subsidized services for universi- online activity in Ghana and Nigeria was ties, including the Lagos Business School, the constrained. Undersea cables have made University of Nigeria and the American Uni- it possible for the e-commerce sector to versity of Nigeria. In addition, the company take off, with online sales in Nigeria alone partnered with Microsoft to host the Nigerian exceeding US$30 million in 2012, accord- segment of Imagine Cup 2013, a competition ing to a recent report by McKinsey Global that brings together student innovators to help Institute. Additionally, two of the largest solve global problems. The company has also Nigerian e-commerce sites, Konga and been an annual sponsor of the National Soft- Jumia, now employ 300 and 500 staff, ware Competition, a flagship event run by the respectively.1 Having incubated a number Institute of Software Practitioners of Nigeria to of the businesses that now occupy this promote indigenous software development. space by providing them with free internet access, Main One counts these companies as among their most reliable clients.

1 Source: Ventures Africa.

The Emerging Markets Private Equity Association (EMPEA) is an independent, global membership association whose mission is to catalyze private equity and venture capital investment in emerging markets. EMPEA’s 300 members include the leading institutional investors and private equity and venture capital fund managers across developing and developed markets. Contact us at www.empea.org Email: [email protected] Phone: +1 202 333 8171