Convergence Partners submission for the International Development Committee’s Call for Evidence – Investment for development: The UK’s strategy towards Development Finance Institutions - written evidence
Convergence Partners was founded in 2006 and invests as value-adding partners into private equity and infrastructure opportunities in technology and digital sectors across sub-Saharan Africa. It has an asset base in excess of $600m which it deploys across Southern, East and West Africa through three funds – Convergence Partners Investments, Convergence Partners Communications Infrastructure Fund and the recently launched Convergence Partners Digital Infrastructure Fund.
With its strong sector focus and primary strategy of growth stage investing, Convergence Partners brings its deep skills, relationships, experience and capital to actively grow its investments, including catalysing new investment opportunities both directly and via its portfolio companies.
Convergence Partners has played a leading role in several landmark African digital infrastructure investments that have changed the paradigm in the availability, quality and affordability of digital services on the Continent.
Intrinsic to Convergence Partners is generating and sustaining superior returns on investment while maximising positive impact and accelerating digital inclusion through its focus on infrastructure development in Africa.
Convergence Partners was awarded the Best TMT Impact Investing Strategy for Africa 2021 by CFI.co.
We are making this submission in relation to the British International Investment that has invested into our private equity funds.
We have found BII to be thorough and disciplined in their due diligence. Their due diligence included an in-depth analysis of investment strategy, market opportunity, track record, team, competitive environment, pipeline, fund model, budget of the fund manager. They also requested an operational due diligence be undertaken focused on the procedures and processes in the fund manager relating to compliance, governance, operations and cybersecurity
BII is an investor in the 2014 vintage $186.5m Convergence Partners Communications Infrastructure Fund (CPCIF). They are an anchor investor in the recently launched successor fund, the $296m Convergence Partners Digital Infrastructure Fund (CPDIF). CPCIF and CPDIF are sector- and geographic-focused funds (ICT and sub-Saharan Africa respectively) with a primary focus on providing growth capital for building out green- and brownfields telecommunications infrastructure.
CPCIF’s portfolio includes, inter alia, investments in the following companies:
CSquared: brings affordable open access, high quality metro broadband connectivity to underserved African cities in Ghana, Uganda, Togo, DRC and Liberia. CSquared offers users in its markets, and in particular Liberia, with improved access where previously no reliable quality and cost-effective broadband services were available.
Rack Centre: delivers world-class datacentre facilities in underserved cloud and data markets across Africa (with Nigeria as the first market) while shifting the power usage of existing facilities to greener solutions. Localisation of datacentres increases speed, reduces latency and enables increased adoption of cloud services by government agencies and local businesses.
Inq Digital: delivers world-class enterprise solutions at affordable price points in developing markets in sub Saharan Africa. Significant developments in acquiring further operations, inq. now boasts a portfolio spanning 8 countries (Nigeria, Cote d’Ivoire, Cameroon, Zambia, Malawi, Mozambique, Botswana and South Africa) and 16 cities across the continent with further expansion plans in the pipeline.
Comsol: as a wireless connectivity provider, generally in more remote areas in in South Africa, Comsol paves the way for a new era of technology deployment and use which facilitates the creation of millions of applications for connected devices, including the Internet of Things (IoT) devices, smart home applications, e-services and also enables further catalysts for digital advancement achieved through broadband as an enabling technology. Reaching over 200 metropolitan areas and covering more than 12,600 sq. kms of South Africa's districts and extending further where needed.
Optasia: Provide unique micro finance solutions to mobile operators to support financial inclusion via low cost, low default credit and grow the potential for the unbanked population to tap into funding opportunities.
Vumacam: provides city-wide, public spaces monitoring solutions (poles, cameras, infrastructure built on fibre networks and software/ analytics tools) that provide real time, security analytics providing a safter and more secure environment in suburbs and public places, residential complexes, and school. Vumacam have brokered the partnership between the South African Police Service and Business Against Crime and provide the critical link between private security and law enforcement
e4: incorporates the use of automated systems and processes in banking and mortgage platforms to digitise and increase accountability and auditability of previously paper-based processes. Some of e4’s solutions include credit data products that ensure credit providers have the tools to avoid pushing consumers into an over-indebtedness position. e4 has also launched an online platform that enables credit seekers to obtain competitive bids from multiple banks thereby optimising the cost of their borrowings
Exited investments
FibreCo: FibreCo is an owner and operator of long-haul optic fibre networks nationally across South Africa and is recognised in the market as a highly trusted and reliable provider. The Company pioneered the wholesale open access model in the long-haul fibre market in the country and introduced the concept of fibre economics.
CIVH: through, it’s subsidiary investments into Dark Fibre Africa (DFA) and Vumatel, CIVH drive broadband availability and take-up by pioneering new capital-efficient business models in the build-out of new, independent fibre connectivity. DFA built in excess of 14 000km of fibre assets in all major and secondary metros across South Africa. Vumatel is the largest Fibre-to-the-home provider in South Africa with more than 18 000 km of fibre deployed, passing over a million homes and connecting over 400 schools at no charge.
CPDIF is a newly launched fund that has investments in: (i) Ctrack, a vehicle telematics company utilising AI and smart analytics to improve driver behaviour, route optimisation, logistics and safer roads and (ii) Merit Telecoms, a company deploying small cell infrastructure technology in Nigeria at an entry capital cost that enables wholesale pricing to mobile network operators (MNOs) that in turn allows them to pass on affordable broadband to low-income consumers.
In both CPCIF and CPDIF, we have entered into side letter agreements with BII that sets out specific key financial, social and environmental performance indicators (KPIs) for the funds and underlying portfolio companies that BII tracks on a quarterly and annual basis. This is in addition to the fund agreements that involve extensive influence from BII.
Further, we have had regular engagement across numerous management levels and team departments both within our organisation and BII. These are a combination of formal semi-annual performance reviews and visits from the BII local (South Africa) and UK-based teams.
Our Head of Impact has, and continues to, meet and discuss the impact orientation of our Funds and our portfolio with resources from BII’s Impact, Business Integrity and Environmental Social & Governance teams.
As noted above, during the due diligence process, areas were identified for further development and BII included Action Plans in our Side Letters agreements with them. These Action Plans were developed largely to protect the reputation of the Funds and ensure maximum impact of the portfolio. These have been tracked and monitored by the BII team. BII had also engaged with other DFI investors of CPDIF to consolidate the Action Plan amongst all DFI requirements and ensure that requirements were harmonised amongst DFI investors.
We had indicated a few years ago that we intended to develop a bespoke impact measurement tool and received wholehearted support in this regard. We met with a team at our offices to go over the research that we had conducted and workshop ideas for current best practice and how best to position the tool going forward. These insights were incorporated into scopes of work with consultants and this, in parallel to sector research undertaken from BII, was a driving force in us developing our measurement framework.
Impact metrics and targets were discussed during the due diligence process and these were selected on the nature of our sector investments and anticipated investment. These are include within Side Letter reporting requirements.
Support is also provided on these issues and we are encouraged to make use of the robust BII online toolkits readily available resources. Regular trainings across these themes are also common and these are extended not only to the responsible personnel within Convergence but to the broader team and even our portfolio companies. We have not experienced this level of support and guidance from any of our other DFI investors.