Mediterrania manager Albert AlsinaThere is a subtle but important difference between venture capital and private equity: the former is capital injected into a company at its early stages; the latter takes over when the company is in its growth phase.
Or, in the words of Albert Alsina of private equity firm Mediterrània, the venture capital is used during the “death valley” phase while private equity takes it from the loss-making phase to its peak growth.
Mr Alsina is moving to Malta to run Mediterrània after decades working in this field. This time, he is eyeing Tunisia, Morocco and Algeria and has set up the private equity fund – Mediterrània Capital II – in Malta because of its existing and planned tax treaties, something that Luxembourg was not able to offer, apart from the fact that its “unfriendly, complicated and expensive scenario”.
“There are a number of parameters when it comes to choosing a jurisdiction, such as the entire taxation ecosystem, the regulatory framework and the cost of infrastructural and ancillary services,” he said.
The only problem is the lack or frequency of direct flights to key capitals
“We considered Luxembourg, the Caymans, Mauritius, Dubai, the UK and Malta. And Malta ranked top on all three parameters. The due diligence by the MFSA is very robust and the ancillary services – such as that provided by our tax firm of Francis Vassallo – are very competitive. We feel very comfortable here.
“The only problem is the lack or frequency of direct flights to key capitals, especially in winter. If Malta wants to be a hub for funds looking at North Africa or elsewhere, it needs to understand that the most expensive commodity is time – and not everyone can afford a private jet!” he said, pointing out that he travels for some 200 days every year.
Mediterrània will be investing €90 million in 10 different SMEs in the three countries, mostly taking over a majority stake although stakes of 35-49 per cent are also considered in some cases.
The companies were selected from around 300 and are active in sectors carefully screened for growth potential, particularly given the young population in these countries.
“When we set up Mediterrània Capital I, we had to look for companies in which to invest. Now they come to us. The word about their success spreads. We will consider anything which has potential – although we do have ‘no go’ areas likes real estate, chemicals, weapons and so on,” he explained.
“This is a self-imposed list which is based on social, occupation safety and environmental governance.”
The company started to look for investors in 2012 and managed to build up the fund from an impressive array of investors, €53 million of it from the European Investment Bank, the European Bank for Reconstruction and Development and the International Finance Corporation of the World Bank.
Mr Alsina is already looking ahead and is planning a second round of private equity by June – this time hoping to put together €150 million from the 14 investors that have shown interest in the fund.
“The growth phase of companies is very exciting. We invest the money for about four to five years and then sell on to buyers, either through an IPO or acquisition, who can take the company on to the next level. We always get in there with a very clear exit plan,” he explained.
Is it a lucrative investment? He certainly thinks so: there are clearly some companies which fare better than others but he expects an average return on investment of 30 per cent per annum.
Not bad when you consider that the investment is made into companies that are haemorrhaging money. Or perhaps that is why it works: the only way from the bottom is up...