💰 How to Make a Few Billion Dollars in Africa

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• ✍🏾How to Make a Few Billion Dollars in Africa.

Today, we’re digging deeper into 1 of Africa’s big-shot investors 🌍.

In the high-stakes investing world, spotting the next big thing is an art 🎨. Africa was a blank canvas for Helios. They didn’t just paint by numbers; they created a Monalisa 🖼️. Turning challenges into triumphs 🎉 . And had a little fun along the way.

This is the story.

Helios Beginnings

When Tope and Baba left Texas Pacific Group (TPG) to start Helios in 2004. They had a mountain to climb 🏔️. Before even thinking about raising a fund, they had to show they could make waves in Africa 🌊 .

Sure, they’d nailed investing in America, Europe, and Asia. But Africa?

Nothing but crickets 🦗.

Their 1^st challenge?

Fixing up the Modern Africa Fund. A $110 million fund in trouble, started in 1997. Funded by the U.S International Development Finance Corporation (DFC).

This fund had fingers in 8 companies, some deep in hot water.

Helios swooped in like Superman 🦸‍♂️. Rescued the fund and cashed out big time 💰. Afsat Communications, a satellite company, scored a sweet 115% return. While Flamingo Holdings, a flower exporter, brought home a 40% gain.  

HTN Towers

Come 2005. Helios was hunting for game-changers in Africa 🔍.

They stumbled onto the mobile telephony scene. And thought, “Hey, let’s grab a mobile license in Nigeria!”. Spoiler: They lost out to MTN Nigeria and Econet. But hey, they spotted a juicy opportunity🍑 .

Building mobile towers and renting them out to telecom(telco) bigwigs 📡.

Why? Back then, telco companies spent 50% of their cash building mobile towers. Landline penetration in Nigeria was at 1% 📞. Someone had to build a whole new telephony system from scratch!

They tried buying towers from MTN, but MTN said “No way José” 🚫.  So, they rolled up their sleeves and built their own towers💪. And bam, HTN Towers was born.

Simple model: Buy land, throw up a tower, plug it into the ⚡ grid, get a generator, and slap on some security. Kinda like real estate 🏢. They took notes from big shots in the U.S. like Crown Castle and American Towers. Dropping $12 million to dot Nigeria with mobile infrastructure 📶.

HTN Towers pioneered the model in Africa.

Allowing telcos to focus on their core business. Freeing up telcos cash, for investments in network growth and customer service improvement.

Helios cashed out big-time. Selling HTN Towers to IHS Towers —Africa, Middle East, and Latin America’s mobile tower big boss.

Raising its First Fund

With their street cred solid from rescuing the Modern Africa Fund, Tope and Baba hit the road 🚗to raise their 1^st fund.

Fundraising is like throwing a big party 🎉. Everyone wants in if the coolest folks and VIPS  are coming. FOMO is the name of the game. Luckily, Helios won DFC over during the Modern Africa Fund rescue mission.

DFC’s backing was the golden ticket to draw in funds from top dogs like IFC and BII 🎟️. Tope’s ex-bosses, David Bonderman and Jim Coulter said Yes to the party🥳 . And dragged in investors like George Soros and Marc Lasry. 

By the end of 2006, they’d locked in $305 million for their debut fund 💼. A 1⁄3 came from Development Finance Institutions, another 1⁄3 from hedge funds, and the rest from loaded individuals 💸.

Raising that first fund for Africa’s niche market? Seemed impossible at first, but a ton of experience and a little luck made it a breeze for these guys.

The Economics of Private Equity

In 2007, Helios dove headfirst into the Private Equity (PE) game 🏊‍♂️.

Investing in a piece of First City Monument Bank(FCMB) 🏦.They dropped $50M for a 16% share of the business.  And within two years, they’d sold off 40% of their stake. Fast forward to 2013, and they’d sold off all their stake in FCMB.

Following that sweet success, Helios kept the deals coming🏃‍♂️.  

Snapping up Equity Bank and Africa Tel.

When they finally sold all the companies in their 1^st fund, the return was a neat 2.1X ✨. Helios charged a 2% annual fee the first few years and 0.75% afterward to manage everything. But the big payday came when Helios took a 20% cut of the profits after selling the businesses.

The PE fee model is like a captain on a treasure hunt 🏴‍☠️. Think Jack Sparrow from Pirates of the Caribbean. Imagine Jack Sparrow leading a treasure hunt. Where sponsors pay Jack a 2% fee for the journey, and if Jack finds treasure, he claims 20% of it .

Tope likens the PE business to diamond cutting 💎.

The 20% cut meant it made $67M from its 1^st fund before expenses 🤑.

They’ve launched 3 more funds since and are working on a 5^th 🚀  .

Helios’ Bet on African Megatrends

Helios bet big on Africa’s megatrends: tech innovations, demographic shifts, and urbanization 🌍📈. 

These trends meant major opportunities in the core economic sectors, esp. infrastructure and financial services💼. Why? Technologies like mobile telephony. And distribution models like agency banking. Changed the costs of doing business in Africa. Making it easier to build high-growth, high-return businesses.

Helios hit early home runs 🏆. 

With investments in infrastructure and financial services like HTN Towers, FCMB and Equity Bank. This experience stuck, coloring their investment philosophy forever.

They doubled down on these sectors with their 2^nd fund.

Investing in Interswitch, Bayport, Helios Towers, Wananchi Group Holdings etc.

By the 3^rd fund, they’d branched into energy 💡 and agriculture 🌾 .

Investing in Axxela, Zola Electric, Starsight, GB Foods, HyTech Seeds, Solevo etc.

Their 4^th fund saw them expand into retail, health 🏥and digital infrastructure📶.

 Investing in BIM, Trone, IX Africa, Maroc Datacenter etc.

Going Public

Helios struggled to raise its 4^th fund 😓. 

They had to scale back big time. Trimming down from $1.1 billion on its 3^rd fund to $355 million for its 4^th fund 📉. Why? African PE fundraising hit a rough patch. Think poor past performances, inflation woes, and then bam! COVID-19 crashes the party😷. 

Helios had to make a plan🧠. 

So in 2020, they went public 📈.  

But not in your usual “ring-the-bell on Wall Street” kinda way🔔. Nah, they merged with Fairfax Africa Holdings. That was already listed on the Toronto Stock Exchange. And voila, Helios Fairfax Partners (HFP) was born!

Fairfax Africa was also on a bumpy ride🚧. Dealing with troubled assets. And a sinking portfolio thanks to some pretty sketchy investments 💸.

So, the merger was a win-win 🏆. Helios needed access to public markets to get permanent capital. While Fairfax Africa needed Helios’ local smarts on African investments.

The deal closed in December 2020. Making Tope and Baba Co-CEOs of HFP. 

Since then, HFP has dumped Fairfax's old-school investments. And put money into the hottest ideas 🔥from Helios PE funds. With a stash of permanent capital, Helios has morphed into a multi-strategy powerhouse. Launching everything from

1. Helios Seven Rivers (a hedge fund)📈.

2. Helios Digital Ventures (a VC fund)📱.

3. Helios Climate (a climate fund)🌍. 

4. Helios Energy Transition Infrastructure (an energy fund)⚡.

5. Helios Sports and Entertainment Group (a sports and entertainment division) 🏀 .

But here’s the twist: HFP’s share price has dropped to $2.55, down 55% from $5.75 when the merger happened 📉. It currently has a market cap of $275 million. It’s undervalued. Estimated to be between $347-$454 million. Why? All the complicated transactions and investments Helios is making behind the scenes, make it hard to see its real performance.

How Helios Makes Money

Helios has two main cash cows 🐄.  

• Management fees💼

•  Performance fees📈

Lately, they’ve been leaning more on the steady management fees. Why? Cashing out in Africa is like trying to find a strong mobile signal upcountry: Hard📶.

Management fees racked up $24.8M in 2023. And are set to hit $134.4M by 2031.

Private Equity fees are scalable. Managing more money doesn't mean more staff. Helios runs the show with just 57 employees, managing $3.8+ billion. And guess what? Their management fee margins are sitting pretty at 40-60%.

Performance fees? Those are trickier, depending on profits after selling off businesses. They’ve scored $35M in the last two years, with another $306M waiting in the wings.

With permanent capital becoming their new best friend🤝 , they’re leaning even more into management fees. Unlike the old-school fixed-term funds like Helios I - Helios IV, which are like a tiring marathon of raising cash, investing, and then giving it back (a real hustle to repeat).  Helios is now all about permanent capital🚀. They don’t have to return the money. Keeping the party going forever🎉.

Helios’ Secret Sauce

Helios has been around longer than your dad’s favorite dad joke 😂. With a track record to prove it. They’ve been crushing it in different market cycles📈. Thanks to their secret sauce: process, scale, and integration.

Let’s break it down.

• Process- Helios is like a master chef in the investment kitchen 👨‍🍳. They don’t just grab random ingredients. Nope. They start with the Big Picture 🌍 – focusing on megatrends that promise long-term growth. Then they zoom into sectors that are riding those trends 🔍. Once they’ve scoped out the lay of the land, they hunt for the juiciest opportunities.🎯 It’s like they’re playing a high-stakes game of “Moneyball,” but instead of scouting baseball players, they’re scouting potential gold mines💰.

  Then comes the fun part – Making Deals🤝. They buy and build companies, turning them into bigger, better versions of themselves. Taking scrappy underdog teams and transforming them into championship contenders 🏆. They improve operations, boost efficiencies, and drive innovation like a boss 💪. Once everything’s shiny and new, they sell the companies for a tidy profit 💵. Rinse and repeat 🔄.

• Scale: If Helios were ordering pizza, they’d go for the extra-large with all the toppings🍕. They don’t mess with small deals. Their superpower is scale 🦸‍♂️. They buy and buff up assets with tons of upside. Take their energy companies buying spree, for instance – it started with a $116M bite of Axxela, then they went on a shopping spree 🛒, snapping up four more businesses, rolling them all into the $700M+ Helios Energy Transition Infrastructure platform 🌟. It’s like watching a kid build the ultimate LEGO set but with companies.

• Integration: With their scale, they see every deal as an opportunity to launch new strategies. They’ve shifted to thematic investing, chasing down hot themes like climate🌍, energy⚡, digital infrastructure 📡, financial services & fintech 💳, and even sports and entertainment 🏀. It’s like they’ve got a sixth sense for where the next big thing is coming from, and they’re always ready to pounce.

In the investment game, information is like Thanos' Infinity Stones. The more stones you have, the more patterns you see before anyone else. Helios has built a network to tap into this info goldmine locally and globally.

Conclusion

From its modest beginnings to today’s PE giant, Helios isn’t slowing down. Evolving into a multi-strategy firm, they’re still nimble with 57 employees 👥 . While keeping their culture strong. They’ve ridden the frontier market wave 🌊 for 2 decades. With their spread of strategies and channels, they’re geared up for more growth 🌟. So, if you’re betting on the future, Helios is one horse 🏇 you want to look into! 

Tune into Part 3 next week, where we’ll dive into the lessons we can learn from Helios.

Let me know what you think of Helios’ story on LinkedIn here.

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Cheers,
Jefferson.