ACA had been tracking the GSM opportunity prior to the award of licenses in 2001 and had partnered with another African regional telecommunications player in an unsuccessful license bid. After the bid, the opportunity arose to take a minority stake in MTN Nigeria Communications Limited (MTNN), one of the companies that won the GSM license.
ACA initial investment in the MTN opportunity was through its first fund, CAPE I. With key minority protections in place, such as an ACA partner being the Chairman and representation of the minority shareholders on the board, MTNN became the most successful investment in the CAPE I portfolio. At the time of CAPE I’s investment MTNN was worth $400 million, by the time of the CAPE I exit the company was worth $13 billion.
By 2007, MTNN had experienced substantial earnings growth and performed well above forecasts. In the same year, ACA invested in MTNN from its CAPE II fund.
In June of 2010, ACA took a third opportunity to invest in MTNN, this time from its CAPE III fund. In the wake of the global financial crisis, several participants in the quasi-public block share market chose to liquidate their stakes in MTNN. Initially, shares in this market had traded at 6x EBITDA but had declined to roughly 3.4x EBITDA by 2010. ACA took advantage of the temporarily discounted price to invest.
ACA undertook its subsequent MTNN investments—via CAPE II and CAPE III—knowing that MTNN was a successful company with consistently growing sales and operational momentum. By 2009, just prior to ACA’s CAPE III investment, MTNN’s gross revenue was $4 billion, its EBITDA margin was 61%, and profit after tax topped $1 billion for the first time. MTNN, in other words, had grown up. CAPE I and CAPE II completed exits in 2012.
ACA contributed to MTNN’s operational success largely through its proactive role during capital financing rounds. As the only private equity firm involved in the initial equity sale, ACA created the financing structure, including the special purpose vehicles that enabled the other Nigerian investors to participate in the offering. By 2014, MTNN had evolved into a mature company with slower growth but lower costs than in its formative years.
MTNN has also supported environmental and social responsibility in Nigeria through investments in education, economic development, and the health care sector. The company established a foundation dedicated to addressing social issues in Nigeria by focusing on improved access to health care, economic empowerment, and education.
As the largest mobile operator in Nigeria and West Africa, MTNN currently serves more than 58 million subscribers. In addition, it is the largest subsidiary of the MTN Group, which itself offers cellular access to more than 182 million subscribers in 21 countries in Africa and the Middle East. The company provides network coverage to about 90% of Nigeria’s landmass and approximately 85% of the population has access to its services.
The company’s excellent reputation combined with a program of cost cutting and a creative financial strategy—including the sale and leaseback of a portion of its network—has produced robust cash flows now and into the foreseeable future.