Why we invested: DPI sees export opportunities for Tunisian food company
By Jaco Maritz
Private equity firm Development Partners InternationaI (DPI), through its third fund ADP III, recently announced a $56 million investment in Tunisian food producer Société Industrielle des Conserves Alimentaires (SICAM). Established in 1969, SICAM is a producer of canned tomatoes, pepper pastes and jams. For more insight into the transaction, Africa Private Equity News spoke to Sofiane Lahmar, a partner at DPI.
What was the motivation for DPI's investment in SICAM?
This deal is the result of a very long relationship we've cultivated with Bayahi Group, the family group behind SICAM. Bayahi is one of the top family groups in Tunisia and owns several businesses across various industries. A number of its companies are listed on the Tunis Stock Exchange, so they are quite used to good standards of transparency and corporate governance.
SICAM has achieved rapid growth and strong profitability in the last five years. The management team has worked hard to build a robust supply chain by actively engaging with farmers. The company now has the ambition to grow beyond Tunisia in a more significant way and the partnership with DPI aims to accelerate this international expansion.
Describe the growth opportunities you see for SICAM.
It's both domestic and international expansion. In Tunisia, SICAM has a clear leadership position in the canned tomato and pepper paste business. The idea is to continue consolidating this leadership position domestically by expanding the product portfolio and leveraging its strong brand name.
The company currently has a relatively small export business, supplying to neighbouring countries and a few territories in sub-Saharan Africa. We see significant export opportunities for SICAM in Europe and the Middle East as its products are very competitive. Due to Covid-19, there have been supply chain disruptions in various parts of the world, which has created immediate export opportunities, particularly to Europe.
In addition, we are also keeping an eye out for potential M&A opportunities in neighbouring countries or even the southern European region. There are a lot of big tomato players in countries such as Portugal, Spain, Italy and Greece.
Share your thoughts on Tunisia's economy in general.
Due to Covid-19, this is going to be a challenging year for Tunisia, like for most countries around the world. Even though Tunisia has had relatively few cases and deaths, it is quite reliant on international tourism, which has obviously been impacted by the virus.
However, part of the reason we were attracted to SICAM was the defensive nature of the industry in which it operates. It is much less affected by economic cycles as even during times of crisis, people still consume staple foods. And as I mentioned earlier, the crisis has actually accelerated certain export opportunities for SICAM.
SICAM operates through a vertically integrated model that includes PROCAN (100% subsidiary), which manufactures metallic cans, and SICAM AGRI (50.5% subsidiary) which provides farmers with technical advice, financing, tools and agricultural inputs. Describe the significance of this vertical integration.
Vertical integration is fundamental to SICAM’s business model and also our investment thesis. Sufficient access to raw materials, such as tomatoes, is key to the company’s growth prospects. Over the years, SICAM has made significant investments in the supply side of its business to ensure it has adequate availability of raw materials.
SICAM has a dedicated subsidiary, called SICAM AGRI, which works closely with farmers across the country. Farmers are supported in terms of the sourcing of inputs – including seeds, fertilisers and irrigation equipment – to help them improve their yields. A big part of SICAM’s balance sheet is used to advance money to farmers so they can buy these inputs. This is a win-win for both farmers and the company. If farmers improve their yields, they can not only supply more crops to SICAM, they also increase their own incomes. Beyond the financial returns, SICAM therefore also delivers very strong social returns.
Which factors could potentially stand in the way of your growth ambitions for the company?
To maintain its current growth trajectory, it is important that the company continues to add more farmers to its network.
Secondly, the successful implementation of the export strategy is easier said than done. Looking at the numbers, there is a very large potential market for SICAM to seize in Europe and the Middle East. However, this will require a lot of expertise and relationship building. Products will also have to be tailored to the needs of specific clients. The execution of the strategy will be critical.
What would be a likely exit avenue for this investment?
The most likely exit strategy is an IPO on the Tunis Stock Exchange. As I mentioned earlier, the Bayahi Group has already listed a number of their businesses very successfully. The Tunis Stock Exchange has grown in scale over the years and can absorb the size of IPO we would be looking at for SICAM. Obviously one could also look at exiting to another private investor, but at this stage the base case is an IPO on the Tunis Stock Exchange.
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