Aruwa Capital Management is a female-founded and -led private equity company focused on West Africa (specifically Nigeria and Ghana). It announced the launch of its first co-investment vehicle of $20 million in October this year, stating that it hopes to execute four to five investments averaging between $1 million and $5 million.
At the same time, Aruwa announced its first investment in Wemy Industries Limited, a Nigerian manufacturer of personal hygiene products. The financial details of the deal remain undisclosed. This first investment sets the scene for the company’s investment strategy of a clear and unapologetic gender lens. Investment objectives include searching for companies that provide goods that improve the lives of women or provide employment opportunities to women.
To understand the decision-making behind the deal, Jeanette Clark spoke to founding and managing partner of Aruwa, Adesuwa Okunbo Rhodes.
Why did you choose Wemy Industries Limited as your first investment?
We are very bullish about Wemy’s growth prospects, locally and regionally. It also ties in with all of the investment objectives at Aruwa, for example investing for socio-economic development impact and in companies that provide goods that improve the lives of women.
There is very strong medium- to long-term demand for Wemy’s diversified range of personal hygiene products. These products include baby diapers, sanitary pads, baby wipes, maternity pads, underlay hospital pads and adult diapers.
With the rapidly growing population across the West African region and increased usage levels across its product segments due to urbanisation, Wemy is uniquely placed to take advantage of this strong demand over the short-, medium- and long-term. A baby is born every five seconds in Nigeria, with more babies born each year in Nigeria than the whole of Western Europe. Additionally, per capita usage of personal hygiene products is significantly lower in West Africa compared to their emerging and developed market counterparts, indicating room for growth.
Wemy’s Dr. Brown’s and Nightingale brands are household names in Nigeria. There is strong brand loyalty and affinity, particularly because of Wemy’s mix of affordable pricing and the products’ high-quality. It also has an extensive distribution network, due to its presence in the country for the last 40 years. The company has a diversified product mix cross its six production lines, which leads to economies of scale and effective sourcing of raw materials.
The business has proven to be very resilient, despite market shocks. Following the recession in Nigeria in 2015, many manufacturing companies didn’t survive due to the foreign exchange shortage and the difficulty in sourcing raw materials. Wemy, however, will have revenue this year that will be 200% higher than last year, following the re-introduction of Wemy’s Dr. Brown’s baby diaper range earlier this year. The company not only survived, it is thriving.
In addition, in line with Aruwa’s gender lens investing strategy, 80% of the company’s products have a positive effect on women – from improved hygiene for menstruating teenage girls in rural areas in Northern Nigeria to improved maternal health across the country.
When the deal was announced Aruwa stated that Wemy Industries is set for the next stage of its growth trajectory. Where do you see this growth coming from?
The company has significant brand equity and an extensive distribution network in Nigeria. We expect significant growth locally due to the lack of competition, and also due to increasing population growth and usage levels in Nigeria because of urbanisation. To our knowledge, Wemy also has the only adult diaper manufacturing machine in the whole of West Africa, thus we see a huge opportunity to export that line to other parts of West Africa. This provides a natural hedge to our investment.
Wemy will implement an action plan to improve the representation of women in its workforce, including at the most senior levels. Is this a condition of all your investments?
Yes. In line with our Invest, Operate and Empower-model, we employ active, hands-on involvement in investee companies to support internal financial control, operational improvements in processes and decision-making tools. We also incorporate an operational and financial action plan in all of our investments and, as part of this, we implement our gender lens principles. This looks at the gender balance within the workforce, senior management, the board and the value chain. We will strive to improve these gender metrics throughout our investment period by influencing the methods used for hiring, promoting and retaining women within the workforce and across the value chain.
We believe this will help to improve the profitability of the companies as it has been proven that gender-balanced teams help to increase returns. In addition to the financial benefit, our gender lens investing approach helps to promote women’s economic empowerment at various levels of the company which has a huge multiplier effect for families, communities and economies due to the active role women play in society.
Explain your investment criteria.
For every investment, there has to be a sound investment case. This will enable us to meet the target returns for Aruwa and our investors of, at least, a 3x money multiple. In addition to the financial return, we look for investments that will have a developmental impact. We aim to make investments whereby the capital we provide is transformative to the business, helping to create new jobs, scale the companies, generate taxes as well as export revenues and, ultimately, fuel economic growth. We also make investments that help to empower women across all levels of society, either through the goods or services the company provides and/or through the workforce and supply chain.
In addition to our targeted financial return, every investment has to be in line with two of the United Nation’s Sustainable Development Goals – SDG 8 (Good Jobs and Economic Growth) and SDG 5 (Gender Equality).
Due to our hands-on operational approach, we have been in discussions with Wemy for the last three years, working with them to restructure their balance sheet, access concessionary funding, optimise their power solution and getting them ready for this next stage of growth.
Our co-investors are typically family offices and they prefer not to invest in blind pools. So our strategy has been to have opportunities already identified, with due diligence done. This approach has been welcomed by our co-investors as they have some visibility on our portfolio upfront, unlike a traditional private equity fund.
You say that Aruwa is a co-investment vehicle?
We are an investment company with Aruwa and its investors as shareholders. It’s called a co-investment vehicle because our investors co-invest with Aruwa’s management company. We invested into Wemy as one vehicle, they did not have to secure another funder.
What is the exit strategy for your investments?
Due to our vehicle structure (an investment company), there are no typical private equity fund constraints around having to exit within a certain time frame. Our capital is patient. We would look to maximise the return on our investment at exit and ensure the objectives we set out at the start of the investment in terms of our socio-economic impact and gender lens investing outcomes are achieved.
What does your current pipeline look like?
We have a generalist sector focus. Our current investment pipeline comprises companies in the consumer goods, healthcare, non-banking financial services and B2B services sectors.