SME

The European definition of an SME is as follows: “The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.”

Acorn’s definition of an SME is an enterprise:

  • Experiencing growth as opposed to being mature
  • With management teams that:
    – are energetic, entrepreneurial and adaptable
    – have a sense of ownership in the business and own shares or aspire to own shares
    – take responsibility for the future of the business
    – are passionate, dedicated and committed
    – show loyalty to the business and its shareholders
  • Agile enough to capitalise on opportunities as they arise in the market
  • That generally isn’t a market leader but has the potential to gain significant market share and become dominant in its sector
  • With an enterprise value of less than R500m.

Investment rationale for SMEs

  • SMEs are the dominant business type in Sub-Saharan Africa and experience superior growth
  • SMEs account for a significant percentage of employment and GDP worldwide and have historically acted as catalysts for economic development
  • Access to funding is listed as one of the main obstacles to growth by SMEs in emerging markets
  • Bank finance is often unavailable or insufficient due to the lack of information and collateral available from the SME owners
  • This presents a private equity investor like Acorn with the tremendous opportunity of acquiring stakes in stable, growing businesses at attractive prices
  • Acorn partners with business owners to grow sustainable businesses to create long-term value.

Why Acorn focuses on SMEs

  • SMEs often yield higher risk-adjusted returns than larger companies and other asset classes
  • SMEs are experiencing growth as opposed to being in an ex-growth cycle
  • The growth opportunities and ability to impact is proven to have greater potential
  • The market isn’t over-crowded, which means that:
    –     more transactions are available
    – at     attractive prices
    –     along with a stronger negotiating ability due to the lack of funding alternatives for the owners
  • We are skilled and experienced in SME private equity investment and have the track record to prove it
  • With our partnership model we find common ground with families and entrepreneurs
  • We see a huge opportunity to grow SMEs to an attractive size for larger Sub-Saharan Africa (SSA) companies to acquire as part of their expansion
  • We understand how to de-risk and prepare a SME for a trade sale
  • Exit strategies as trade sales when these companies reach critical mass is easier
  • It’s where the opportunities lie to capitalise on growth in SSA
  • Acorn can add the most value in SMEs and we see the impact of our involvement on the bottom line and the communities in which our investee companies operate.