EXEO Capital has made an investment of an undisclosed size into PPHL, a Tanzanian company that produces and distributes woven polymer bags used in the cement and agriculture industries.
The South African private equity firm drew capital from its Agri-Vie Fund II for the investment, which was announced in mid-July. The fund closed on $146 million in June after drawing commitments from a roughly equivalent mixture of private sector investors and development finance institutions.
EXEO partner Avril Stassen declined to provide financial details of the PPHL transaction. However, he told Agri Investor that the deal was within the firm’s previously identified range of between $5 million and $15 million and that it was targeting returns in the mid-teens.
The bags produced by PPHL are made from polypropylene, a byproduct of plastic that is imported into Tanzania and converted into a fabric. When combined with two layers of plastic, the fabric enables the bags to cut off oxygen and eliminates the threat of insect damage in the storage of dry grain
The fabric had its origins in an effort to improve the storage of cowpeas that began with a USAID grant in 1987. The effort to develop the bags that PPHL produces has been led by Purdue University in Indiana for the past 10 years as use of the product has expanded to all grains.
The most recent iteration of the Purdue Improved Crop Storage project has been supported by a five-year grant awarded by the Bill and Melinda Gates foundation in 2014 to advance commercialization in target countries including Tanzania.
Stassen said EXEO had been introduced to PICS several years ago through a PPHL shareholder. He said his firm’s decision to invest in the product had been the result of a determination among its philanthropic supporters: “About a year ago, Gates decided that the product is now commercially viable, so they have exited the scene and Purdue has now licensed the product to an entity which is owned by the ex-professors who did most of the research, and some partners, of which PPHL is one.”
Stassen said capital from EXEO’s investment would support construction of a new production plant and an expansion of the existing PICS bag production facility at PPHL’s headquarters in Tanga, Tanzania. He said EXEO would also look to expand the use of the bags in other south-east African markets, including Mozambique, Malawi, Kenya and Uganda.
EXEO has determined, Stassen said, that PPHL’s capital structure can absorb additional debt. He added that the firm was working with co-investors, including development finance institutions and state-linked investment vehicles, to secure additional financing for the company.
Stassen said the PPHL deal provided an example of how impact investments can be commercially viable for the private sector.
“For us, the overriding consideration is the commercial returns,” he said. “We’re buying into a growth story and a business that is moving from a national player to a regional player, and it also gives us global exposure by having a minority shareholding in the intellectual property connected to the PICS.”
He added that two of PICS’ other founders from Pursue University were currently focused on increasing the use of the bags in India, China, South America and elsewhere.
“If you connect that with the fact that the specific major growth area is enhanced grain storage post-harvest, there is a very positive impact one can associate with the investment.”