LeapFrog's Exit from Express Life

Report: Lasting Impact: The Need for Responsible Exits

LeapFrog Investments is a private equity firm founded in 2007 that invests in financial services and healthcare companies targeting underserved and low-income populations, primarily in Africa and Asia.

Background on the Investor

LeapFrog Investments is a private equity firm founded in 2007 that invests in financial services and healthcare companies targeting underserved and low-income populations, primarily in Africa and Asia. The firm generally invests in small to mediumsized companies seeking to scale. Having raised over USD 1 billion, LeapFrog invests in “purpose-driven businesses” to facilitate growth, profit, and social impact.

The fund manager’s investment sizes range from USD 5 to 50 million, and most investments offer LeapFrog representation on the company’s board. LeapFrog typically holds investments for four to seven years before exiting through an IPO, trade sale, or management buyback. According to Sam Duncan, Head of Impact at LeapFrog, “Every time we invest in a company, our goal is to make sure that by the time of exit the emerging consumer strategy of the company is scalable and profitable.” Leapfrog’s goal is to ensure that anyone who buys the asset encounters no tradeoffs between financial and social goals. “We want to get the company to that point of ‘no tradeoff’ before we exit, because we believe that’s the most sustainable approach to impact in exits.”

Background on the Investment

Ghanaian entrepreneur Obed Danquah founded Express Life in 2009 to provide life insurance products and services in Ghana, where, at that time, less than 2% of the country’s 25 million residents had coverage. In addition to addressing this local market gap, the company saw opportunity for significant growth in an industry that was expanding by 40% per year.21 However, Express Life needed to improve its operations, management, product offerings, and sales force to capitalize on this potential. It also had to comply with capital requirements introduced in Ghana in 2011 for domestic risk carriers.

In May 2012, LeapFrog invested USD 5.5 million for a majority stake in Express Life, seeing an opportunity to make the company more effective and to further its mission to expand access to critical financial services for underserved communities. At the time of investment, the company had 68 employees and reached nearly 60,000 Ghanaians with insurance coverage. LeapFrog and Express Life aimed to collaborate on a mutual mission to expand insurance coverage to 500,000 low-income Ghanaians over the course of a four-to-six-year investment period. To achieve this objective, LeapFrog worked with Express Life to:

  • establish a new senior management team and improve the company’s corporate governance and insurance risk management to align with global best practice
  • review six existing life insurance products and relaunch a simpler offering—two distinct, yet simple solutions that were easy for customers (beneficiaries) to understand
  • expand an agency network from 42 agents in 2012 to 251 agents by 2013, with an increased number of physical branches; and
  • leverage BIMA, a company in LeapFrog’s portfolio, to expand distribution of Express Life’s products though mobile phones.

Exit Objectives and Considerations

Express Life performed well fairly quickly in terms of impact and financial goals. By December 2013, it had transformed from a small insurer into a leader in the local market, reaching nearly 860,000 low-income Ghanaians—exceeding its goal of 500,000 by 80%. This fast growth clearly demonstrated that Express Life needed growth capital to continue expanding, capital beyond what LeapFrog could provide. The time was appropriate for LeapFrog to consider exiting to an investor that was better-equipped to get Express Life the resources it needed to scale.

Because LeapFrog’s portfolio companies share its “profit with purpose” philosophy, Leapfrog believes their social impact and mission can be sustained post-exit, as long as the follow-on investor is philosophically aligned with the business model. Specifically, LeapFrog seeks buyers that recognize the value proposition in serving low-income populations in emerging markets. Prudential Plc (“Prudential”), the UK’s largest insurer by market capitalization, expressed interested in purchasing a stake in Express Life. Prudential sought to establish a presence in Africa, recognizing the value proposition of serving high-growth, low-income populations there. In LeapFrog’s assessment, Prudential demonstrated this understanding and had the resources and insurance industry experience needed to help Express Life scale. Prudential worked with LeapFrog and Express Life to understand the risk profile and characteristics of the Ghanaian insurance market, buying the stake in March 2014.

Results and Lessons Learned

LeapFrog’s investment in Express Life provided several benefits for its stakeholders in Ghana, including both customers and employees. As a 2013 Financial Times article on the sale noted, “customers of Express Life pay as little as the equivalent of 70 cents per month for its offerings. These are often sold via mobile phones and include health and life insurance, funeral cover, and savings products.”23 Besides providing nearly one million individuals with insurance, Express Life grew from 68 full-time employees in 2012 to 320 by the end of 2013, a nearly 400% increase. The company’s revenue similarly increased, growing by five times. Duncan observed, “Buyers that value profit with purpose will likely pay more for businesses when you can demonstrate integrated results.”

Express Life was LeapFrog’s first full exit. One lesson from the exit is the importance of a commercial case for social impact, particularly one that helps the acquirer understand how the business model inherently creates impact. As Duncan explained, “It doesn’t make sense to bind an acquirer to a social mission, because once you do, it’s not an incentive but rather an obligation. This is a commercial strategy, and the most sustainable way to achieve social impact is to make it commercial. And the best way to get commercial returns is to invest in the emerging consumer. We hold true to that in our investment framework.”

LeapFrog’s experience with Express Life helped the firm establish a tripartite framework for how to responsibly exit its investments, one which gives equal consideration to the following financial and social factors:

  • Maintain focus on emerging consumers. The follow-on investor should see the opportunity in serving emerging consumers and have the capital, resources, and strategic alignment to help the portfolio company continue to do so.
  • Preserve positive treatment of the company’s employees. The follow-on investor should plan to help company management maintain or improve corporate governance and labor practices.
  • Secure target financial returns for limited partners.

In general, LeapFrog feels that a strong relationship with the portfolio company is an important factor to ensure that the social mission stays intact after exit. According to Oyin Anubi, LeapFrog’s Knowledge Manager, “We can be confident that the emerging consumer strategy will continue when we have a good relationship with the portfolio company.” The key element is to ensure that the mission becomes embedded in the company’s culture.

 

Key Details

Investor description

Private equity fund manager

Sector

Financial services

Geography

Ghana

Investment

Life insurance company

Instrument

Private equity

Holding Period

Two years

Exit mechanism and scope

Strategic buyer, full exit

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