The due-diligence checklist for a private equity deal in London or New York and the checklist for a comparable deal in Ethiopia, Moldova or Nigeria is not the same document with a few extra boxes ticked. According to Henry Gabay, whose former firm Duet Private Equity has built a track record across all three markets, the gap between mature and frontier-market diligence is structural, not incremental, and investors who treat it as a matter of degree rather than kind tend to get caught out.
That view is shared widely among investors who have built careers doing exactly this kind of work. In a 2017 industry forum convened by EMPEA, the trade association for private capital in developing markets, Hurley Doddy of Emerging Capital Partners noted that frontier deals demand a genuinely local base to source, diligence and execute, since the developed-market playbook of leaning on abundant market data and active intermediaries simply doesn’t transfer. Leith Masri of Foursan Group made a related point about valuation: with fewer comparable transactions to benchmark against, frontier dealmakers lean more heavily on structuring tools such as earn-outs to bridge pricing gaps that better information would otherwise close on its own. The pattern shows up in the data too. Research cited by the African Private Equity and Venture Capital Association found that general partners who conduct extensive due diligence on target companies and management generate meaningfully higher returns than the frontier-market average, and separate analysis by Boston Consulting Group put the typical time to complete a private equity transaction in Africa at 18 to 24 months, roughly double what is standard in developed markets, largely because of exactly this kind of primary, on-the-ground verification work.
The most obvious difference is the quality and availability of financial information. In developed markets, audited accounts, credit histories and third-party market data are assumed to exist and to be broadly reliable. In frontier markets, that infrastructure is often thinner or newer, meaning diligence has to lean more heavily on primary verification: site visits, direct conversations with suppliers and customers, and cross-referencing management’s numbers against independent sources rather than accepting a clean audit as the final word. Duet’s 2019 investment in Moldova’s leading electricity distribution business illustrates the point in reverse. The regulated utility, acquired through a joint venture in which Czech investor EMMA Capital Group held the majority stake, serves roughly 900,000 customers and holds an estimated 70% market share. Assets like this tend to produce more reliable operating data than the diversified consumer or industrial businesses more typical of frontier private equity, precisely because a utility regulator requires and audits that data as part of its own oversight function.
Regulatory infrastructure is the second major variable. A mature market’s regulatory regime is typically well-precedented, meaning an investor can look at how a rule has been applied historically and reasonably predict how it will be applied again. Frontier markets more often present regulatory frameworks that are newer, less tested, or subject to interpretation that can shift with a change in government or agency leadership.
Gabay has consistently returned to the quality of local partners and industrial partners. Duet’s Ethiopian investment in Dashen Brewery was structured alongside Ethiopian endowment fund TIRET Group, and the Big Cola’s senior management came to include a former executive from Pepsico. In both cases, the local partner brings something a foreign investor cannot easily replicate on its own: an existing network of relationships with regulators, suppliers and government counterparties, built up over years rather than during a transaction’s diligence window. Choosing the wrong local partner, or none, is one of the more common ways frontier-market deals go wrong, not because the underlying business thesis was flawed but because the investor lacked the on-the-ground judgment to execute it. Duet Private Equity, under the leadership of Gabay, received multiple institutional partnership requests, for example CI Capital in Egypt for a consumer fund in Egypt and Bouygues Group for an African Hospitality fund.
Governance and management-team quality present a related but distinct challenge. In mature markets, an investor can often assume a baseline of professionalised governance, independent board oversight and formal reporting lines. In frontier markets, those structures may need to be built as part of the investment itself, not simply assessed as a pre-existing condition. This is part of why Duet’s approach to newer markets has tended to include direct board participation rather than passive minority positions: Gabay sat on Dashen Breweries’ board from 2012 to 2018 giving the firm direct visibility into governance rather than relying solely on periodic reporting.
None of these amounts to a claim that frontier-market risk can be eliminated through sufficiently thorough diligence. Political and regulatory risk, currency volatility and thinner exit markets remain real constraints that no amount of pre-deal analysis fully resolves. What changes with better diligence practice is not the level of risk but an investor’s ability to price it accurately and structure around it, whether through partnership terms, staged capital deployment, or board-level involvement that allows problems to be caught and addressed before they compound. Duet’s continued build-out of dedicated regional expertise, including the 2018 hiring of investment professionals with specific Francophone Africa and emerging-markets backgrounds, according to Private Equity Wire’s coverage of the firm’s team expansion, reflects an institutional bet that this kind of localised judgment cannot be fully outsourced or replaced by better spreadsheets, however good the data eventually becomes.
