Trade buyer influx boosts exit activity in Africa

Sales to strategic buyers accounted for half of the 118 realisations in Africa in the last five years, a new study suggests, helping PE achieve returns nearly twice those of regional public markets.

Exiting African portfolio companies may not be as difficult as often thought, according to a recent study. 

A joint report by the African Private Equity & Venture Capital Association (AVCA) and Ernst & Young found that a total of 118 realisations have been achieved on the continent between 2007 and 2012. Last year saw 22 sales by private equity fund managers, the highest number since before the 2007 financial crisis. 

“This study gives a great opportunity to debunk myths about exit opportunities in Africa,” said Michelle Kathryn Essome, AVCA chief executive. “Private equity in Africa which provides growth capital to African companies is uniquely positioned to take advantage of trends and to support further development of African economies.”

Half of the exits observed during the period were achieved through sales to industry players, the study said. Between 2010 and 2012, roughly 50 percent of these were regional buyers – an increase over the 2007 to 2009 period, during which local buyers accounted for a majority of sponsor-related sales. 

This appears to have helped drive strong returns for investors. The analysis revealed that average performance for 68 of these African PE exits (all of those for which information was available) was almost double that of the Johannesburg Stock Exchange over the last five years. In the near term, the study suggested, that should channel more institutional money towards the market: while Development Finance Institutions have played a significant role in seeding the continent’s private equity industry, it said, local pensions and sovereign wealth funds are now waking up to the strong returns offered by African-focused buyout funds.  

The study’s findings were by no means limited to South Africa, the continent’s most mature buyout market. In fact, the country accounted for less than half of all PE exits (42 percent), with the remaining 58 percent spread across other African regions. Financial services, at 23 percent, predominated; while customer-focused sectors also provided investors with good exit opportunities, accounting for around 20 percent of the total.

In another study published on Tuesday, AVCA and Cambridge Associates showed that African private equity funds delivered an 11.2 percent annualised return for the 10 years ending 30 September 2012. This was roughly on par with Cambridge Associates’ broader emerging market private equity index, the report said – although it actually outperformed US venture capital over the period.