BY Fraser Tennant
A focus on value and a diversification of approach caused private equity (PE) exits in Africa to reach a nine-year high in 2015, according to newly published data from EY and the African Private Equity and Venture Capital Association (AVCA).
In ‘How private equity investors create value’, EY and AVCA’s (the pan-African industry body which promotes and enables private investment in Africa) fourth annual analysis of the ways private equity investors create and preserve value in their companies in Africa, PE firms are noted as having exited 44 companies in 2015 – an increase from 39 in both 2014 and 2013.
This uptick in exits took place despite the fact that PE firms have retained their investments for a longer period – while waiting for the right moment to exit – due to ongoing macroeconomic uncertainty, with the average hold period being 6.1 years in 2015, compared to five years in 2014.
“The last two years have seen an increase in the number of PE firms making exits in the African markets,” said Graham Stokoe, EY’s Africa private equity leader. “PE firms clearly are focused on adding value to their portfolio companies and are diversifying their approaches to help achieve this, including helping their portfolio companies expand geographically and bringing in new management.
“While the economic environment still poses challenges, PE firms continue to find ways to create value in their portfolios in the region and find new opportunities for exits.”
The EY/AVCA analysis highlights financial services as remaining the most common sector for exits in 2014 and 2015 (24 percent), with consumer goods and services (16 percent), industrials (14 percent) and healthcare (14 percent) also active during this period. In addition, the PE firms surveyed said highlighted the financial services, retail and consumer products, and education sectors as being the most interesting sectors for future investment.
“Our annual Africa PE exit study continues to show that despite changing macro-economic dynamics (including currency fluctuations, valuations trending upwards, and an intermediary landscape), PE firms are still continuing to outperform public markets, particularly in sectors such as finance, retail and fast-moving consumer goods, where there is burgeoning consumer demand," said Dorothy Kelso, AVCA’s head of research.
The EY/AVCA findings – based on PE exits between 2007 and 2015 and data drawn from detailed interviews with former PE owners of exited businesses – were published to coincide with the 13th Annual AVCA Conference in Addis Ababa, Ethiopia.