PE exits in Africa reach nine-year high, new data confirms

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.

Report: How private equity investors create value

A year in PE review

BY Richard Summerfield

Preqin's 'Private Equity Spotlight' report, released in December, highlights a number of the biggest trends in the PE space over the last 12 months.

One of the most notable features of the last year has been the drop in average holding periods for portfolio companies, from 5.9 years in 2014 to 5.5 this year. Back in 2008 it was 4.1 years. The year-on-year reduction in holding periods reflects the favourable exit conditions which have evolved.  To date, there have been 1595 PE exits valued at $426bn, compared to $457bn in 2014, a record year for PE exits.

The alternative assets space has become a prominent sector in recent years. The industry had around $7.1 trillion worth of assets under management in Q1 2015, up from $5.5 trillion in 2012. Given its increased size and importance, it is essential that investors and fund managers understand industry trends, according to Preqin. as a result, key metric analysis is a vital tool.

Sovereign wealth funds have also grown over the last 12 months. In March, Preqin reported that their global AUM had risen more than $900bn to reach $6.3 trillion. This stunning level of growth has come in spite of increasing volatility in the oil and commodity sectors.

Report: Private Equity Spotlight: 2015 in Review

Lone Star to acquire Home Properties in $7.6bn deal

BY Fraser Tennant

In a transaction valued in the region of $7.6bn, global private equity firm Lone Star Funds has announced its intention to enter into a definitive agreement to acquire Home Properties, Inc., the publicly traded multifamily real estate investment trust. 

Under the terms of the agreement, Lone Star Funds will acquire all of the outstanding common stock of Home Properties for $75.23 per share in an all-cash transaction. The agreement, which includes the assumption of existing debt, will, upon completion, see Home Properties become a privately held company.

“We are pleased to enter into an agreement to acquire Home Properties and look forward to working with their talented team to complete this transaction and integrate the Company's portfolio into Lone Star Funds' existing multifamily portfolio," said a delighted Hugh J. Ward III, co-head of real estate investments at Lone Star Funds.

“This is Lone Star Funds' second large, recent apartment purchase following the 2014 acquisition of a 64 property, 20,439 unit portfolio, and is consistent with our strategy of buying primarily Class B apartments, including workforce housing, located in in-fill markets with strong underlying fundamentals."

The Lone Star Funds/Home Properties definitive agreement does, however, contain a ‘go shop’ provision which allows the latter firm to solicit alternative proposals from third parties for 30 days from 22 June, the date of the announcement.

"The Home Properties team has built a great company, as reflected by our strong platform, unique assets, and differentiated business strategy," said Edward J. Pettinella, President and Chief Executive Officer of Home Properties. "We believe this transaction with Lone Star Funds provides our stockholders with compelling value for their investment, consistent with our long-term strategy."

Concurrent with the Lone Star Funds, Home Properties has also entered into an agreement to contribute a portfolio of up to six portfolios, totalling 3246 units, to UDR, Inc, a $13bn multifamily real estate investment trust, in exchange for cash and newly issued units.

But a potential threat to the dealmaking extravaganza has arisen in the past few days with the revelation that national securities firm Faruqi & Faruqi, LLP is investigating the board of directors of Home Properties over potential breaches of fiduciary duties in connection with the sale to Lone Star Funds.

However, for the present, the Lone Star Funds/Home Properties transaction is still expected to close in the fourth quarter of 2015.

News: Lone Star Funds to buy Home Properties for $7.6 billion, including debt

Africa’s arrival

BY Richard Summerfield

Private equity’s interest in the continent of Africa has never been higher, according to a new report from EY.

The firm’s report , 'Private equity roundup Africa', notes that PE has spread across many of the emerging markets with vigour in recent years. Indeed, many developing regions, including Latin America, Eastern Europe, India and Asia have attracted considerable interest from PE groups. However, PE’s interest in Africa is particularly strong.

Fundraising on the continent trended higher in 2014 than in recent years, as investors sought exposure to Africa’s seemingly unlimited potential. The value of transactions conducted in Africa nearly doubled over the course of last year, as PE firms across the continent put billions of dollars to work following significant fundraising activities. Exits continued to gather momentum in 2014, achieving an eight year high.

The outlook for the industry in Africa looks particularly positive, although the continent is still battling with political instability, economic torpidity and mass poverty. However, the emergence of a burgeoning middle class and the rise of consumer culture will play a transformative role in the economic fortunes of Africa.

Much of Africa’s recent growth has been marked by development in a number of consumer-related sectors - most notably the retail and consumer products space, the financial services sector and the technology, media and telecoms industries. This diversification of industries has had a positive effect on employment. Though we are a way off Africa becoming an economic power, the recorded growth, and potential for further economic development across the continent, are very real.

Investors in Africa will have obstacles to overcome in the years ahead, but the interest of both domestic and international investors across a range of industries will go some way to plugging the investment gap Africa has suffered for decades.

Report: Private equity roundup for Africa 2015

Private equity investments and divestments hit five year high in Europe

BY Fraser Tennant

Private equity investment in European companies during 2014 reached its highest level for five years, according to new figures released this week by the European Private Equity & Venture Capital Association (EVCA).

The figures highlighting the number of companies to have received buyout, growth and venture capital investments last year are showcased in the EVCA’s ‘2014 European Private Equity Activity report’ – widely considered to be the most comprehensive source of private equity fundraising, investment and divestment data for Europe (pertaining to more than 1200 European private equity firms).

The report’s core data shows that in 2014: (i) European private equity investment rose 14 percent to €41.5bn; (ii) over 5500 European companies received private equity investment, 80 percent of which were SMEs; (iii) divestments rose 10 percent to a record €37.8bn, with 2400 companies exiting; and (iv) private equity fundraising reached €44.6bn, the second-highest total in five years.

“Private equity and venture capital play an ever increasing role in Europe’s capital markets," said EVCA chief executive Dörte Höppner. “In 2014, we saw a clear pickup of investment and divestment activity across Europe, supported by robust fundraising. Against the backdrop of extremely high liquidity in financial markets, our numbers are proof of a strong and stable private equity industry which displays no signs of overheating; the industry will continue to play a central role in the European economy.”

The EVCA report also indicates that initial public offerings (IPOs) played a significant role in divestment activity. Exits via public markets more than doubled from 23 to 51 companies, while the amount divested at cost increased by more than 50 percent to €3.3bn. Overall, says the report, the most prominent exit routes by amount were by trade sale and sale to another private equity firm.

“Record divestment activity in 2014 reflects the quality of businesses being created by European private equity," concludes Ms Höppner. “While the rise in IPO activity is welcome and demonstrates investor appetite for new share offerings, we must do more to improve public market access for SMEs. The EVCA has been working with fellow European associations via the IPO Task Force to promote a healthier IPO market that benefits companies and investors alike.”

Further EVCA conclusions include confirmation that European private equity continued to attract significant capital from around the globe in 2014, with institutional investors accounting for 40 percent of the funds raised.

Report: 2014 European Private Equity Activity - Statistics on Fundraising, Investments & Divestments