Private Equity in Africa is moving to a new phase of maturity
Johannesburg, 2 April 2014
Private Equity in Africa is moving to a new phase of maturity
- Study finds 207 fully realized PE firm exits in Africa from 2007 to 2013
- Returns generated by PE firms outperformed public market comparables (MSCI Emerging Markets Index and MSCI Frontier Markets Index)
- South Africa accounted for 41% of exits, and West Africa, 26% over 2007 to 2013
- The highest proportion of exits were in the financial services sector at 19%, and the largest number of exits were to strategic buyers
Released today, the second annual joint study by the African Private Equity and Venture Capital Association (AVCA) and EY confirms private equity (PE) in Africa is becoming a more established asset class in the region’s investment landscape.
The African PE Exits study, Broadening horizons, examined the results and methods of PE exits between 2007- 2013 and recorded a total of 207 realizations by PE fund managers in Africa, for transactions with an entry enterprise value of at least US$1m and where PE firms had fully exited their investments.
Michelle Kathryn Essomé, AVCA Chief Executive says, “The Study finds that PE in Africa continues to outperform comparable listed equities indexes, confirming it is a key asset class to access the astounding growth fundamentals of Africa. Even more positively for the industry, our analysis shows that PE’s outperformance has increased for companies exited since 2011, attesting to the greater experience that PE has gained and used to its advantage since the early years of investing in Africa.”
Geographic spread of exits across Africa
According to the study, exits are being achieved across the African continent and increasingly outside of the most developed market of South Africa. As expected, South Africa accounted for just under half of the realizations by number and value (41% and 47 % respectively), but West Africa saw more than one-quarter by both number of exits (28%) and value (26%).
Financial services sector leads the way
Financial services accounted for the highest proportion of exits at 19% between 2007 and 2013. This sector has been long popular with the region’s PE houses, particularly as technological innovations, such as mobile payments, have made financial services products more accessible for even the remotest of communities, and as banking reforms in many markets have led to consolidation. Industrial goods accounted for 12% of exits, followed by agriculture/forestry and telecommunications, both at 9%. Meanwhile, construction and technology both account for 8% of PE exits by number, and food and beverage for 7%. Sandile Hlophe, Head of Transaction Advisory Services for EY Africa notes, “The focus on investing in sectors that service the growing middle class in Africa is clearly reflected in PE investments and, ultimately, in exit patterns by sector.”
Other key findings
Another key finding from the study which demonstrates the maturing PE sector is the increasing diversity of the exit routes. The biggest rise in recent years was the proportion of exits to other PE firms (up from 14% in 2012 to 22% in 2013). Other key findings are that entry multiples have crept upwards; intermediated deals have outperformed those companies that were acquired through proprietary transactions, which – although unanticipated - possibly shows that the strongest businesses are increasingly being sold via auctions or on a semi-proprietary basis; local offices are increasingly a key factor in being able to deliver superior returns; and that organic revenue growth has been the main growth driver.
Outlook for Private Equity in Africa
The stage is set for the continued growth and development of the PE industry in Africa, as PE firms uncover opportunities in the rapid economic growth across the region, and complement this with increasing sophistication in value creation techniques. PE in Africa continues to outperform public markets. With this, PE is becoming more known across Africa as a source of growth capital and hands-on management support, and is truly in its element on the continent. Graham Stokoe, Africa Private Equity leader for EY commented, “With the ever increasing levels of interest in Africa, we expect the number of exits to increase in 2014 and beyond, potentially even to record levels. There is an increasing number of PE owned companies that were acquired in the peak investment period from 2006 to 2008 which PE firms now need to exit.”
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This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
Following on from EY’s successful integration in 2008 of 87 countries into one area from across Europe, Middle East, India and Africa (EMEIA), the firm has launched its Africa Business Center™ (ABC), which aims to enhance the effective and efficient links between its geographic reach and areas of expertise. The firm enjoys representation in 33 countries across Africa.
The African Private Equity and Venture Capital Association’s (AVCA) mission is to promote and catalyze the private equity and venture capital industry in Africa.
AVCA is a member-supported organization, with members spanning private equity and venture capital firms, institutional investors, foundations and endowments, international development finance institutions, professional service firms and academia. They are all united by a common purpose: to be part of the African growth story.
AVCA endeavours to deliver its mission through four key pillars: building a Knowledge Centre of independent research for members and the industry; facilitating Networking Opportunities and thought leadership events; Advocating on behalf of the industry to policymakers, regulators and global investors; and by providing Training to investors and emerging fund managers on the asset class and best practice.
Together with a network of experts and collaborators across Africa and beyond, AVCA represents the voice of the pan-African industry in discussions with governments, regulators, lawmakers and the media.
For more information about AVCA, please visit www.avca-africa.org.