Africa value creation 2016
In our fourth annual analysis of private equity exits in Africa, we find that even amidst economic uncertainty, private equity saw strong exit volume in 2015, bringing exits to a nine-year high.
The research, conducted in collaboration with AVCA (African Private Equity and Venture Capital Association) found that private equity firms have retained their investments longer and waited for the right opportunity to exit as macroeconomic uncertainty has increased.
However, despite longer hold-times, private equity firms investing in Africa have continued to outperform public markets, returning 0.7x more than the MSCI Emerging Markets Index over the study period (2007 to 2015).
Exits by the numbers
Private equity exit volume has seen an upward trend with strong growth in five consecutive years from 2011-15. Private equity firms exited 44 companies in 2015, an increase from 39 in both 2014 and 2013.
In recent years, PE has gained confidence in the region, demonstrated through investments being made at higher enterprise values (EV). More than half of the deals which exited during 2014-15, were entered at above US$30m EV, up from just 31% of the deals exiting during 2007-13.
Returns averaged 2.8x and varied largely due to external volatility in recent years, including a sharp decline in 2009 due to the financial crises, a recovery in 2010-11, and a downturn in 2013.
While private equity remains strong in South Africa, in recent years, less developed PE markets including in North, East, and southern Africa are gaining the share of exit volume.
South Africa continues to lead in exit multiples, with 3.4x return, but East Africa has seen multiples rise to 2.9x from 1.8x.
|Consumer goods and services||16%||12%|
|Construction and materials||6%||7%|
|Power and utilities||4%||1%|
|Telecom and media||2%||10%|
|Oil & Gas||0%||4%|
Consumer driven sectors captured the greatest portion of the exit volume, as commonly seen in emerging markets.
Business-to-consumer companies in the Financial, Consumer Goods & Services, Healthcare and Retail sectors saw the highest investment as well as exit activity, with an increase in share of exit volume.
Technology, Telecom and Resources also saw a significant fall in share of exit volume, as PE firms are strongly bullish on these sectors and are in the deployment phase of value creation.
What are the biggest challenges in investing in Africa?
What we heard:
- Valuations trending upwards
- An underdeveloped intermediary landscape
- Currency fluctuations adding a dimension of difficulty
- The macro environment
Over the last two years, larger deals with exit EV above US$30m contributed 69% of exit volume, up from just 48% during 2007-13. However, average return multiples fell, with poor performance from IPOs and stock sales due to unfavorable conditions in the public markets.
While smaller deals contributed a decreasing share of volume, they demonstrated stronger returns than they have historically, increasing from and average return multiple of 1.6x during 2007-13 period to 5.6x during the 2014-15 period.