Private equity exits at nine-year high in the continent as funds run their course

PRIVATE equity sales reached a nine-year high last year, as funds reached the end of their lives, a report released yesterday showed.

EY and the African Venture Capital Association’s fourth annual analysis of the private equity industry showed that 44 private equity companies had been sold across the continent last year, an increase from 2007’s figure of 34.

“There was a boom in private equity funds raised in 2006 to 2008, and these funds need to achieve exits before their fund life ends,” said Graham Stokoe, head of EY’s Africa private equity practice. “Private equity funds typically have a fund life of 10 years.”

SA saw the lion’s share of this activity, accounting for 39% of all deals concluded on the continent. “It’s mainly private equity backing financial services companies that are serving a growing consumer base, both in banking and insurance. Private equity (firms) are also showing lots of interest in fintech in recent years,” Mr Stokoe said.

Stock exchange listings and management buyouts appear to have lost favour with private equity firms looking to sell their investments, declining from 20% and 4% during the 2007-13 period to 16% and 1% in 2014-15.

Private equity firms generally sought corporate buyers in the sector of the portfolio company, known as trade buyers, largely due to better values offered.

“The reason for the decline in management buyouts and private sales is probably due to more interest in private equityowned businesses in Africa by both trade buyers and also other private equity (firms) and financial buyers,” Mr Stokoe said.

Listings could be considered if the portfolio company were large enough. “There probably haven’t been enough sufficiently large private equity-owned businesses looking to (list),” he said.