Exits to private equity and other financial buyers continued to increase in 2017, to 37%, and now represent the most common exit route, as evidenced by the sixth annual PE exit study, presented by EY and the African Private Equity and Venture Capital Association (AVCA).

The survey reports that despite challenging exit environments in key African markets in 2017- such as political uncertainty in Kenya, a weak economic environment in South Africa, and Nigerian currency challenges – PE firms delivered financial returns that outperformed public markets, as represented by the MSCI Emerging Markets Investable Markets Index. 

Enitan Obasanjo-Adeleye, Director of Research, AVCA, said: “The level of PE outperformance was the highest in North Africa at 99% and Southern Africa at 88%, excluding South Africa, which performed at 79% higher than public markets.”

The report shows that exits from portfolio companies in the industrial sector increased in the last two years while exits of companies in the utilities sector also increased primarily due to exits of renewable energy projects and/or companies.

Graham Stokoe, Africa Private Equity Leader at EY, said: “An increase in the average holding period to 7.7 years and 6.5 years for exits in 2016 and 2017 confirms our view that PE firms in Africa are inclined to hold their investments in portfolio companies for longer than in developed markets.” 

“There were also a number of exits in 2016 and 2017 for PE investments made in the PE peak investment period of 2005-2008, demonstrating that PE firms have managed these portfolio companies through tough times and have now achieved robust exits with favourable financial returns,” he said. 

Currencies from key African markets have negatively impacted PE returns over the past few years. 

Nevertheless, PE firms have been able to deliver relatively high exit volumes and performances over the last two years. 

This is likely to be due to the large amount of capital raised by PE firms during 2014 to 2016 which now needs to be invested. 

Corporates on the other hand, appeared to be less active in 2017. 

The financial outperformance of PE demonstrates the power of positive equity. 

PE firms have supported African companies in growing faster than public companies.
 
Giving her observation on where the industry expects to see increased investments, Obasanjo-Adeleye, noted that “FinTech, Education, Consumer products and services, Healthcare and Energy are key focus areas for investment for PE companies in Africa.”