There has been an increasing trend in strategic sales as a private equity exit route in Africa, according to Jacob Kholi, partner at The Abraaj Group.

“We are looking at strategics within Africa, particularly out of South Africa, and i think it’s a reflection of how heated the South Africa’s market itself is and the level of competition in those markets,” Kholi said, speaking on the sidelines of the SuperReturn Africa conference in Accra, Ghana.

“Clearly we see an increasing trend given the dynamics of the Southern African market and the fact that the opportunities in the rest of the continent are rising,” he said.

“We’ve had successful exits to SABMiller, to whom we’ve sold a mineral water company, and to Tiger Brands, to whom we’ve sold a food manufacturer,” he added.

In private equity, there are different exit options including IPOs, secondary transactions to other investors and in some cases company buybacks, depending on the size of the investment.

Kholi said that IPOs are also becoming an important source for PE exits: “As the capital markets deepen and liquidity improves, we will see IPOs also increasing, so it’s an option to watch.”

He added that given the number of funds being raised on the continent, sales to financial sponsors (other PE funds) is another exit route of great importance.

“In the next decade I’ll see that as one major source of exits for PE investments,” he said.

In terms of what makes successful exit, Kholi thinks that it all starts with planing.

“To achieve successful exit you have to plan early and that planing starts at the time of evaluating a transaction. That early planing allows you to negotiate your minority rights if you’re a minority shareholder, and allows you to negotiate some exit rights even if you’re a majority shareholder. It also allows you to build alignment with your stakeholders and it influences the structuring that you put in place,” he said.

“Another point is that you need to incentivise management. They are the ones that will drive growth and you have to incentivise them, get them on board, discuss your exit horizon, and your exit expectations,” he said.

“We’ve had a quite good exits track record. In SSA we’ve achieved in excess of 35 exits. Our Fund II, a 2008 vintage fund, has achieved five full exits, delivering an IRR in excess of 30%. That’s not a bad track record at all within the context of economies we’re operating in,” he said.