For private equity and venture capital investors into African businesses, getting out of the investment with a good return is one of the key challenges. Typically private equity in Africa has been about growth – investing in a great business, providing equity and debt capital, and supporting a star management team with skills and strategic management, supporting good governance and better financial reporting (making it more attractive to other investors), and sometimes helping the company expand to neighbouring countries and new markets.

However, a private equity fund often has a limited time – say 7 or 10 years – after which it has to pay back its own investors. Therefore, even if the business it invested in is doing well and continuing to grow, the fund will have to sell its shares, known as “exit”, in order to raise the cash. The exit options available include:

• Sell to a strategic buyer – this used to be a key route and achieve some great valuations as multinational giant firms – for instance for food and other fast-moving consumer goods – rushed to gain foothold in promising African markets. However, more recently, some of the multinationals have been getting out, sometimes after years of frustration at trying to get enough foreign currency to operate and to pay dividends to the group.
• List on a securities exchange – this has been very useful for private equity firms, including some excellent listings of utilities and telecom companies. Here is an example from 2012 when private equity firm Actis first raised capital and then gradually exited power distributor Umeme on the Uganda Securities Exchange and the Nairobi Securities Exchange. Listing on a securities exchange is important avenue if local pension and insurance funds and other institutional investors are strong and well managed. Often these funds prefer to buy shares that are listed on a public market (stock exchange) as they can trade their shares more readily and it is easier to establish valuations for their portfolios, which they may need for regulatory purposes.
• Management buy-out. This can be a very positive move towards the long-term growth of a business However, it often works better in venture capital and smaller businesses and where it is planned and agreed from the start, with a mechanism such as performance bonuses to help the management build the capital needed to buy out the private investor to achieve the desired return.
• Secondary sale – this is when the fund that has helped the company grow and improved its management and prospects sells on to a bigger fund, that typically likes to invest into more mature businesses with a strong track record. More recently that has been one of the predominant exits in African markets.

Recent examples of private equity exits

Recently the excellent website African Private Equity News reported on some examples of June exits, and you can see the different routes:

Cresta Paints: Headquartered in Ghana and a leading market presence in paints, hardeners and other coatings in Ghana, Nigeria and some other West African markets. Adenia Partners invested in in2015 and helped the company become a regional leader. Uhuru Investment Partners describes itself as “we strive to unlock the untapped potential of middle-market companies across West Africa. We offer compelling investment opportunities alongside sustainable impact” (secondary sale).

Enimiro, a Ugandan vanilla processor and exporter: Pearl Capital Partners, manager of the Yield Uganda Investment Fund, has announced it sold its equity stake. This appears to be a successful management buyout.

I&M Group PLC: This is an East African banking group with presence in Kenya, Mauritius, Tanzania, Rwanda and Uganda. AfricInvest bought the 10.1% stake, which the UK Government’s development finance institution and impact investor British International Investment (BII) had held since 2016 (secondary sale).

International Facilities Services (IFS): An African integrated facilities management business servicing more than 40 remote sites for global businesses. A consortium of ES-KO, global provider of integrated facility support services; Mauritius-based private equity firm Phatisa and management bought 100% of the shares which Development Partners International (DPI) first made in 2019. (strategic, secondary and management combined).

Oricol Environmental Services: A waste management company based in South Africa. Lereko Metier Environmental Solutions Holding initially acquired a stake, supporting the company’s management in a management buyout from France’s Veolia Proprieté in 2010. Infra Impact Investment Managers took over the stake from Lereko Metier for its Infra Impact Mid-Market Infrastructure Fund 1 (secondary sale).

Planting Naturals: A producer of organic and certified (Roundtable on Sustainable Palm Oil RSPO certified) palm oil in Sierra Leone with Europe headquarters in the Netherlands. Private equity firm Phatisa and development finance institution Finnfund announced the sale of their majority stake to PaLenDu, an affiliate of the Dutch Dekker Group, which is focused on the production of organic and RSPO-certified palm oil within the sustainable agriculture sector (strategic sale).

Travaux Generaux De Construction De Casablanca S.A TGCC: A construction and civil engineering company based in Morocco. Mediterrania Capital Partners has helped it expand into Gabon, Côte d’Ivoire and Senegal and run projects in other African countries creating more than 3,500 jobs while MCP was invested. In December 2021, MCP helped YGCC to list its shares in a public offer on the Bourse de Casablanca . It listed at MAD 130 and was still trading around MAD 330 at the time of writing. In April MCP announced that it had completed its exit. MCP has earlier exited other investments through public offers on the Casablanca Stock Exchange, boosting capital market and its contribution to Morocco’s development (exit through stock exchange).

Sadly too few of the recent exits involve African stock exchanges. Many exchanges look forward to quality companies coming to list their shares after benefitting from growth as well as strategic and governance improvements in partnership with good private equity partners. However, it is important that the local institutional investors are ready to support these exits.

Another great website for details of African private capital deals is Private Equity Africa.