How to win big returns in African private equity

Africa’s private equity firms have been finding great ways to realize value, fuelling and profiting from the continent’s soaring growth, but also helping as Africa’s markets become more pan-regional. Investors are also scoring successes by working closely with management teams to create value in investee companies.
A study of 62 private equity exits (sales or realizations of investments) over 2007-2012 found that private equity has generally outperformed public markets. “PE’s strategic and operational improvements are generating returns almost double the Johannesburg Stock Exchange ALSI” (All-Share Index).
These are key findings from a study “Harvesting growth: How do private equity investors create value?” published recently by EY (Ernst & Young, and the African Private Equity and Venture Capital Association (, with backing from the Emerging Markets Private Equity Association ( They studied 118 realizations by African private equity fund managers between 2007 and 2012, but only had returns information on 62 deals.
Africa’s private equity industry is “in a phase of relative infancy”. It is hampered by stock markets across the continent which are still very small and relatively illiquid, except South Africa’s JSE Ltd. ( Intermediary networks are also sporadic in Africa.
PE fund managers have often chosen a partnership approach where they work with local managers has worked well considering that 80% of the sample had been only minority stakes by the PE firms. “A large part of value creation is implementing new procedures and processes to improve governance, but we have also found much evidence of PE houses using their networks to full effect to bring in the right expertise and to support portfolio companies in their growth plans,” write the study authors.
PE in Africa has largely focused on growth strategies, particularly growth in organic revenues, and this has driven two-thirds of growth in the key earnings figure, EBITDA (earnings before interest, tax, depreciation and amortization). “They are employing strategies familiar to other markets, such as building the right platform for growth and identifying product improvements”.
To work well, a PE firm operating in Africa needs a wide range of contacts, the study describes this as “a vital attribute in such a young market”. The most significant exit is via a strategic sale.
Some PE firms are working with their portfolio companies to expand in other African countries. Since 2009 there has also been an increasing trend for PE firms to sell or realize with expanding African regional firms. As the study explains, the strategy is to build local companies “with a compelling strategic logic to regional buyers looking to gain a foothold in Africa’s fast-growth markets.”


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