Harvesting growth: How do private equity investors create value?

Africa is experiencing exceptional economic growth, a rising middle class and relative political stability – themes that make the continent an increasingly attractive investment focus.

A burgeoning, yet viable, private equity (PE) market has emerged. Although the market is in its infancy, key themes are already developing:
•    Exit activity and performance
Despite a misperception that exits are hard to achieve in Africa, we recorded 118 exits by PE firms between 2007 and 2012. In addition, many other sales occur privately.
Financial services was the most active exit sector, but other sectors such as food and beverage and telecommunications also made good showings.
•    Local networks are crucial
Africa’s PE firms must build and sustain healthy local networks to ensure successful deal origination. Nearly half of the deals in our study were sourced via networks or relationships. The regions saw relatively more.
•    ESG improvements drive growth
A key part of PE’s value-add in Africa is improving the environmental, social and governance (ESG) policies of portfolio companies. This work improves company performance and gives potential future buyers more confidence that key risks are mitigated.
•    Realizing value with strategic buyers
Strategic buyers overall are the most active acquirers of PE portfolio companies, accounting for about half of all exits. While local strategics continue to play a role, returns are highest for PE when selling to regional corporates.

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