Broadening horizons- Africa value creation study...Broadening horizons How do private equity...
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Broadening horizons How do private equity investors create value? A joint study of private equity exits in Africa by AVCA and EY
Transcript of Broadening horizons- Africa value creation study...Broadening horizons How do private equity...
Broadening horizonsHow do private equity investors create value? A joint study of private equity exits in Africa by AVCA and EY
Executive summary 4
Foreword 3
Exit activity and performance
6
• Intermediated deals outperform proprietary transactions
in PE portfolio
• Exit enablers in Africa
12
Outlook 20
22
Contacts 23
Contents
to exit successfully in Africa.
important initiative.
Foreword
Michelle Kathryn Essomé African Private Equity and Venture Capital Association
4 How do private equity investors create value?
Executive summary
4 Broadening horizons: How do private equity investors create value?
A study of African exits 5
of its infancy.
for its investors.
expansion into less developed PE markets over recent years.
PE in Africa continues to provide outperformance for its investors over companies exited between 2007 and 2013. Our exit sample
This is the second of our annual studies of how private equity (PE) investors create value in Africa. In our inaugural report, we countered popular opinion about PE in Africa to prove that the industry was making excellent progress in exiting its portfolio companies. We also provided evidence of genuine
involvement in the companies they back.
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6 Broadening horizons: How do private equity investors create value?
Exit activity and performance
6 Broadening horizons: How do private equity investors create value?
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medium term.
Exits fully realized by
2007 to 2013207
Figure 1. Number of PE exits in Africa, 2007–13
34
2007
27
2008
21
2009
34
2010
29
2011
35
2012
27
2013
Figure 2. Exit route, by exit year
53%
12%
12%
15%3%3%3%
2007
37%
15%
11%
11%
19%
4%4%
2008
38%
24%
14%
5%5%
14%20
09
41%
24%
15%
6%
15%
2010
59%
10%
10%7%7%7%
2011
49%
20%
14%
6%3%9%
2012
30%
30%
22%
4%4%
11%
2013
44%
19%
14%
6%4%4%9%
2007
–13
aver
age
Trade Private PE Stock sale on public market
Creditors/banks IPO Other
8 Broadening horizons: How do private equity investors create value?
Figure 3. Number, entry enterprise value (EEV)* and relative performance of exits by region, 2007–13
Excludes outliers.
North Africa:Number of exits: 23% share of EEV: 16%Relative return: 1.1
West Africa:Number of exits: 58% share of EEV: 26%Relative return: 1.2
South Africa:Number of exits: 85% share of EEV: 47%Relative return: 1.1
East Africa:Number of exits: 22% share of EEV: 7%Relative return: 1.4Central Africa:
Number of exits: 3% share of EEV: 0.1%Relative return: 0.6
Southern Africa(excl South Africa):Number of exits: 16% share of EEV: 4%Relative return: 1.0
of exits by number.
companies.
Financial services sector
led to consolidation. Financial services exits also accounted
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Figure 4. Number of exits by sector
19%
12%
9% 9%8% 8%
7% 6%5%
4%3% 3% 2%
1% 1% 1%
0%
5%
10%
15%
20%
25%
Fina
ncia
l ser
vice
s
Indu
stria
l goo
ds
Agr
icul
ture
/for
estr
y
Tele
com
mun
icat
ions
Cons
truc
tion
and
mat
eria
ls
Tech
nolo
gy
Food
and
bev
erag
e
Busi
ness
ser
vice
s
Hea
lth c
are
Trav
el a
nd le
isur
e
Min
ing
and
met
als
Reta
il
Util
ities
/oil
and
gas
Pers
onal
and
hous
ehol
d go
ods
Aut
omob
iles
and
part
s
Med
ia
1-10
46%30-75
16%
10-30
21%
>75
17%Telecommunications $1,319m
Agriculture/forestry $676m
Business services $373m
Industrial goods $295m
Financial services $2,348m
Exits in Africa that had an entry enterprise
46%
10 Broadening horizons: How do private equity investors create value?
experience
improvement in outperformance measured across our exit sample over time. Exits completed between 2007 and 2010 outperformed
African PE continues to outperformOur series of studies on PE value creation across different markets
Markets Index
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
1.0
+0.6
Market return (MSCIEmerging Markets Index)
PE strategic andoperational improvement
PE return
1.6
for exits in 2007–10
for exits in 2011–13
1.0
+0.3
Market return (MSCIEmerging Markets Index)
PE strategic andoperational improvement
PE return
1.3
1.0
+1.1
Market return (MSCIEmerging Markets Index)
PE strategic andoperational improvement
PE return
2.1
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African PE outperforms more
Figure 10. Relative multiples, Africa versus Europe and North America, 2010–12 exits
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.251.20
1.04
1.00
Africa Europe North America
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12 Broadening horizons: How do private equity investors create value?12 Broadening horizons: How do private equity investors create value?
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in many countries.
Figure 11. Relative transaction multiple (entry EV/EBITDA), by entry year bands
1.0
1.3
Up to 2004 2005 onward
Figure 12. Exits by entry EV size band, relative return
1.0
1.3
1.9
1.2
US$1m-US$10m US$10m-US$30m US$30m-US$75m >US$75m
Entry multiples for PE deals completed from 2005 onward versus
+33%
Relative performance of exits with an entry EV
+90%
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Intermediated deals outperform proprietary transactions
Figure 14. Type of process at entry, relative return
Entry years up to 2004
Entry years from 2005 onward
Proprietary 1.3 1.01.0 1.0
Auction 2.0 1.2Figure 13. Auction vs. proprietary, 2007–13 exits, by entry year
Entry years up to 2004
Entry years from 2005 onward
Semi-proprietary,
46%
Auction,
7%
Proprietary,
47%
Auction,
2%
Proprietary,
78%
Semi-proprietary,
20%
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Case study 1
performance
0102030405060708090
100
49
14
25
41
Company: Compagnie de Distribution de Côte d’Ivoire (CDCI) PE investor: Cauris Management Sector: Retail Entry date: October 2007 Exit date: January 2013 Returns: 2.0x
How PE helped the business
• as Cauris was able to source it on a proprietary basis
•
•
•
•
country.
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Entry years up to 2004
Entry years from 2005 onward
1.1 1.1Regional hub 2.0 1.0
2.1 0.8
4.4
4.6
4.8
5.0
5.2
5.4 5.3 years
averagehold period
5.6
5.8
6.0
5.0
6.0
Regional hub
6.0
Case study 2Company: Vitalait PE investor: AfricInvest Fund I and Maghreb Private Equity Fund II Sector: Agribusiness, dairy products Entry date: September 2006 Exit date: December 2011 Returns: 2.2x
How PE helped the business
•
•
•
•
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entry year
Figure 19. Drivers of organic revenue growth, 2007–13 exits, by entry year
Up to 2004 2005 onward All entry years
55%
45%49%
0%
6%3%
0%
10%
20%
30%
40%
50%
60%
Sector growth Geographicexpansion
New products Improvedselling
Change ofoffering
Price increases
27%20%
23%
6%
13%10% 10%
9%9%
2%7%5%
portfolio companies to implement performance improvement
Up to 2004 2005 onward All entry years
-10%0%
10%20%30%40%50%60%70%80%
18%22%
20%11%
16%14%
-4%
0%
-2%
Mar
gin
impr
ovem
ent
Bolt-
onac
quis
ition
s
Disp
osal
s
Org
anic
reve
nue
grow
th
75%67%
62%
Impact of sector expansion on organic revenue growth49
%
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Figure 20. Relative returns by exit route
Exit routeon public market
IPO Trade PE Privatebanks
return2.2x 1.4x 1.3x 1.0x 0.6x 0.1x
6.1 2.7 4.0
Case study 3Company: Southey Holdings PE investor: The Abraaj Group Sector: Industrials Entry date: July 2009 Exit date: May 2013 Returns: 48% (IRR)
How PE helped the business
•
•
•
•
Exit enablers in Africa
currency risk and exposure in an effort to reduce perceived risk
buyer appetites.
Case study 4Company: Moresport PE investor: Ethos Fund V Sector: Retail — sporting goods Entry date: September 2006 Exit date: July 2011 Returns: 3.4x (US$)
How PE helped the business
•
•
•
•
•
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Outlook
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investment opportunities.
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About the study
Latin America and Australasia studies. Data was small sample in Central Africa.
of value creation.
time and input.
About AVCAThe African Private Equity and Venture Capital Association’s (AVCA) mission is to promote and catalyze the private equity and venture capital industry in Africa.
AVCA is a member-supported organization, with members
institutional investors, foundations and endowments,
common purpose: to be part of the African growth story.
AVCA endeavors to deliver its mission through four key pillars: building a knowledge centre of independent research for members and the industry; facilitating networking opportunities and thought leadership events; advocating on behalf of the industry to policymakers, regulators and global investors; and by providing training to investors and emerging fund managers on the asset class and best practice.
Together with a network of experts and collaborators across Africa and beyond, AVCA represents the voice of the pan-African industry in discussions with governments, regulators, lawmakers and the media.
For more information about AVCA, please visit www.avca-africa.org or contact Ashleigh Nelson, Director of Member Services & Communications, at [email protected].
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ContactsAVCAMichelle Kathryn Essomé
Dara Owoyemi
Ponmile Osibo Research Analyst [email protected]
EY
Africa Leader, Transaction Advisory Services [email protected]
Africa Private Equity Leader [email protected]
Jeff Bunder Global Private Equity Leader [email protected]
Michael Rogers Global Deputy Private Equity Leader [email protected]
EMEIA Private Equity Leader [email protected]
Special thanks to:Erika van der Merwe
South African Venture Capital and Private Equity Association
Dorothy Kelso Senior Private Equity Analyst, EY
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