Private equity plays an inferior role in African IPO activity

01 October 2018 3 min. read
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Despite being a popular method of exiting across the globe, exits via initial public offerings (IPOs) continue to be an unpopular option for private equity firms across Africa, according to a new report from global professional services firm PwC. The report is based on analysis of activity from 2010 to 2017.

In collaboration with the African Private Equity and Venture Capital Association, Big Four accounting and advisory firm PwC has conducted in-depth analysis of portfolio companies in Africa between 2010 and 2017, with a specific focus on their private-equity-backed IPO activity.

The research covered a number of factors, which includes detailed comparisons of the volume and value of IPOs, pricing and performance – spanning both private-equity backed and non-private-equity backed activity. The latter has historically dominated most IPO activity on the continent.Non-PE IPO activity + PE IPO activityOther exit strategies that have been popular in Africa include primary sales to investors on the market or secondary sales to financial investors, or even other private equity firms. As a result, the report found a particularly low ratio of private-equity backed exits on the continent between 2010 and 2017.

In terms of volume, private-equity-backed deals comprised merely 16% of the total IPO activity on average, while this registered a mild increase to 23% in terms of value. According to the report, this is substantially lower than economies across the globe, both developing and developed.

In the UK, for instance, private-equity-backed deals comprise nearly 40% in terms of volume, and nearly 45% in terms of value, while the US registers 36% in terms of volume, generating 45% of the value. Capital markets across Africa are growing rapidly, which indicates the need for private equity to play a greater role in the IPO markets.

A worrying trend registered by the report is a decline in private-equity-backed IPO deals since 2010, when the numbers stood at five deals generating over $1 billion. By 2011, the number of deals had dropped to 3 deals, which generated less than $200 billion, followed by a further decline in value for 2012.Volume and value of PE-backed IPOs by industry2017 saw an increasing role for private equity from 2016 – with 4 deals generating nearly $400 billion, but was still considerably lower than 2015 in terms of value, when 4 deals cumulatively generated over $600 million. Non-private-equity-backed deals also saw a considerable increase between 2016 and 2017. 

Zooming in, the highest number of private-equity-backed IPOs on the continent were registered by the Johannesburg Stock Exchange and the Bourse de Tunis, although the former generated a much higher value of nearly $1.9 billion compared to just short of $200 million generated by the latter.

Viewed by sector, the consumer goods and financials industries dominated the number of private-equity-backed IPOs in terms of volume, comprising 23% each, although the healthcare sector dominated the segment in terms of value generated with 38% of the total proceeds from just 17% of the total number of deals.