Private equity continues to play a key role in bringing companies to the African market, according to a report issued in South Africa today by PwC and the African Private Equity and Venture Capital Association (AVCA). The report – Africa Private Equity-backed IPOs 2010-2017 – provides a historic analysis of private-equity backed and non-private equity-backed IPOs between 2010 and 2017 on exchanges throughout Africa, as well as IPOs by African companies on international exchanges.
Enitan Obasanjo-Adeleye, Head of Research at AVCA, says: “We’re excited to have worked with PwC to highlight private equity-backed IPO activity on the African continent. The capital markets play a fundamental role in the efficient allocation of capital and are a critical exit route for private equity globally. We have long noted that the proportion of private equity exits through IPOs in Africa is lower relative to markets such as the US and UK. This publication now provides data which will be important for ongoing dialogue around measures that need to be taken to narrow this gap.”
Over the period from 2010 to 2017, African private equity-backed IPOs as a percentage of total IPOs averaged just 16% in terms of volume and 23% in terms of value. In comparison, over the same period, PE-backed IPOs in the US and the UK averaged 39% and 36% in terms of volume, respectively, and 44% and 45% in terms of value, respectively.
During the period under review, there have been 30 African private equity-backed IPOs raising a total of $3 billion. As with equity capital markets activity in general, the JSE has led African exchanges as an exit destination for PE-backed IPOs in terms of value of private-equity backed IPOs, with nearly $2 billion raised. The JSE and Bourse de Tunis led as exit destinations for the period 2010-2017 in terms of volume with nine private equity-backed IPOs each.
An analysis of post-IPO performance shows that private-equity backed IPOs in sub-Saharan Africa showed a price return of 27% higher than their offer price, on average, over a one-year time horizon post-IPO, which closely approximates the performance of their non-private equity backed IPO peers of 30%. Performance of North African shares over the same time horizon differed, with post-IPO performance returning only 0% and 8% growth over the offer price for private equity floats and non-private equity floats, respectively.
Andrew Del Boccio, PwC Capital Markets partner based in Johannesburg, says: “Private equity funds backed a combined 16% of the IPOs in Africa between 2010 and 2017, with average one year returns on sub-Saharan Africa transactions closely in line with non-private equity IPOs. This suggests an opportunity to further explore the capital markets as a plausible exit strategy for private equity investments in the region.”
Over the period under review, the consumer goods sector represented the largest number of African PE-backed exits on the capital markets, with seven IPOs raising $544m. Next was the financial services sector with seven IPOs raising $468 million. Included in the proceeds was the 2014 $348 million IPO of Alexander Forbes on the JSE, constituting 12% of total private-equity backed IPO capital raised. In terms of value, the healthcare sector represented the highest proceeds raised, with $1.1 billion, or 38% of all proceeds raised between 2010 and 2017. Of the $1.1 billion raised, Life Healthcare Group’s 2010 listing on the JSE accounted for over 56% of the proceeds raised.
Not captured in our analysis, was the $891 million dual listing of Vivo Energy on the JSE and London Stock Exchange, which took place in May 2018 and raised more capital than any African private equity-backed IPO since 2010. Alice Tomdio, PwC Capital Markets Director based in Lagos, adds: “The Vivo Energy IPO is clear evidence that the IPO market is open to companies with attractive equity stories and a proven track record of growth. While it is evident that the IPO markets in Africa lack the same profile as an exit destination when compared to more established markets, we hope that the Vivo story inspired private equity houses to seriously consider IPOs as an exit route.”
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