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In Deals to Dollars: Navigating Successful Private Equity Exits in Africa publication, Boston Consulting Group (BCG), draws on proprietary data from over 380 deals and interviews with leading investors, as well an analysis of historical capital flows and PE-specific transaction data, to highlight and address the critical issue of exit challenges that affect investor confidence in the African region.

One of the most significant findings is the perception of a weak exit climate in Africa, which is identified as a leading deterrent for potential investors. Critically, 71% of Limited Partners (LPs) cite a weak exit climate and unpredictable exit windows as the biggest challenges to investing in Africa. This sentiment is worsened by global geopolitical and macroeconomic instability. The publication highlights that while the majority of private capital transaction activity in Africa over the past 23 years has been exit-related, showing some level of liquidity, there has been a concerning 26% per annum decline in exit-related transaction value between 2021 and 2023.

Furthermore, the proportion of exit activity compared to incoming capital – Venture Capital, growth equity, PE, and private debt – has fallen from 70% in 2000 to 55% in recent years. This shift suggests a changing dynamic in the African investment landscape, with potentially more capital being deployed than is being returned through successful exits.

Katie Hill, Partner and Associate Director, Climate at BCG in Nairobi and member of the Principal Investors & Private Equity practice, comments, “Navigating the African PE exit landscape requires a nuanced and proactive approach. By understanding the prevailing challenges and implementing tailored strategies, investors can enhance their chances of successful exits and contribute to the continued growth of the region’s investment ecosystem.”

Closer examination of PE investor exits reveals that average holding times in Africa, at six to seven years, are slightly longer than international benchmarks at five to six years. Notably, there has been a clear decline in the share of swift exits, indicating a growing pool of potentially unsold assets within PE portfolios. Trade sales are still the most common PE exit path across industries, accounting for 40-60% of exits, aligning with global trends. However, the increasing prevalence of secondary deals (PE to PE transactions), have steadily risen over the last decade from 15% to 30% of exits.

This trend underscores the growing incidence of asset transfers among PE firms, often involving consortia for larger transactions. In contrast, Initial Public Offerings (IPOs) on average represent 10% of total reported PE exits but have declined in recent years. This decline is attributed to weakening local stock exchanges, although some markets like Casablanca and the Egyptian Exchange have shown more resilience.

Warren Chetty, Managing Director & Partner at BCG in Johannesburg adds, “Our analysis highlights the importance of strategic flexibility and meticulous preparation throughout the investment lifecycle. A clear focus on exit from the outset, coupled with a deep understanding of local market dynamics, is paramount for achieving favourable outcomes in African private equity.”

Patterns observed in the entry transactions of successfully exited deals find that buyouts from founders, owners, or families account for the largest share of exited companies at 46%, compared to only 31% of non-exited positions. Furthermore, holding majority positions in portfolio companies was twice as likely to result in an exit compared to minority positions. Conversely, un-exited positions are more likely to have originated from Venture Capital, growth equity, or other PE entry transactions. This suggests that the initial deal structure and level of control significantly influence the likelihood of a successful exit.

From a sector perspective, the research shows that more mature sectors tend to exhibit the highest proportion of exits, specifically mining and oil & gas, industrials, financial services, and food & agriculture. Consistent with overall trends, trade sales are the most common exit strategy across all industries. However, IPOs are more prevalent in the financial services and retail & consumer sectors, accounting for 15% of analysed exits in these areas. These findings offer valuable insights for investors regarding sector-specific exit dynamics.

Given the current exit landscape in Africa, several key recommendations for investors are highlighted from the findings, spanning from fund setup to individual exits. These include the crucial need to ensure control and stakeholder alignment, as the data shows significantly higher exit rates for majority positions. Investors are also advised to avoid the penalty for holding oversized assets, as there are limited active buyers for deals exceeding $300 million.

The insights provided stress the importance of identifying potential buyers early and assuming that corporates will be the primary target for exits, given that one in two exits are trade sales. In addition, investors should pursue IPOs only under unique circumstances and with specific company characteristics, considering the recent decline in IPO activity and the challenges associated with local stock exchanges.

Fundamentally, the research shows that PE firms demonstrate early exits, even at moderate returns, as African LPs are keen to see evidence of early cash payback, underscoring the necessity to plan for exit as rigorously as the initial investment, highlighting that a robust execution process is critical for navigating market volatility and information asymmetry.

Ultimately, while the African PE landscape presents unique challenges, a deliberate and concerted approach that combines strategic flexibility, a strong focus on exits, and thorough preparation can help investors navigate these complexities and achieve sustainable success.

Boston Consulting Group is a management consulting firm, founded in 1963, and with offices in over 50 countries, including Egypt, Morocco, South Africa, Nigeria, and Kenya.