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East Africa misses out on private equity-backed IPOs

Most private equity-backed IPOs (exit of private equity firms from companies through means of an IPO) were recorded at the South Africa’s Johannesburg Stock Exchange(JSE) which tied with the Bourse de Tunis(Tunisia) in terms of number of IPO exits for PE firms.


The East Africa region has not had a private equity-backed Initial Public Offer (IPO) in the last eight years, an industry study has revealed, even as Private equity investments in Africa remains robust.

This comes as the continent registered a total of 187 IPOs between 2010 and 2017, with 28 in 2017 alone. This was a 17.0 per cent increase from the 24 IPOs in 2016.

According to the latest report by the African Private Equity, Venture Capital Association (AVCA) and PricewaterhouseCoopers, most IPOs in Africa have been non-private equity backed.

Private equity backed IPOs over the period constituted 14.3 per cent of total IPOs, compared to an average of 39 per cent and 36 for the United States and the United Kingdom, respectively.

The Nairobi Securities Exchange, Uganda Securities Exchange (USE) Dar es Salaam Stock Exchange (DSE) and Rwanda Stock Exchange (RSE) continued on a dry-spell of this type of investment.

Most private equity-backed IPOs  (exit of private equity firms from companies through means of an IPO) were recorded at the South Africa’s Johannesburg Stock Exchange(JSE) which tied with the Bourse de Tunis(Tunisia) in terms of number of IPO exits for PE firms.

During the period, the two markets had nine PE backed IPOs each over the period, followed by the Bourse de Casablanca in Morocco, which had four PE-backed IPOs over the period.

The Egyptian Exchange (EGX) had two PE-backed IPOs.

“The Nairobi Securities Exchange did not have any PE backed IPO over this period,” the survey notes.

In terms of total proceeds raised from these IPOs, the Johannesburg Stock Exchange (JSE) led with 58.8 per cent of the total proceeds raised.

“This affinity towards the JSE for PE backed exits can be attributed to the investor confidence in the market given the reputation of South Africa as an investment hub,” Investment managers at Nairobi based firm-Cytonn Investment noted.

The London Stock Exchange(LSE) played a role in investments in the sub-Sahara region which saw it linked to the markets with two PE backed IPOs.

The LSE has been actively working to ensure that more African companies list on the LSE, with efforts to ease the process, as well as partnering with African bourses to have companies achieve parallel listings locally and on the LSE.

JSE still led the pack, with three out of the top five IPO backed companies in terms of capital raised having listed on the JSE, with 58.8 per cent of the total proceeds being raised between the nine companies that were listed.

The consumer goods and the financial services industries boasted the greatest number of PE- backed IPOs, with each having seven out of 32 PE-backed IPOs.

These sectors raised a total of US$544 million and US$468 million respectively.

In terms of the proceeds raised, healthcare led with US$1.1 billion of proceeds raised, followed by consumer goods, which had US$521.1 million of proceeds raised.

Financial services came in third, accounting for 16.0 per cent of the proceeds raised. This is largely due to the huge growth in the financial services industry in Africa, and the high opportunities for growth in the sector driven by inherent increase in consumption expenditure and a rise in the percentage of the population requiring financial services.

Other factors include low financial inclusion which presents ample runway for growth and incorporation of technology to improve efficiency in operations and increase coverage.

One of the most notable IPOs was in 2014, by Alexander Forbes, with the exit of PE Firms Actis, Harbourvest Partners and Ethos Private Equity from the fund manager, who collectively owned 70 per cent of Alexander Forbes.

Alexander Forbes had initially gone private after it was bought by Actis in 2007. Another notable PE backed IPO was the exit of Helios from Vivo through a dual-listing on the LSE and the JSE, being the first PE exit via an IPO on both the LSE and the JSE.

Investment firm Cytonn has since noted that the number of IPO exits still remain low, at four in 2017, compared to 24 non-PE backed IPOs in 2017.

“We expect this trend of PE firms exiting by way of IPOs to remain considerably low given the tedious procedures involved in a company going the IPO way,” firm said.

According to Cytonn, a shift in this trend is only achievable if there is an improvement in the local capital markets by putting in place measures that will  encourage firms to list and improve investors’ participation in IPOs.

This can be done by making the process of companies going public by means of an IPO easier, encouraging disclosures for non-listed companies in order to improve transparency and accessibility of information, which boosts investor confidence, making it easier for firms to raise capital during IPOs.

Another way is by encouraging foreign participation through improved regulation, good economic fundamentals and empowering private initiatives, Cytonn notes.

Private equity investments in Africa however remains robust as evidenced by the increasing investor interest, which is attributed to rapid urbanization, attractive valuations in Sub Saharan Africa’s private markets compared to its public markets and the attractive valuations in Sub Saharan Africa’s markets compared to global markets.

The region also has a better economic projections compared to global markets.

“We remain bullish on PE as an asset class in Sub-Sahara Africa. Going forward, the increasing investor interest and stable macro-economic environment will continue to boost deal flow into African markets,” Cytonn noted in a review of the market.

Earlier this year, stockbrokers in Kenya said the country’s capital market requires a major IPO to rejuvenate the market,calling for an end to the drought of IPO’s at the Nairobi bourse.

Source: The Exchange

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