Nigeria trails S/Africa in private equity market, reveals Ernst & Young report

While the private equity (PE) industry in Africa is in a phase of relative infancy, it is far younger in Nigeria than its South African counterpart, reveals a new report by global financial services firm, Ernst & Young.

PE firms are those that use their own capital or capital raised from investors to take companies private with the aim of running them better and later taking them public or selling them at a profit.

The Private Equity Survey shows that a total of 118 exits by PE firms were recorded between 2007 and 2012 in Africa, which shows momentum across all the regions in the continent.

This figure is very encouraging and likely to be higher than many prospective investors and other market participants may have expected, said Ernst & Young.

According to Bisi Sanda, head of transactions advisory services, Ernst & Young Nigeria, who presented the result of the survey in Lagos on Wednesday, PE firms exit when they have completed their investment cycle in a particular company and decide to move on by handing it over to another PE firm.

The survey also found that the exits were not entirely centered around the more developed market in South Africa, which accounts for less than half of PE exits with 42 percent. Instead, the remaining 58 percent of exits were spread across the different regions of Africa.

West Africa accounted for the second-highest proportion, with 25 percent, and the other regions — East Africa, North Africa and Southern Africa (excluding SA) — each accounting for 11 percent of exits.

The larger markets of South Africa, Nigeria, Egypt, Ghana and Kenya were said to have accounted for a large share of the exits, with 74 percent.

According to the report, last year proved to be a good year for exiting PE investments as it saw 22 realisations, up from 18 in 2011 and 20 in 2010.

“In fact, 2012 was the best year for exits by number since before the global crisis in 2007, attesting to the resilience of Africa at a time of global uncertainty,” says the report.

The survey also reveals how the entry of PE investor, African Capital Alliance (ACA), a leading PE firm in Nigeria, into ABC Transport in August 2003 helped in creating value for the business. ACA, which exited the company in February 2008, made returns almost five times the initial investment. 

 

FEMI ASU