African exits have in recent times brought cheer to the continent’s private equity industry, recording record highs across all deal sizes. Small-cap player Aruwa Capital Management’s founder and managing partner, Adesuwa Okunbo Rhodes, sits down with senior investment associate Kunle Akinola [pictured] to analyse recent exit trends.
At Aruwa Capital Management, we are focused on constructing our portfolio with exits in mind right from deployment. We have been innovative in structuring our investments to date, and we have been able to showcase five partial exits out of our nine portfolio companies since the start of our fund in October 2019.
Private equity and venture capital deal activity in 2023 has been muted compared to what we saw in 2021 and the first half of 2022. A trend that is encouraging to see is the pace of exits on the continent.
The year 2022 saw a phenomenal increase in private equity exits, delivering $7.3 billion across 77 deals, according to the Global Private Capital Association. This amount is almost triple the value in 2021 and 48% higher in volumes. To put this into context, Africa and Southeast Asia are the only two regions that recorded growth in deal volumes from 2021, with Southeast Asia witnessing an 8% growth in the number of deals.
The number of private capital exits reached an impressive 82 full exits, representing the highest number of exits ever recorded in a single year on the continent. This is according to the African Private Equity & Venture Capital Association (AVCA).
Given the global macroeconomic uncertainty, which is expected to worsen in the short to medium term, private capital fund managers in Africa are being prompted to prioritize exits. Disruptions caused by the coronavirus disease (COVID-19) pandemic have also impelled fund managers to postpone their exit planning and timelines.
Although in the past, the perception has been that exits remain a challenge and hard to come by due to the lack of an active initial public offering (IPO) market, Africa is solidifying itself as the next frontier market for private capital, experiencing a compound annual growth rate (CAGR) of 96% in exit values and 31% in volumes since 2020. It is worthy of note that this data excludes the small-cap mergers and acquisitions (M&As) at venture stages, whose values and activities are mostly unannounced.
Africa’s fundamentals are strong, priming it for significant investment upsides in the private capital market. With a population of 1.2 billion expected to reach 1.8 billion by 2035 and 2.5 billion by 2050, this already presents an attractive case for long-term investments.
The continent also has an average of 19, with a working-age population in Sub-Saharan Africa of over 450 million expected to reach 1.3 billion by 2035, which points to a burgeoning middle class in the long term, with consumer spending estimated to reach $2 trillion by 2035. Combining these with the continent’s mobile phone users of 850 million and over 500 million internet users, we can justify the growth in the continent’s technology sector.
Africa has witnessed growth in participation from strategic investors and financial investors, and according to AVCA, sales to trade buyers represented the most common exit route (48% of the total), followed by exits to private equity and other financial buyers. A record seven IPOs and capital market exits were also reported in Africa in 2022.
We look forward to being able to continue to take advantage of the various exit routes available in the small-cap segment, including sales to trade buyers, self-liquidating and redeemable instruments, sales to larger financial private equity funds, and IPOs.
The significant number of exits in 2022 and 2023 provides us with hope for changing the narrative with regards to exits on the continent, and we are excited to contribute to that through our own achievements at Aruwa Capital.
