The Ugandan business ecosystem was awash with excitement when Tony Natif’s Guardian Health Pharmacy was acquired by Kenya’s MyDawa for an undisclosed amount. However, one of the biggest winners in that deal was the private equity firm, Ascent Africa which owned a controlling stake in the pharmacy chain.
This deal was a major exit for a private equity firm, in a region where such milestones are rare. For those who may not understand it, the term ‘exit’ holds significant importance and is often used to denote the process through which a private equity firm or investor realizes a return on their investment. Essentially, an exit in private equity is the method by which the private equity firm or investor liquidates their stake in a company, thereby making a profit or loss based on the difference between the purchase price and the selling price. This process is a critical component of the private equity investment cycle, as it is the stage at which the investor reaps the financial rewards of their investment.
But exits usually happen in the more mature ecosystems and are rare in virgin ecosystems. According to a report by the East Africa Private Equity and Venture Capital Association (EAVCA), there were only 51 private equity exits in 10 years (2013-2023) out of 427 investments that happened during that timeframe.
But these exits are not equitably distributed. Kenya alone accounted for 71% (or 36) of all exits. No other country managed double-digit exit deals with Uganda, in second, managing just 8. Rwanda (3), Tanzania (2) and Ethiopia (1) followed.
However, the data has some limitations. The EAVCA suspects that the deals could be more. “Whilst the data suggests only 51 exits over the last decade, anecdotal evidence suggests a higher number on account of investments that are exited to founders and management and not disclosed,” EAVCA said in a statement. “The data also does not capture investments that are exited via forced liquidation.”
In terms of the exits, there has only been one Initial Public Offering (IPO), which is the process through which a private company becomes a publicly traded company by issuing shares of its stock to the public for the first time.
The more popular exit types have been ‘selling to trade players where a private equity firm sells its stake in a portfolio company to a strategic buyer, often a larger company operating in the same industry. As well as secondary and management buyouts.
A secondary buyout occurs when a private equity firm sells its stake in a portfolio company to another private equity firm. This strategy is often pursued when the selling firm has maximized the value it can extract from the portfolio company and believes that another firm with a different set of skills or resources may be able to further enhance the company’s value. An MBO, on the other hand, involves the management team of the portfolio company buying out the private equity firm’s stake. This strategy is often pursued when the management team believes it can continue to grow the company and create value on its own, without the need for private equity backing.
However, the EAVCA recognizes the complexity of exits in a young market. “Private equity exits are hugely topical in the private equity community in East Africa both for their complexity and somewhat elusive nature as evidenced by the contrast in publicly disclosed private equity primary (money-in) transactions as compared to private equity exits,” EAVCA added in a report.