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PE firms make 23pc dollar return in East Africa exits

PE funds have become the preferred option for
PE funds have become the preferred option for firms looking to raise money in recent years. FILE PHOTO | NMG 

Private equity (PE) firms exiting East African investments are enjoying dollar returns of up to 23 percent, underlining the attractiveness of the region for venture capital.

PE activity in the region has grown significantly in the past decade, with majority of those that entered the market at the beginning of the decade now exiting after achieving the normal six to eight-year investment cycle for such funds.

The findings are contained in a joint report on East African asset classes by I&M Burbidge Capital and the East Africa Venture Capital Association (EAVCA).

According to the report, the number of PE funds actively investing in the region increased from about 36 in 2014 to 117 in 2018.

“Using data from 18 exits compiled from 10 private equity funds operating in the region and disclosed to us in confidence, the data shows that on average, exit yields ranged between 17 and 23 percent on a dollarised internal rate of return,” say I&M Burbidge and EAVCA in the report.


“It is, however, important to note that exit returns are not a comprehensive indicator of the return capability of an entire fund as a significant number of funds in the region are yet to fully realise their investments and for the latest entrants, fully invest their funds.”

PE funds have become the preferred option for firms looking to raise money in recent years, given the relative ease of contracting an agreement compared to raising funds through a public offer via the capital markets.

Most take up a minority stake in the business they investing in, thus leaving the original owners with a degree of control.

When exiting, the report says, majority of the PE funds prefer to offload their stake to fellow funds, as opposed to selling them to the public through IPOs.

Kenya accounted for 33 exits in the five-year-period, while Uganda and Tanzania had five and two respectively.