By PETER EGWUATU

Ernst & Young has attributed the increased private equity investment in Nigeria and Africa in general to government reforms and increase in Direct Foreign Investment (FDI).

In a study on private equity exits across Africa between 2007 and 2012 carried out by Ernst & Young and African Venture Capital Association (AVCA), it was discovered that   Private Equity (PE)   focused on organic revenue growth in Africa companies, a move that   accounted for approximately two-thirds of the Earning Before Interest , Tax, Depreciation and Amortization (EBITDA).

Regional Managing Partner for West Africa, Ernst & Young, Mr. Henry   Egbiki, who was represented by Mr. Bisi Sanda, during   a discussion   with   some   news men on the findings of the survey said, “ Africa’s economic growth development over the last few   years has been impressive , with many countries across the continent starting to see the benefits of government   and economic reforms and increased FDI flows .”

He stated that with a steady rate on investment, among other things, Development Finance Institutions (DFIs) have enabled the creation of a viable and vibrant private equity market as managers seek to capitalize on Africa’s strong economic growth rates.

According to him, “ Over the last 10 years , Africa’s economic output has increased three fold to US$2t, and 6 African counties have been among the 10 fastest growing economies in the world.”

Sanda   noted that in Africa, the private equity industry is in a phase of relative infancy, stressing that the continent’s stock market , other than the Johannesburg Stock Exchange, are still very small and relatively illiquid and the intermediary networks remain far from complete across the region.

He further stated that private equity houses are clearly working closely with the management teams they back to create value in investee companies. According to him, “This partnership approach is particularly important , given the high incidence of minority stakes in the markets- 80per cent of our sample were minority stakes.

A large part of value creation is implementing new procedures and processes to improve governance, but we have also found much evidence of   PE houses using their networks to full effect to bring in the right expertise and to support portfolio companies in their growth plans.”

In his analysis of the survey, he said “Our analysis of 62 exits for which   we have returns information shows that   PE’s strategic and operational improvements are generating returns of almost double the Johannesburg Stock Exchange All Share Index (ALSI).

And while we may not have a comprehensive sample for this inaugural study, overall, our study demonstrates that Africa’s PE houses are using all the levers at their disposal to find the right businesses and management to back, working in partnership with management teams to improve governance and performance and identifying the best available exit route.”