The most critical aspect of a successful deal exit is timing.

This is according to Jacci Myburgh, Co-head of Old Mutual Private Equity (OMPE), a division of Old Mutual Alternative Investments (OMAI). Speaking ahead of the 19th annual AVCA Conference and VC Summit, the largest Africa-focused private capital gathering globally, taking place in Cairo in May 2023, Myburgh says, having exited 21 investments since inception, OMPE has learnt that there are several considerations to timing an exit well.

“When a private equity manager invests in a business and partners with its management, its aim is to implement value- enhancing strategies over the course of the investment period. These strategies often take time to come to fruition, and an early exit is not ideal. It is therefore of utmost importance to consider the business-specific factors of where one is positioned on the J-curve of enhancing returns,” explains Myburgh.

He adds that a conducive environment is just as important.

“Valuation levels in the market - which often move in cycles as well as the dynamics of the supply and demand of private capital need to be considered before timing an exit,” he says.

In late 2022 OMPE entered into an agreement to sell beauty retailer Sorbet – having acquired the business as part of the previously listed Long4Life group in March 2022 – to health and beauty retailer, Clicks Group. The sale is subject to the approval of the Competition Authorities. “We always knew we would sell the business, given its size in the overall portfolio. Knowing this made preparing for the exit even more important. With Clicks already being a 25% shareholder, it made sense for them to take full ownership of the franchise,” says Myburgh, saying that the timing and the shareholding structure lent the deal to a successful exit.

An additional key consideration is the level of interest from foreign investors into South Africa.

“We know that exits to offshore strategic buyers typically attract higher multiples and although South Africa has seen a lack of interest from foreign investors during the State Capture years and during the COVID-19 pandemic, that trend is changing.”

Alignment is another essential factor.

“We always ensure that we are in alignment with our fellow shareholders as well as with the business’ management team. We typically provide management with financial incentives that crystallize on exit to ensure that they are strongly incentivised to maximise value on exit. It is key that this alignment is addressed prior to making the investment.”

Finally, the exit process needs to be rigorous.

“This starts with the selection of the appropriate advisor, who possesses strengths that align with the exit strategy at hand. For example, the selection of the advisor may differ depending on whether the preferred exit route is an IPO, a trade sale, or a sale to a financial buyer, local or offshore. The process itself needs to create pricing tension to extract maximum value.”

OMPE’s 2022 Consol exit is a great case study.

“When we first looked at an IPO of Consol in 2018, we were not comfortable with the valuation due to a function of the timing and other market dynamics. Our eventual sale to a foreign strategic investor, at a time when the company was performing well, alongside a strongly aligned management team and fellow shareholders, with the help of the right advisors (with significant recent experience in M&A transactions in glass packaging globally), led to us exiting to a great owner of the asset in Ardagh Glass at a very attractive price,” concludes Myburgh.