Median EV/EBITDA multiples of listed equity in Africa have trended downward since the end of 2013. Conversely, median private equity multiples have steadily increased. There is a convergence of private equity and listed equity multiples at around 8x EV/EBITDA. A similar trend was observed after the GFC in the US, where a flight to quality resulted in deal pricing being higher, against expectation.

Between 2009 and 2013 over half of private equity transactions took place at lower than a 6x multiple. Private equity multiples
have since grown to reach 7.8x at 2016. Over 30% of reported transactions in 2015 and 2016 took place at greater than a 10x
multiple, while this was less than 20% of cases in earlier periods.

Of the African transactions with reported Enterprise Value, just over half of companies entered by private equity funds from 2009 to 2016 reflected a Net Debt position on their balance sheets. The average Debt/EBITDA position of these companies was 2.05x over the period, dropping to 1.79x if 2010 is excluded. The median Debt/ EBITDA multiple was 2.14x at 2016, a slight increase compared to 2015, while Equity/EBITDA remained fairly unchanged.

The consistently low level of debt indicates that Africa’s private equity industry is still not debt driven, with poorly developed debt markets. Most fluctuation in multiples relates to investors’ availability and willingness to provide equity funding. Private equity firms can provide financing where obtaining affordable debt is not viable, as is the case across many African countries.

For the first time since 2009, the increase in multiples in the US was funded by equity rather than debt, with the norm being a relatively fixed margin being added onto the amount of debt that can be raised. However, debt remains more of a determinant of the multiples paid for private equity transactions in the US and the availability of debt within the US market remains a contributor to fluctuations in multiples.