In Africa before 2012, the multiples price range could be gauged by the transaction price brackets. 34% of transactions were taking place in the 2.5x – 5x bracket. The period post-2012 paints a bit of a different picture, with a combined 75% of transactions taking place above 5x.
Compared to the US however, the number of transactions occurring in the 7.5x plus category are still substantially lower, with more transactions sitting in the 5x – 7.5x bracket.
The reasons for these higher multiples could be attributed to a number of factors. One of the common reasons for a multiple greater than 7.5x is high growth expectations, particularly where this growth is expected in the short term. In addition to this, perceived risk on the continent may have declined, as investors become more comfortable with the environment leading to a reduction in discounts for risk adjustments.
Another factor is that increased competition in the market on the back of higher fundraising is forcing investors to bid higher to secure deals, resulting in more highly priced entry multiples.