and exit those companies successfully, new funds will be attracted to the market. Also, more companies and entrepreneurs will be willing to consider private equity and venture capital as a source of financing. However, in Kenya, exits have been challenging for various reasons.

While the public markets can provide an important path to liquidity, private equity investors in Kenya and East Africa have rarely accessed the public markets to generate exits. Given SMEs comprise a large number of investments, many of the companies in which they invest lack sufficient scale to consider filing for an IPO. Instead, the most viable exit strategies for PE and VC investors in Kenya and the East Africa region are buybacks, trade sales and secondary sales. While data for Kenya alone are not available, between 2007 and 2014, there were a total of 21 exits by PE funds in East Africa (totaling US$260 million). Of this total, 52 percent of exits were achieved via share buybacks.<sup>20</sup> Of the remainder, six exits came through sales to strategic investors, one was a sale to a financial investor and one resulted from a listing. The sole listing, executed by Actis Capital portfolio company Umeme, took place in Uganda.<sup>21</sup> The paucity of IPOs in Kenya has not been lost upon investment managers. In general, private equity investors in Kenya expect to exit their investments via strategic investors, financial sponsors, or refinancing. A survey of private equity investors in East Africa over two consecutive years found that no respondents anticipated that they would exit an investment via an IPO in the next 12 months. Instead, they expected to exit their investments via a sale to a strategic investor, a secondary exit to another private equity player, or a refinancing. _A detailed discussion of the Kenyan capital markets and the environment for IPOs is provided in Section IV.B: Capital Markets Overview._

**Table 10: Exit Expectations of Private Equity Investors During the Next 12 Months**

||**2015**|**3016**|
|---|---|---|
|Sale to a Strategic|85%|65%|
|Secondary Sale to Private Equity|8%|30%|
|Partial Exit via Refinancing|0%|5%|
|No Exits Expected|7%|0%|
|IPO|0%|0%|
|Total|100%|100%|

_Source: Deloitte_ An emerging area of interest among PE funds in Kenya that could impact deal structuring is the advent of alternative fund structures, such as the PCV model. PCVs seek to address a fundamental tension that exists in private equity, especially one that is present when the asset class is adapted to emerging markets. Traditionally, private equity firms have operated with fixed fund lives of 10 years (that typically can be extended by two years). In such a case, a fund must deploy all its capital and exit all its investments within that time, with most investments requiring 3-7 years from investment to exit. While achieving this timeline is realistic in developed markets, is can be much harder to achieve in developing economies, where exits can be impeded by macroeconomic volatility and shallow capital markets. As a result, investors may need more time than a traditional fund structure can offer. A PCV is a fund that has a much longer fund life (for example, 20 years) or is even structured as an evergreen fund, meaning that it does not expire.

> 20 KPMG/EAVCA (June 2015).

> 21 Reuters (October 12, 2012). "Uganda power firm Umeme prices IPO at 275 shillings per share".

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