Private equity investment in Southern Africa more than doubles

Cape Town - Private equity investment in Southern Africa more than doubled (102%) in 2017 to a total of R31.3bn, according to the Southern African Venture Capital and Private Equity Association (SAVCA) 2018 Private Equity Industry Survey released on Thursday.

This is well above the total annual average of R14.7bn over the previous 10 years.

SAVCA and its research partner Deloitte surveyed 47 fund managers representing a total of 80 funds, all with the mandate to invest in Southern Africa and other select African markets. Although this is the 18th edition of the survey, it is the first time Deloitte has been involved.

According to Clinton Wolder of Deloitte, there is a lot of "hunger for investment" in private equity in Africa and a need for quality assets. He said "money is ready to go" to anything linked to consumers - for instance agriculture, financial services and food and drink.

"The Southern African market is agile and can adjust to a changing political environment. The private equity sector is a well-established asset class in the area," he said.

The survey shows that the overall average investment deal size in Southern Africa increased by 54% to R41.7m in 2017. New commitments made during 2017 totalled R18.9bn, which is an 87% increase on the total of R10.1bn for new investments in 2016.   

At a information session in Cape Town, SAVCA CEO Tanya van Lill said the industry showed resilience and resourcefulness in the past year. It delivered a ten-year internal rate of return (IRR) of 11.6% compared to the 10.7% from the JSE Alsi TRI over the same period. In her view, this shows that, as an asset class, private equity has been consistent in its outperformance of listed equity.

The research showed that Southern Africa’s private equity industry, which is made up of both government and private funds, had R158.6bn in funds under management (FUM) as at 31 December 2017. This represents a compound annual growth rate of 9.4% since 1999, when SAVCA first began collecting industry data for the survey.

The Southern African private equity industry in 2017 raised R7.5bn, a decrease from the R10.2bn raised by the industry in 2016. Of the R7.5bn raised, a total of R3.7bn (49.9%) came from South African sources. This is a decline from the 73.5% that was sourced from South Africa in 2016.

Van Lill attributed the decrease to the cyclical downturn in fundraising activity which was likely exacerbated by the challenging economic and political environment in South Africa in 2017.

“The private equity life cycle means that focus periodically shifts from the fund-raising mandate, investment, and finally the realisation of returns. The focus for this period was certainly on deploying investment funds,” she said.

There were 69 disposals made during 2017 totalling R10.5bn, while the funds returned to investors during the year amounted to R17.6bn. In contrast, the annual average funds returned to investors over the preceding five years was R10.9bn, with disposals averaging R6.8bn over the 2012 to 2016 period.

The most popular disposals, in value terms, were sales to other private equity firms or financial institutions. By volume, the most popular method of disposal was sales to management.

Van Lill said she is pleased with the survey showing significant advances had been made in terms of transformation, with the number of female professionals within the industry increasing by 8.5%. Also, of the investments made during 2017, 36.9% were made in businesses with ratings levels of between 1 and 4 on the Department of Trade and Industry's BEE codes scorecard.

“The significant increase in the amount invested reveals the industry’s resourcefulness, which was required to achieve those figures within a challenging investment environment. This resourcefulness is further confirmed by the increase in the total number of investments which went up from the 574 in 2016 to 750 in 2017,” Van Lill concluded.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
16.19
(-0.10)
ZAR/GBP
21.11
(-0.12)
ZAR/EUR
19.19
(-0.12)
ZAR/AUD
11.55
(-0.13)
ZAR/JPY
0.15
(-0.14)
Gold
1901.55
(+0.01)
Silver
24.57
(+0.10)
Platinum
902.03
(+0.40)
Brent Crude
41.85
(-1.66)
Palladium
2378.04
(+0.61)
All Share
55339.58
(+0.99)
Top 40
50692.28
(+0.83)
Financial 15
10790.70
(+3.99)
Industrial 25
74905.70
(+1.05)
Resource 10
52561.57
(-0.49)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
24% - 66 votes
No, I did not.
51% - 143 votes
My landlord refused
25% - 70 votes
Vote