Private Equity Developments in Africa
The Private Equity industry in South Africa and Sub Saharan Africa is receiving a significant amount of interest and funding. In 2012, funds raised in for South African private equity funds amounted to R14.4 billion. This was marginally less than the peak in 2007 of R15.4 billion.
The funds raised for 2013 are to be expected in excess of R40 billion given all the public announcements. In addition, a further R120 billion has been raised for Africa (excluding South Africa). This fund raising is unprecedented.
The search for growth remains high and Africa’s growing consumer base appears to the catalyst. Hopefully the subdued markets will release realistically priced opportunities for the industry. Growth into Africa, through follow on investments, remains the chosen path for many South African funds. With the election date announced the rhetoric will increase. A steady hand will be required until normality returns, which it will.
Interesting insights around the private equity industry emerged at the Private Equity Southern Africa 2014 Conference. Michael Rudnicki, Partner at KPMG Corporate Tax, participated in the fund-manager roundtable discussion titled, ‘Deal flow dynamics in Southern Africa’. A fascinating theme that surfaced was tech start-ups in the private equity industry, with the digital wave taking over business all over the globe, will be great see the progressive shift.
In the calendar year 2012, the local private equity industry added 10.4% to its total funds under management, which closed at R126.4 billion. The 2012 growth surpasses the previous four years’ combined cumulative growth of only 4.6%.
Results come from the annual Venture Capital and Private Equity Industry Performance Survey of South Africa conducted by KPMG and the South African Venture Capital and Private Equity Association (SAVCA).
Exits in 2012 were significantly reduced at R7.0 billion (R25.7 billion in 2012). “As far as exits are concerned, the industry is under pressure. Many of the larger funds are maturing and will be required to dispose of their portfolio companies over the next two years. Exits through listings are a possibility”, says Watkins.
Regulation in the private equity industry has increased significantly and mostly relates to tax issues. “Regulation will have an impact on the industry, particularly in the way that deals are structured relating to offshore debt,” says Watkins, “but, importantly, the industry is clear on the regulations and understands the framework within which it needs to operate.”
The private equity industry again entrenched and facilitated Black Economic Empowerment through both its management companies and their portfolio investments. Investments classified as non-empowered account for only 25.2 percent of the industry’s total funds under management.
“The life cycle of the South African private equity industry, being the raising of funds, acquiring companies and their ultimate disposal is in motion again after three years of near dormancy,” says Warren Watkins, KPMG Partner, Private Equity South Africa.