Private equity investment more than doubles in Southern Africa

SAVCA 2018 Private Equity Industry Survey highlights include:

•    The Southern African private equity industry investments are up 102% to a total of R31.3 billion in 2017
•    The overall average investment deal size in Southern Africa increased by 54% to R41.7 million
•    There was a 125% increase in follow-on investments made in 2017, the figure was up to R12.2 billion from R5.4 billion.
•    New commitments made during 2017 totalled R18.9 billion, which is an 87% increase on 2016’s R10.1 billion for new investments.
•    The ten-year internal rate of return (IRR) is 11.6% which is 0.9% higher than the JSE All Share Total Return Index (Alsi TRI) in the same period
•    The private equity industry had R158.6 billion in funds under management at the end of 2017

The Southern African private equity industry invested a total of R31.3 billion in 2017, which represents an increase of 102%, up from R15.5 billion the previous year and well above the annual average of R14.7 billion over the preceding 10 years. In addition, South Africa’s private equity capital penetration rose to 0.7% of GDP in 2017, which is sizable when compared with the figures for other developing economies (i.e. 0.06% for Nigeria, 0.05% for Mexico and 0.1% for Brazil).

The Southern African Venture Capital and Private Equity Association (SAVCA), along with 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, for the SAVCA 2018 Private Equity Industry Survey launched on 25 July 2018.

Tanya van Lill, SAVCA CEO said, “The industry exhibited characteristics of resilience, resourcefulness and resoluteness 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. 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 R158.6 billion 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 R7.5 billion, a decrease from the R10.2 billion raised by the industry in 2016. Of the R7.5 billion raised, a total of R3.7 billion (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.

“This resulted in the decrease in the amount of capital raised by the industry. 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 R10.5 billion, with the funds returned to investors during the year amounted to R17.6 billion. In contrast, the annual average funds returned to investors over the preceding five years was R10.9 billion, with disposals averaging R6.8 billion over the 2012-16 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.

Additional highlights from the survey include the significant advances made in terms of transformation, with the number of female professionals within the industry increasing by 8.5%. 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 (the dti) BEE codes scorecard.

Van Lill concludes, “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.”