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South Africa: Survey Shows Private Equity Growth
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Business Day (Johannesburg)
8 May 2008
Posted to the web 8 May 2008
Regis Nyamakanga
Johannesburg
DESPITE the turbulence in the global financial markets, the appetite for private equity opportunities in SA continued to grow relative to the mature markets overseas, an industry survey has revealed.
The Southern African Venture Capital and Private Equity Association (Savca) and KPMG said in a survey released yesterday that private equity investment in SA grew a huge 250% to R25bn last year, from R7bn in 2006.
The companies said that private equity transactions now accounted for 10% of mergers and acquisitions in SA, while the record fund raising levels indicated that the country continued to be viewed as a strong investment destination by international investors.
Warren Watkins, head of private equity Africa at KPMG, said: "SA has a vibrant private equity market. We are now seeing that funds under management are 2,8% of gross domestic product (GDP) and that we certainly have room for growth given our emerging economic environment.
"This growth can be attributed to the returns that are yielded in relation to other traditional asset classes, as well as the emergence of foreign investors in the South African private equity market," he said.
Watkins said the local private equity industry had grown funds under management 46% to R87bn last year compared with 2006, and that trend was set to continue.
In the past, he said, foreign investors came into SA indirectly via investment in local fund managers, but last year saw more direct investments, including the Edcon-Bain, the Alexander Forbes-Ontario Teachers' and the Consol- Harbourvest deals.
Watkins said there was R32bn undrawn in private equity commitments at the end of last year, up from R25bn a year earlier, indicating that appetite for private equity opportunities abounds in SA.
"This has been a great year for private equity in SA and it is expected to continue. The fund- raising of the past few years shows that even though the credit crunch may delay short-term investment activity, the medium term will be stronger than ever.
"We do see opportunities in the sectors of mining and resources, infrastructure, private healthcare and administrators, agricultural support and renewable resources," he said.
Savca executive officer Joan-Pierre Fourie said the scale of activity in the local private equity industry boded well for the government's growth targets, "as local and international research confirmed that private equity is a key driver of entrepreneurial activity and growth in any economy".
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Although SA's private equity market is small compared with that of the US, Watkins said it was "significant" in relation to many other countries.
In terms of funds under management relative to GDP, SA's private equity industry at 2,8% was higher than the global average of 2,1%, the European average of 1,9%, and 1,1% for Asia Pacific, he said.
SA is listed in 11th place on the global private equity investment activity rankings and 18th in the fund raising activity rankings.
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