22 May 2009
South Africa’s private equity industry breached the R100-billion mark for the first time in 2008, despite the global economic meltdown and a slowdown in local merger and acquisition activity.
And according to the 10th annual survey of the local industry from KPMG and the SA Venture Capital and Private Equity Association (Savca), R29.2-billion in commitments remained undrawn and could be used for further investment.
The survey, released in Johannesburg this week, found that private equity had attracted R23-billion in foreign direct investment (FDI) into South Africa over the last three years.
South Africa’s private equity funds under management (excluding undrawn commitments) grew to R103.1-billion or 3.2% of gross domestic product (GDP) in 2008, well ahead of the global average of 2.7%.
This represented a 14.4% compound annual growth rate over the last decade, with funds under management standing at R30.7-billion in 1999.
“These figures are a positive reflection on the achievements of the South African private equity industry,” KPMG’s head of private equity markets for Africa, Warren Watkins, said in a statement.
“Although South Africa is not immune to developments in the global economy, we currently appear to be better off than other private equity markets,” Watkins added. “This could be due to South Africa’s ongoing infrastructure spend and limited ‘credit crunch’ exposure.”
Given the absence of the large public-to-private deals in 2008 compared to 2007, when deals involving Edcon, Alexander Forbes, Primedia and Consol boosted the figures, it was “no surprise” to see private equity investments falling from R26.1-billion in 2007 to R23.1-billion in 2008.
South Africa’s private equity sector “maintained a lingering exuberance from 2007 through the first half of 2008 and then became more subdued in the second half,” the survey found, the net result being overall growth of 19.5%, from R86.3-billion held at December 2007 to R103.1-billion at December 2008.
Black economic empowerment (BEE) private equity deals grew by 38.1% over the same period, from R11.8-billion in 2007 to R16.3-billion in 2008, while private equity funds valued at R68.6-billion were under the management of entities that are either black owned, empowered or influenced. This was up 16.3% from R59-billion in 2007.
There was reason for “cautious optimism” for South Africa, Watkins said, particularly regarding the prospect of lower interest rates and the forthcoming 2010 Fifa World Cup.
Savca executive officer JP Fourie said the scale of activity in the country’s private equity industry “continues to outperform most of the major international economies, which bodes well for South Africa’s government-stated growth targets, as local and international research confirms that private equity investment is a key driver of entrepreneurial activity and growth in any economys.”
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