The private equity community therefore believes there is significant scope for private equity and venture capital managers to partner with businesses for growth, expansion and value creation in Southern Africa.
The two-day annual Southern African Venture Capital and Private Equity Association (SAVCA) Private Equity in Southern Africa conference saw industry players discuss their views on major themes and industry trends over the past year, and expectations for the private equity industry and investing in Southern Africa in 2017.
“Collaborations between private equity managers and institutional investors mobilise capital from international and local sources for productive deployment; the teamwork between private equity managers and investee companies builds better businesses, which in turn creates new employment opportunities and shapes healthier communities,” says Erika van der Merwe, the outgoing CEO of SAVCA.
Transactional activity
Both acquisition and the realisations transactional activity was firm over the past year, across the deal-size spectrum and in a range of industry sectors. The SAVCA quarterly data tables, prepared in collaboration with Webber Wentzel, indicates that there were 203 reported acquisitions and 41 exits in Africa during 2016. There were 99 reported deals and 14 exits in Southern Africa over this period. Of the acquisitions, a third were in South Africa, with Nigeria, Kenya and Namibia also featuring prominently.
“We have seen a fair amount of deal activity across the continent; many of the African deals we have seen have been of companies operating across multiple African jurisdictions,” John Bellew, head of private equity at Bowmans, says.
Careful deal selection and due diligence processes, together with mindful support for investee companies, are a clear focus for the industry, to ensure investor returns are maximised while operating in a setting of complexity and competition.
Clive Howell, head of private equity at Nedbank Corporate & Investment Bank, says that the inclination towards auction processes for transactions is evident even in the lower mid-cap space, owing to heightened competition and an increase in the number of private equity managers in the market.
The volatility in both local and international market conditions creates significant challenges for deal-making, as well as uncertainty with increased competition for deal flow amongst private equity managers, other financial buyers and trade buyers.
“Astute fund managers will think very carefully how they manage their portfolios in a low-growth environment. If one is disciplined and cautious, one will be able to do deals and extract value, says Andrew Dewar, managing director of Rockwood Private Equity.
There is notable exit activity in the industry, as fund managers realise portfolio investments using a range of mechanisms. Keith Woodhouse, partner at Hogan Lovells, has seen an increase in secondary buyouts as a way of exiting.
“This demonstrates that the private equity market in Africa is maturing. It is also evidence of some private equity houses needing to achieve exits. This need to exit is typically the case where the funds are reaching the end of their life cycle or where there is a need to support future capital raises.”
According to the SAVCA 2016 Private Equity Industry Survey, the Southern African private equity industry raised some R29bn in 2015. While updated figures for 2016 are still being finalised, there are more than 15 fund managers in the process of targeting funds well in excess of the 2015 total.
There has been a move, notable in developed markets and now a reality in emerging-market regions such as Southern Africa, to list fund entities or vehicles that feed capital raised on public markets into a traditionally structured fund.
Van der Merwe concludes that all indications are that the positive transaction trend will continue into 2017, with a good pipeline of deals already spilling over into the first quarter of 2017. Although competition for institutional capital is intensifying, she similarly expects that the positive fund raising momentum will continue.
She adds that, similar to 2016, SAVCA will remain focused on engaging with local and regional institutional investors about the fruitful impact the asset class offers.
“Contrasted with the global trend being reported, of investors now increasing their private equity allocation, local investors remain relatively underexposed to the asset class.
“SAVCA continues to work towards a more balanced appreciation amongst Southern African investors for the role of the asset class in boosting returns, mitigating risk and in bringing about environmental, social and governance improvements in businesses.”
