South Africa: Private Equity In South Africa – Changes For Growth?

Last Updated: 31 May 2018
Article by Chevan Daniels and Sage Kruger

Most Read Contributor in South Africa, October 2018

Investors globally are constantly searching for growth investments and in South Africa, changing political conditions have sparked a renewed optimism in this area.

Spurred on by the change in political leadership and a favourable upswing in market conditions, investor confidence in South Africa is on the rise. This is echoed in the business confidence index, which increased by 55% from 29 index points in 2017, to 45 earlier this year. As such, investors with their finger on the pulse should consider tapping into the South African private equity ("PE") space.

PE space in South Africa – recent developments

Making the most of Ramaphoria

Only time will tell the extent to which the election of Cyril Ramaphosa as South African president will actually impact the market. However, "Ramaphoria" has put South Africa back into the international spotlight, and there is optimism that the country will reclaim its undisputed title as the premier investment destination in Africa. Goldman Sachs recently stated that South Africa will be the "big emerging market story of 2018". Despite recent economic data showing a decrease in mining production in the first quarter, as well as declining manufacturing output, Goldman Sachs remains bullish about South Africa's growth for 2018, backing South Africa's economy to grow by 2.4% this year, according to a recent Business Report article.

A favourable stable credit rating from Moody's, the strengthening of the rand (although tempered by the strengthening dollar in recent weeks), and the step-up in the state capture inquiry, are all part of the Ramaphoria dividends, which are fuelling increased investor confidence in South Africa. In addition, President Ramaphosa's recent appointment of his specialist investment envoys, Afropulse executive chairperson Phumzile Langeni, former finance minister Trevor Manuel, former deputy finance minister Mcebisi Jonas and former Standard Bank CEO Jacko Maree, also bodes well for economic development, with the president's team seeking to raise USD100-billion for investment into South Africa within the next five years.

The growing list of reasons to list

South Africa benefits from a sophisticated capital markets regime (compared to other African high-growth countries), which continues to develop in ways that seek to overcome the historic obstacles of investment into Africa. The utilisation of permanent capital vehicles listed on the Johannesburg Stock Exchange ("JSE"), allows for long-term investment, the alleviation of exit pressures, a permanent source of capital, and allows the public to co-invest with experienced managers and institutional investors. Last year, Long4Life and, in 2016, Ethos Capital, raised ZAR2-billion and ZAR1.8-billion, respectively, in their IPOs.

Empowering PE

Economic empowerment is opening up new avenues for growth and job creation in the PE industry. In May 2018, the Southern African Venture Capital and Private Equity Association adopted its transformation strategy for the PE industry, which, among other things, aims to make capital available to unlock key operational and strategic constraints for black and female led fund managers. Seed funding and other alternative models are also being explored in order to empower first-time black fund managers. In May 2018, Bayakha Investment Partners announced the launch of their ZAR2-billion Transformational Infrastructure Fund. It is likely that the market will see the establishment of more black-owned funds in the medium term.

Round-up and outlook

Over the past decade, the PE space in South Africa and generally in Africa, has shown remarkable growth, with a total of USD6.5-billion having been raised for African PE between 2011 and 2016, with a total reported deal value over the same period of USD22.7-billion. In 2016 alone, PE investors invested USD3.8-billion in 145 deals across Africa, and in 2017, 49 PE exits were recorded in Africa, the highest on record since 2007. South Africa accounted for 45% of the PE exits in Africa between 2016 and 2017. Paul Boynton, CEO of Old Mutual Alternative Investments, Africa's largest alternative investment manager, expects deal flow in Africa in 2018 to be significantly enhanced due to a "mountain of cash in the system". Despite being a challenging year from a macro environment perspective, 2017 saw PE deals in South Africa test the ZAR1-billion threshold. In September last year, Capitalworks acquired a controlling interest in JSE-listed Sovereign Food Investments through a ZAR907-million cash buy-out. With the increase in business confidence in South Africa, there may well be renewed PE activity in the manufacturing and industrial sectors, and continued investment in the financial services sector, the mining and renewable energy sectors, among others. There may also be an increase in the number of open-ended funds in South Africa. The recent weakening of the rand against the dollar, if it continues, may be favourable to dollar-based PE funds seeking investment opportunities in South Africa, while the decline in manufacturing output may suggest there is value to be had in this sector for astute investors.

Globally, Antoine Dréan, founder and chairman of multinational PE firm Triago, recently reiterated that we are currently in the golden age of PE investment. According to Dréan, USD621-billion was raised in PE funds in 2017 across all PE strategies and regions (a new fundraising record). This excludes the USD1.1-trillion fund managed by the Government Pension Fund Global, Norway's sovereign wealth fund, which is currently eyeing PE investing.


With renewed business optimism in South Africa, PE investors are likely to seek to capitalise on the changing political and economic landscape through the establishment of new PE funds, the deployment of capital, particularly in industries that may previously have been seen as risky due to the prior political climate, and exiting mature investments in an optimistic economic climate where there are likely to be higher returns on investment. Of course, renewed business confidence also means that PE funds may find it hard to obtain value in the market. Thus, while investor confidence is on the rise, there is no free ticket to the party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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