Some 14 funds raised capital for late stage funds and six funds raised capital for early stage funds. Photo: Natalia Silych
Some 14 funds raised capital for late stage funds and six funds raised capital for early stage funds. Photo: Natalia Silych

Private equity investment to SA slides since last year

By Given Majola Time of article published Sep 7, 2021

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The Savca 2021 Private Equity Industry Survey showed that fundraising declined in 2020 to R16.9 billion as South Africa battled to attract capital from foreign investors amid Covid-19, but this year, was seeing a sharp uptick in investment activity.

Southern African Venture Capital and Private Equity Association (Savca) Chief Executive, Tanya van Lill, said, when looking at the fundraising figure, it showed that it would be a challenge to attract capital from foreign investors as this figure was substantially lower than in previous years.

“We would need to successfully sell South Africa and Southern Africa as a viable investment destination to foreign investors, and compete with all other emerging markets for capital,” said Van Lill.

However, she said what was encouraging, was that the majority of the funds raised were from South African pension funds, which saw the potential and benefit of including private equity in their portfolio.

Some 14 funds raised capital for late stage funds and six funds raised capital for early stage funds.

The 22.1 percent decline in fundraising compared to a 19.1 percent decline in global private equity (PE) fundraising, however, global PE fundraising rebounded significantly in 2021 with first half 2021 global PE fundraising being 57.9 percent up on the same period the year before.

The survey, presented by Savca and EY, based on responses from more than 50 PE firms operating in Southern Africa. It covers analysis of the industry’s strategic priorities, investment and divestment activity, fundraising, funds under management, the impact of private equity, broad-based black economic empowerment and the diversity of PE investment professionals. The data is based on annual calendar year data up to the end of December, last year.

For funds raised from investors outside South Africa, the majority of more than 67 percent were from European and UK investors. Last year, no funds were raised from the rest of Africa.

Although disappointing as the PE sector would benefit from more backing from African investors outside of South Africa, Savca said, this might speak to the investment mandate of the funds that were able to raise funds last year with a largely South African mandate for investments.

According to the survey, this year was becoming a landmark fundraising year globally for private equity as an asset class off the back of the strong rebound seen in the second half of last year.

Concerning investment activity, the survey showed that the volume of new and follow-on investments, excluding Business Partners, decreased to 73 and 96, respectively, last year. This compared to 132 new and 117 follow-investments, in 2019, which had declined from 162 new and 282 follow-investments in the previous year.

While the value and volume of investments declined last year, the decline was not as sharp as expected and PE firms still managed to make investments, despite the challenges to deal-making caused by Covid-19.

The cost of investment values were similar to those experienced during 2012-2016. The average cost per investment was relatively consistent from 2018 to 2020, averaging between R80 million and R102m (excluding Business Partners). There had been a sharp uptick in investment activity, this year, globally, with global PE investments in the first half almost tripling the value for the first half of last year and increasing 53.1 percent on the second half of last year to reach R584.3bn, an all-time half-year high, beating the previous high, the first half of 2007.

Last year, the investments in start-up and early-stage largely arose from investments in early-stage infrastructure projects. Investments in infrastructure and real estate represented over 41.7 percent of the cost of total investments. By number, investments in manufacturing (28 in South Africa (SA) and 8 outside SA) and services (22 in SA and 12 outside SA) were the most popular sectors. There were 27 and 25 investments, in infrastructure and real estate, respectively.

According to Savca, emphasis would need to be placed on the increasing exit volumes, going forward. The sharp increase in global PE exits came to an all-time half-year high in the first half of this year might be a leading indicator for greater exit activity from Southern Africa PE firms.

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