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Entrepreneurs need to look out for these private equity and venture capital trends

Private equity (PE) and venture capital (VC) activity in South Africa is improving after the Covid-19 pandemic, with stakeholders in both industries reporting an increase in transactions. Picture: Waldo Swiegers

Private equity (PE) and venture capital (VC) activity in South Africa is improving after the Covid-19 pandemic, with stakeholders in both industries reporting an increase in transactions. Picture: Waldo Swiegers

Published May 15, 2022

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Durban – Private equity (PE) and venture capital (VC) activity in South Africa is improving after the Covid-19 pandemic, with stakeholders in both industries reporting an increase in transactions.

Tanya van Lill, chief executive of the South African Venture Capital Association (SAVCA), said: “The SAVCA 2021 Private Equity Industry Survey revealed that fundraising, investments and exits all contracted in 2020, but we expect this to have reversed in 2021 and to improve even further in 2022 as economic conditions slowly recover.”

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Below is a look at private equity and venture capital trends:

Pick-up in activity

With the restrictions now largely lifted, investors can resume site visits to investment opportunities, allowing for more fundraising and deal-making for the rest of the year.

JSE-listed businesses

One of the key trends that are likely to happen this year is private equity funds buying either portions of listed businesses or entire companies and de-listing them, according to Lydia Shadrach-Razzino, corporate commercial executive at ENSafrica.

She added: “There are also a number of public companies getting rid of non-core assets to private equity.”

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Disposal of existing assets driving infrastructure

The disposal of existing assets accounted for the majority of deal flow in the infrastructure sector due to relatively small number of new government-initiated projects. The recent heavy rainfall and flooding in KwaZulu-Natal also shows a need for infrastructure investment.

Fintech venture capital is on the rise

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Van Lill said: “There is growing interest in South African start-ups from international VCs. We are expecting to see a lot more liquidity in the local VC market, driven by interest from international investors.”

In 2021, South African start-ups attracted more than $800 million (R12.92 billion) and there are a number of high-profile fintech deals that have been announced in 2022 so far.

“The fintech space is quite exciting. There is a lot happening and I think we are going to see more of it in 2022,” she added.

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The importance of ESG expertise

Investors the world over are recognising the importance of taking environmental, social and governance (ESG) factors into account in their decisions.

South Africa’s PE industry has been incorporating ESG factors for quite a while, due to the positive influence of development finance institutions.

According to Van Lill, South African fund managers need to use their experience of considering ESG factors to their advantage and highlight their unique qualities in that area.

Higher interest rates are a potential obstacle

Vuyo Ntoi, joint managing director of African Infrastructure Investment Managers (AIIM) said: “Fund managers will have to show high returns as they compete for international capital in an environment of rising interest rates."

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