Private equity shows growth despite economic down turn

SAVCA and KPMG today released the annual Industry Performance Survey reporting on the 2008 calendar year. The survey shows that South Africa’s private equity industry breached the R100 billion mark for the first time during 2008, despite the global economic meltdown and a slowdown in local merger and acquisition activity. In addition, R29.2 billion in commitments remain undrawn and can be used for further investment.

Growth in BEE private equity deals grew 38.1 per cent from R11.8 billion in 2007 to R16.3 billion in 2008.

These are some of the findings of a joint KPMG and SAVCA (South African Venture Capital and Private Equity Association) survey into the private equity sector released today.

Private equity has attracted foreign direct investment (FDI) into South Africa, amounting to R23bn over the last three years.

Taking into account the absence of the large public-to-private deals, as seen in 2007 (for example: Edcon, Alexander Forbes, Primedia and Consol), it was no surprise to see private equity investments falling in 2008 from R26.1bn in 2007 to R23.1bn in 2008. Fundraising also decreased from R15.4bn in 2007 to R7.2bn in 2008.

“These figures are a positive reflection on the achievements of the SA private equity industry,” says Warren Watkins, KPMG’s head of private equity markets for Africa. “Although SA is not immune to developments in the global economy, we currently appear to be better off than other private equity markets. This could be due to SA’s ongoing infrastructure spend and limited “credit crunch” exposure.”

The survey also found that funds valued at R68.6 billion were under the management of captives-government or entities that are either black owned, empowered or influenced. This is up 16.3 per cent from R59 billion in 2007.

The 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 net result was overall growth of 19.5% on R86.3 billion held at December 2007 to R103.1bn.

There is reason for cautious optimism for South Africa, says Watkins, in particular with respect to the prospect of lower interest rates arising during 2010, and the forthcoming FIFA 2010 Soccer World Cup.

“The scale of activity in our 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 economy,” says SAVCA executive officer J P Fourie.

The survey has found that South Africa’s funds under management (excluding undrawn commitments) relative to GDP of 3.2% was higher than 2007 and again greater than the global average of 2.7%.

This is the tenth year in which KPMG and SAVCA have produced the private equity survey. Funds under management were R30.7 billion in 1999, with R103.1 billion reported in the current survey. This represents a 14.4% compound annual growth rate.

For the full survey, visit www.kpmg.com