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
Showing posts with label SAVCA. Show all posts
Showing posts with label SAVCA. Show all posts
Tuesday, May 19, 2009
Tuesday, May 5, 2009
Private equity needs to adapt
The global credit crisis has produced a mixed bag of fortunes for private equity - the investment class in which capital is invested in private companies. On the downside, corporate earnings have declined but on the up, reduced company valuations have produced a range of investment ‘bargains’. Profitable exit from deals is likely to be delayed due to the downturn, however, with a slowdown in the number of companies listing on stock exchanges, companies which may previously have gone public are now good prospects for private equity investors.
This was reported by the South African Venture Capital and Private Equity Association (SAVCA) and Sanlam Private Equity (SPE) at a jointly-hosted media briefing in Johannesburg today which examined the state of private equity locally and globally.
Private equity currently…
What is certain, said Cora Fernandez, deputy CEO of SPE and chairperson of SAVCA, is that experienced managers have demonstrated their ability to adapt in a changing and challenging market. “Globally, merger and acquisition activity has slowed and mega deals have evaporated. Investors remain cautious since earnings visibility is a major challenge and debt markets have improved marginally. There is no shortage of debt for good deals, but the amount of debt offered has come down along with gearing levels. We have, in essence, gone back to private equity basics.”
She said that private equity players in developed markets were now looking to mid-size companies for investment opportunities, with a hive of activity currently underway in underperforming assets and secondaries.
“The private equity industry in SA is far better placed than its more mature counterparts in the first world. South African private equity deals have never been geared to the same extent as the gearing levels seen in developed markets. As a result, we don’t expect to see a high level of underperforming or distressed assets, work outs or turnarounds,” said Fernandez.
She said that South Africa’s industry may be small by international standards - it makes up only one percent of global activity - but it does contribute a significant 2.8 percent to GDP which contributes to expansion and development in the country. “It is sophisticated and well-organised with a well established network of highly experienced players, deep and liquid debt markets and solid legal framework.
“Currently, the biggest challenge facing us in the aftermath of the financial crisis is fundraising. Locally, investors into PE funds are largely pension funds and endowments, many of which are currently reviewing their asset allocation strategies in search of greater liquidity. More than 50 percent of capital raised by PE funds in the past two years was sourced offshore, principally the US and European countries. The full extent and consequences of this risk is only likely to be felt in the next 12 to 18 months.”
Fernandez said that, despite these challenges, private equity remains a great source of foreign direct investment and of growth and expansion finance. “This is very good news for the financial services sector and the economy. It essentially means that we can use foreign capital to finance and stimulate growth in SA.”
Looking ahead…
Looking ahead over the next few years, J-P Fourie, executive officer of SAVCA said that more equity-only deals were a strong possibility in South Africa and around the world. “But raising funds in a climate of depressed corporate earnings will be a challenge. We will also see the lifecycle of a private equity deal increase as companies take longer to convert investment funds into tangible business results.”
He said that it looked likely that huge write-downs would be made, particularly in the highly leverage Europe and US, and that highly profitable exits would present a massive challenge. “Private trade sales will far outstrip listing exits or sales to other private equity funds and, unfortunately, some new, young private equity firms could fall victim to a low appetite for private equity fund raising.”
On the plus side, many international players are still extremely interesting in the value which emerging markets can offer. “Because, unlike the stagnant or declining growth in Europe, the US and Australia, there is still good growth in China, Brazil and India and, to a larger extent, the African continent.”
The SAVCA KPMG annual private equity and venture capital industry survey results will be published later in May. For more information visit www.savca.co.za or www.spe.sanlam.com.
This was reported by the South African Venture Capital and Private Equity Association (SAVCA) and Sanlam Private Equity (SPE) at a jointly-hosted media briefing in Johannesburg today which examined the state of private equity locally and globally.
Private equity currently…
What is certain, said Cora Fernandez, deputy CEO of SPE and chairperson of SAVCA, is that experienced managers have demonstrated their ability to adapt in a changing and challenging market. “Globally, merger and acquisition activity has slowed and mega deals have evaporated. Investors remain cautious since earnings visibility is a major challenge and debt markets have improved marginally. There is no shortage of debt for good deals, but the amount of debt offered has come down along with gearing levels. We have, in essence, gone back to private equity basics.”
She said that private equity players in developed markets were now looking to mid-size companies for investment opportunities, with a hive of activity currently underway in underperforming assets and secondaries.
“The private equity industry in SA is far better placed than its more mature counterparts in the first world. South African private equity deals have never been geared to the same extent as the gearing levels seen in developed markets. As a result, we don’t expect to see a high level of underperforming or distressed assets, work outs or turnarounds,” said Fernandez.
She said that South Africa’s industry may be small by international standards - it makes up only one percent of global activity - but it does contribute a significant 2.8 percent to GDP which contributes to expansion and development in the country. “It is sophisticated and well-organised with a well established network of highly experienced players, deep and liquid debt markets and solid legal framework.
“Currently, the biggest challenge facing us in the aftermath of the financial crisis is fundraising. Locally, investors into PE funds are largely pension funds and endowments, many of which are currently reviewing their asset allocation strategies in search of greater liquidity. More than 50 percent of capital raised by PE funds in the past two years was sourced offshore, principally the US and European countries. The full extent and consequences of this risk is only likely to be felt in the next 12 to 18 months.”
Fernandez said that, despite these challenges, private equity remains a great source of foreign direct investment and of growth and expansion finance. “This is very good news for the financial services sector and the economy. It essentially means that we can use foreign capital to finance and stimulate growth in SA.”
Looking ahead…
Looking ahead over the next few years, J-P Fourie, executive officer of SAVCA said that more equity-only deals were a strong possibility in South Africa and around the world. “But raising funds in a climate of depressed corporate earnings will be a challenge. We will also see the lifecycle of a private equity deal increase as companies take longer to convert investment funds into tangible business results.”
He said that it looked likely that huge write-downs would be made, particularly in the highly leverage Europe and US, and that highly profitable exits would present a massive challenge. “Private trade sales will far outstrip listing exits or sales to other private equity funds and, unfortunately, some new, young private equity firms could fall victim to a low appetite for private equity fund raising.”
On the plus side, many international players are still extremely interesting in the value which emerging markets can offer. “Because, unlike the stagnant or declining growth in Europe, the US and Australia, there is still good growth in China, Brazil and India and, to a larger extent, the African continent.”
The SAVCA KPMG annual private equity and venture capital industry survey results will be published later in May. For more information visit www.savca.co.za or www.spe.sanlam.com.
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