Capital returned to private equity investors more than double
South African private equity capital returns to investors increased by 123.2% in 2016 to R18.3 billion, up from R8.2 billion the previous year. This was one of the most significant themes reported in the SAVCA 2017 Private Equity Industry Survey, the annual survey of private equity activity in Southern Africa which was released to the industry on 28 June 2017.
CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), Tanya van Lill, said that over the period, trade sales were reported as the most popular exit route in value terms whilst sales to management were the most popular by volume. “The average proceeds per exit was R176.3 million in 2016, compared to R48.1 million in 2015. Realisations (returns to investors) in 2016 reflected a times money multiple of 2.0, an increase of 1.4 times reported in 2015.”
To obtain survey results, SAVCA, along with research partner KPMG South Africa, surveyed 61 managers, representing 96 funds, with a mandate to invest in South Africa and in other African markets.
The SAVCA 2017 Private Equity Industry Survey results also revealed that Southern Africa’s private equity industry, including both government and private funds, had R171.8 billion in funds under management at the end of 2016, an increase from R158.5 billion in 2015. Of these funds under management in 2016, R58.2 billion is available for investments, of which R7.4 billion is for early stage investments.
Van Lill says that this growth in funds under management represents a compound annual growth rate of 11.4% since 1999, when the SAVCA survey first began. “This growth is reflective of a growing industry and an increased interest from investors to invest in South African private equity.”
The cost of investments made during 2016, analysed by new and follow-on investments, totalled R15.5 billion – up from the R12.5 billion reported in 2015. Of the investments made during 2016 (574) and classified into sectors by value, 14.2% were in the real estate sector, 11.0% in the information technology sector, 11.0% were in the energy sector, 10.3% in the services sector and 9.7% in the manufacturing sector.
The average deal size for new investments was R29.5 million, while average deal size for follow-on investments was R23.3 million.
In terms of fund raising activity, the total of third-party funds raised by the industry in Southern Africa in 2016 reached R10.2 billion, a significant decrease from the R27.5 billion1 reported for 2015. By regional source, R7.5 billion (73.5%) of total funds raised in 2016 were from South African sources (2015: 28.4%).
“While funds raised in 2016 were significantly lower than 2015, the substantial increase in capital returned to investors is indicative of the private equity life-cycle, showing that while certain periods focus on a fund raising mandate, other periods call for investment, and ultimately, the realisation of returns. This demonstrates the ability of the private equity industry to remain agile to changing market conditions.”
Further looking at fund raising activity, van Lill says that Pension and Endowment Funds were the source of 40.2% of all third-party funds raised during 2016 – up from 35.3% in 2015. Of the funds raised from South African sources, 53% (R4 billion) were from Pension and Endowment Funds – noticeably up from R3.2 billion in 2015 (41%). “It is encouraging to see more pension funds allocating capital to the private equity asset class as raising the profile of the asset class amongst institutional investors is, and will continue to be, a strong focus for SAVCA.”
“This year’s overall survey results highlight that despite the harsh economic environment currently facing South Africa, the private equity asset class continues to contribute positively to economic growth in the country through its commitment to and investment in portfolio companies and resultant job creation,” concludes van Lill.
1When comparing 2016’s survey data to 2015, it is important to note that data for 2015 may have been restated by participants for errors or omissions. In addition, 2015 data may also have been restated for the inclusion/exclusion of funds that did or did not participate in the 2016 survey.
Download the SAVCA 2017 Private Equity Industry Survey
The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa, representing about R170 billion in assets under management, through 160 members. SAVCA promotes Southern Africa private equity by engaging with regulators and legislators on a range of matters affecting the industry, providing relevant and insightful research on aspects of the industry, offering training on private equity and creating meaningful networking opportunities for industry players.