Private equity in the sub-Saharan Africa region is poised for a strong comeback next year, according to a KPMG survey of private equity stakeholders in South Africa.
The survey, released yesterday, showed that more than 70 percent of the 119 private equity industry executives who participated expected larger deals of more than R3 billion to start making a comeback from next year onwards.
This would coincide with a convergence of the pricing expectation between buyers and sellers.
The survey found that the current price expectation gap had acted as a drag on the market.
Almost half of respondents put the gap at between 20 percent and 30 percent, with a further 19 percent putting it at more than 30 percent.
“Sellers appear to believe in yesterday’s prices, or tomorrow’s improved prices, and remain reluctant to sell.
“But many potential sellers also seem to be waiting for prices to harden, with only 9 percent of fund managers expecting to focus their attention on disinvestments over the coming 12 months,” the survey found.
KPMG South Africa and Africa private equity head Warren Watkins said that the private equity market in sub-Saharan Africa over the past two years had been characterised by unwilling sellers and an inability of fund managers to invest their funds.
“As a result, the appetite for deals has been reined back significantly,” he said.
However, while market participants remained cautious about this year, a consensus was building that next year was likely to show a robust increase in activity.
Market statistics collated by KPMG’s South African office and the SA Venture Capital and Private Equity Association (Savca) showed that fundraising activity in sub-Saharan Africa had almost tripled from $800 million (about R6bn at yesterday’s exchange rate) in 2005 to more than $2.2bn in 2008.
During the first half of last year, fundraising reached $1bn, equivalent to the same period in 2008. The survey found that in terms of single-country funds, South Africa continued to lead the region, representing 11 percent of all funds raised by dollar value in 2008.
“Some of the biggest brands on the continent, including Brait Private Equity and Ethos Private Equity, are rooted in the South African market,” Watkins said.
Private equity investments in the region totalled $2.9bn in 2008, down slightly from a peak of $3.4bn in 2007.
This was largely led by South Africa with more than $2bn of the investment activity, or more than 70 percent of the capital invested in sub-Saharan Africa in 2008.
The survey found that, in terms of volume, South Africa accounted for 56 percent of all investments in 2008 and 67 percent in the first half of last year.
The largest buyouts in recent years were also conducted in South Africa.
These included the Actis-led consortium’s $700m acquisition of electrical engineering group Alstom South Africa in August 2008; and Pamodzi Investment Holdings’ $348m acquisition of uranium assets from gold producer Harmony Gold in November last year.
Measures announced in the Budget last month to reform exchange control regulations were welcomed by Savca, as giving a further boost to the private equity market.
“The Reserve Bank has been looking to make it easier for private equity funds to do deals north of South Africa for some time, so this is a very positive move for private equity in sub-Saharan Africa as a whole,” Savca said.
SAPA
