Companies in the infrastructure, healthcare and education industries in South Africa are likely to attract deal interest from private equity houses in 2013, the South African Venture Capital & Private Equity Association (Savca) said on Wednesday.

Savca CEO Erika van der Merwe pointed out that many private equity houses saw potential in these sectors, given that the roll-out of public infrastructure spending was expected to gain momentum this year.

Also expected to draw interest from private equity players were clean energy and environmental projects, where capital raising had been prolific, and in mining support services, where regional activity remained lively.

“However, as has always been the case, it will come down to industry players being able to find value and opportunity in particular companies, with overarching industry themes not always dictating where these potential deals will be uncovered.”

Given the run in the prices of listed South African companies, private equity fund managers were expected to focus within the unlisted space, where price-earnings multiples were typically at a discount to the public market.

Van der Merwe added that there were numerous opportunities on the rest of the African continent too.

“A growing number of South African private equity companies will look to expand on the continent in incremental steps. The most probable form that this will take is through fund managers encouraging their South Africa-based portfolio companies to look to Africa for organic and acquisitive growth deals.

“The thinking is that it is important for portfolio companies to include neighbouring countries as part of their expansion strategy. Slightly different growth drivers and growth cycles, along with currency diversification, will help to smooth group earnings,” she stated.

Van der Merwe noted, however, that South Africa was expected to remain one of the big drivers of the value of private equity deal flow in Africa this year.

“Although the African growth story is compelling and continues to attract significant investor interest, deal sizes on most of the rest of the continent are still relatively small compared with South African deals.”

While private equity deal activity was expected to be lively on the acquisitions side, fund managers would be exploring exits too. Funds that participated in the record-high equity fundraising of 2006 and 2007 would be looking now to realise their underlying investments, to return capital to third-party funders.

“The long-term, stable nature of the private equity funding model often entails third-party capital commitments of around a decade, which typically enables fund managers to stay invested in portfolio companies for between five and seven years.”

Van der Merwe pointed out that the private equity industry in South Africa was among the most established in emerging markets, representing fund types that vary by investment stage, size and sector specialisation. The most dominant approach was development and growth capital, which was investment directed at expanding existing profitable and high-growth business.