Despite the economic headwinds facing the sub-Saharan Africa region, the Southern African Venture Capital and Private Equity Association (Savca) 'Private Equity Industry Survey' shows that the private equity industry remained resilient in weak macroeconomic circumstances during 2019.

This, the association said on July 30, bodes well for the industry’s ability to navigate the Covid-19 crisis.

Speaking during the survey launch, Savca CEO Tanya van Lill said that while the first half of this year had been “a total whirlwind”, the latest survey “provides useful insight into industry trends and signals the valuable role that private equity will play in the region’s economic recovery”.

She highlighted a significant increase in funds under management: “The private equity industry had R184.4-billion in funds under management (FUM) at December 31, 2019, up from R171-billion in 2018, representing a compound annual growth rate (CAGR) of 9.2% since 1999 when the survey first began”.

This increase in FUM is a positive indicator for the industry, she said, “as it should lead to increased investment into the region” and, despite Southern Africa’s tough economic conditions over the past few years, Van Lill said the industry was still able to raise R21.7-billion in 2019 – 69.5% more than the R12.8-billion raised in 2018. 

“This strong fundraising activity is indicative of the fortitude exhibited by the private equity industry,” Van Lill commented, adding that, of the funds raised, R7.7-billion (35.3%) stemmed from South African sources, with R3.7-billion of total funds earmarked specifically for investment in South Africa.

Meanwhile, the cost of investments in 2019 totalled R25.4-billion, with the top sectors invested in being infrastructure and energy, followed by telecommunications, retail and real estate.

Additionally, more than 50% of the investments made were to support portfolio companies with expansion and development.

Highlighting the significant surge in infrastructure investment, from 6.1% in 2018 to 34.7% in 2019, Van Lill noted the positive knock-on effects this offers.

“Private equity investment in African infrastructure has been an emerging theme over the past decade, with funds from various regions investing actively in infrastructure projects in the energy, transport and information and communication technology (ICT) subcategories.”

Van Lill said this served as a catalyst for development on the continent, in a way that fosters the achievement of targeted and specified developmental goals.

She added that infrastructure investment would open up new opportunities for add-on or related investments.

Moreover, funds returned to investors in 2019 totalled R12-billion, with disposals during the year amounting to R5.3-billion. “In comparison, the [yearly] average funds returned to investors over the last five years was R14.3-billion, with disposals averaging R8.6-billion over that period.”

Commenting on the report itself, Van Lill said it “offers valuable insight into the transformation that has been realised over the past year, not only through investments, but also through the private equity professionals that form part of the industry”.

As an example, in 2019, the industry saw an increase in African professionals in the industry, which now account for 43.2% of all professionals. The vast majority (about 98%) of fund managers now consider, at a minimum, environmental, social and governance (ESG) factors when making an investment decision, and 78% of fund managers indicated that their key performance criteria are linked to achieving goals that go beyond financial returns.

Findings from the 2020 survey show total earnings before interest, taxes, depreciation and amortisation for all portfolio companies captured by the survey increased by an average of 21.4% from December 31, 2018, to December 31, 2019.

Over the same period, the total number of employees for portfolio companies increased by an average of 23.5%, while total revenue of the portfolio companies climbed by an average 27.4%. Similarly, the total capital expenditure of portfolio companies increased by an impressive average of 44.1% from December 31, 2018, to December 31, 2019.

“With many companies around the globe potentially re-evaluating their supply chains in the wake of Covid-19, it is increasingly likely that African economies will look inward to source their needs from a more local footprint,” Van Lill said.

She added that, with the need for a more inclusive and sustainable development path, the report opens the door to providing “numerous opportunities to making a long-lasting, meaningful impact to millions of people through the investments made by private equity funds, in addition to generating returns”.