Southern African private equity (PE) firms pumped R19.6 billion into investee companies during 2022 – with ventures in the technology sector accumulating the highest number of signed deals.
This is one of the key findings of the 2023 Private Equity Industry Survey, conducted by the Southern African Venture Capital Association (SAVCA), in partnership with EY.
The annual report provides a snapshot of the state of the PE and funding industry across 16 sectors – identifying key insights, challenges and trends that are shaping the private equity sector in the region.
PE refers to capital investment in companies that are not publicly traded, while venture capital firms invest in 50% or less of the equity of the companies, it says.
The results of the survey, which were informed by responses from PE firms operating in Southern Africa, were released at a recent SAVCA event in Johannesburg.
According to the report, despite the pressures faced on the macro- and micro-economic fronts, as well as geopolitical tensions, the Southern African private equity sector remained resilient. There was a 21% increase in PE fundraising in the region – which takes this activity closer to the more favourable pre-pandemic levels.
Investments in IT businesses increased from being the ninth most attractive sector in 2021 (3.7% of 2021) to the tied top sector in 2022.
By number of investment deals, energy and information technology emerged as the most active sectors – each contributing over 11% in deal volume. This was followed by the infrastructure, and banks, financial services and insurance sectors, each contributing 8.5% of overall deals, the report reveals.
Commenting on the results, SAVCA CEO Tshepiso Kobile advocated for increased allocations from local institutional investors. This will mitigate risk and recognise the inherent ability of Southern African PE and VC firms to provide expansion capital at scale to local companies, channel funding into infrastructure and technology, with the resultant effect of employment creation and innovation to address societal challenges.
“When inspecting the fundraising and investment landscape, we see R19.6 billion in funds were raised during 2022 – 21% higher than in 2021, despite a 13% fundraising decline globally. When one goes down a layer, we see this fundraising enabled 189 individual investments, a sizable increase from 135 in 2021 and 169 in 2020, although still below the pre-COVID levels during 2016 to 2019,” explains Kobile.
“The 2022 survey results show PE firms continued to display much resilience as they navigated the tough environment, driving revenue and employment growth within portfolio companies, in a number of sectors.”
In terms of rand value, SAVCA notes infrastructure (36.3%), energy (16.7%) and related sectors attracted the largest value of investment – up from the 20.4% and 11% from 2021, respectively.
These investments came as SA grappled with the ongoing, long-term energy crisis.
The country’s energy insecurity has seen major investments set to boost SA’s green hydrogen capacity, and in due time, these investments will position the country to become a potential global exporter of green energy, according to the report.
Mitesh Pema, executive director and fund principal of fund manager Mahlako Financial Services, points out green hydrogen, or the ‘big frontier’, along with its counterparts in the realm of energy innovation and renewable energy, are set to derive a myriad of benefits for gross domestic product growth and further investment potential locally.
“The energy sector has and continues to present a huge opportunity for investors due to the significant gaps that exist in the region. In particular, energy, logistics, transportation and telecommunications are key infrastructure areas where capital allocation can and is making a significant difference on the ground,” asserted Pema.
“Investors need to be mindful that patient capital is key when it comes to infrastructure, as it does not convert as timeously as other investments. However, the positive impact they will and can have on the broader economy and society are well worth the wait.”
Investment from non-South African development finance institutions, aid agencies and other entities was R5.9 billion, up from R3.2 billion in 2021 and the highest over the last four years, according to the report.
Funds under management (FUM) increased to R213.3 billion by 31 December 2022, up from R199.4 billion in 31 December 2021.
The increase in FUM was driven by independent fund managers, which increased their existing FUM from R132.7 billion at 31 December 2021, to R151.9 billion at 31 December 2022.
Investment from PE “fund of funds”, were over R2.5 billion – the first time in the last four years that funds raised from this type of investor has been over R1 billion.