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| SEGMENTAL REVIEW |
| PRIVATE EQUITY (CONTINUED) |
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| South African overview |
According to the South African Venture Capital Association ("SAVCA")
South Africa's private equity industry had approximately ZAR44 billion
under management at 31 December 2005, up from approximately
ZAR40 billion at 31 December 2004. The increase was largely due to
financial services groups and government related entities increasing
their private equity allocations. SAVCA indicates that there was
approximately ZAR5 billion of private equity investment activity in
South Africa in 2005, which amounts to around 2% of merger and
acquisition activity in South Africa (ZAR269 billion according to Ernst &
Young). Internationally private equity has been generating 20% to
33% of merger activity in Europe according to the Economist in
September 2005, indicating the enormous scope for growth of private
equity in South Africa. Although the 2005 SAVCA survey identifies
some 62 entities that may potentially be classified as private equity
firms or are involved in the management of private equity funds, Brait
believes that due to size, experience and length of track record, there
are few funds in South Africa able to compete in the same large
transaction space as Brait IV.
Some of the most significant and largest industry deals which Brait has
concluded since 2000 include: |
| 1. |
Afgri ZAR1,3 billion – unique public opportunity (Brait III) |
| 2. |
Southern Mining ZAR560 million – expansion capital (Brait III) |
| 3. |
Smartcall ZAR500 million – entrepreneurial partnership (Brait III) |
| 4. |
LogicalOptions ZAR617 million – leveraged buyout (Brait III) |
| 5. |
Pepkor ZAR3,9 billion – entrepreneurial partnership (Brait III and
Old Mutual) |
| 6. |
Net 1 ZAR1,5 billion – entrepreneurial partnership (Brait III) |
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| Brait believes private equity is coming of age in South Africa. There are
very few non-resource South African firms which can be considered
immune from private equity driven strategies due to size. Despite the
outstanding performance of the JSE over the past two years, Brait
believes the South African environment is better suited to private
equity than at any time previously. There are a number of reasons for
this including: |
| (i) |
the stable macro-economic environment with good economic
growth, particularly in certain sectors; |
| (ii) |
improved availability of debt finance, both through banks and
bond markets; |
| (iii) |
strong merger and acquisition activity, particularly with respect to
black economic empowerment transactions, with room for private
equity to take up a bigger proportion of this activity; and |
| (iv) |
very healthy and diverse exit environment. |
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| Brait believes 2006 and 2007, should see a number of transactions
which form new milestones in the history of the industry in South Africa. |
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| Why Private Equity? |
What reasons are there for the explosive growth in private equity
internationally? Why are more institutional investors committing a
greater proportion of their assets under management to private equity?
Brait believes private equity enables a company to pursue a long-term
growth strategy, sheltered from the short-term dynamics of the public
market. This is particularly important for (and why private equity is
particularly suited to) companies going through change. The company
is accountable to a small group of focused shareowners who help
develop, buy into and monitor the companies strategic and operational
plans. Private equity owners should be vigilant owners with active
access to management and company information.
In addition, a private equity owned company is in a strong position to
attract, incentivise and remunerate outstanding management teams
away from the public spotlight. Increasingly these, and other reasons,
are leading institutional investors, both in South Africa and
internationally, to conclude that there is an important place for private
equity in building successful, dynamic companies in an economy.
The fact that top-performing private equity funds with excellent track
records tend to continue to perform consistently well through
subsequent funds (compared to the mean reversion which often occurs
with public asset managers) also lowers the investment risk and
demonstrates why internationally and locally good private equity
managers tend to become enduring institutions. |
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