South African private equity capital returns to investors increased by 123.2% in 2016 to R18.3bn, up from R8.2bn the previous years, according tp the SAVCA 2017 Private Equity Industry Survey.

Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), said that over the period, trade sales were reported as the most popular exit route in value terms whilst sales to management were the most popular by volume. 

“The average proceeds per exit was R176.3m in 2016, compared to R48.1m in 2015. Realisations (returns to investors) in 2016 reflected a times money multiple of 2.0, an increase of 1.4 times reported in 2015.”

The SAVCA 2017 Private Equity Industry Survey results also revealed that Southern Africa’s private equity industry, including both government and private funds, had R171.8bn in funds under management at the end of 2016, an increase from R158.5bn in 2015. 

Of these funds under management in 2016, R58.2bn is available for investments, of which R7.4bn is for early stage investments.

Van Lill said that this growth in funds under management represents a compound annual growth rate of 11.4% since 1999, when the SAVCA survey first began. “This growth is reflective of a growing industry and an increased interest from investors to invest in South African private equity.”

The cost of investments made during 2016, analysed by new and follow-on investments, totalled R15.5bn – up from the R12.5bn reported in 2015. 

Of the investments made during 2016 (574) and classified into sectors by value, 14.2% were in the real estate sector, 11.0% in the information technology sector, 11.0% were in the energy sector, 10.3% in the services sector and 9.7% in the manufacturing sector.

The average deal size for new investments was R29.5m, while average deal size for follow-on investments was R23.3m.

In terms of fund raising activity, the total of third-party funds raised by the industry in Southern Africa in 2016 reached R10.2bn, a significant decrease from the R27.5bn reported for 2015. 

By regional source, R7.5bn (73.5%) of total funds raised in 2016 were from South African sources (2015: 28.4%).

“While funds raised in 2016 were significantly lower than 2015, the substantial increase in capital returned to investors is indicative of the private equity life-cycle, showing that while certain periods focus on a fund raising mandate, other periods call for investment, and ultimately, the realisation of returns. This demonstrates the ability of the private equity industry to remain agile to changing market conditions.”

Van Lill said that pension and endowment funds were the source of 40.2% of all third-party funds raised during 2016 – up from 35.3% in 2015. 

Of the funds raised from South African sources, 53% (R4bn) were from pension and endowment funds – noticeably up from R3.2bn in 2015 (41%). 

“It is encouraging to see more pension funds allocating capital to the private equity asset class as raising the profile of the asset class amongst institutional investors is, and will continue to be, a strong focus for SAVCA.”

“This year’s overall survey results highlight that despite the harsh economic environment currently facing South Africa, the private equity asset class continues to contribute positively to economic growth in the country through its commitment to and investment in portfolio companies and resultant job creation,” said van Lill.