Access to finance in South Africa – be it startup funding or expansion capital – remains a contentious subject for business owners and analysts alike. With traditional forms of finance coupled with bureaucratic barriers proving increasingly frustrating for small and medium size businesses, more attention is afforded to 'tailored solutions', including Private Equity (PE).
According to the CE of SAVCA, Erika van der Merwe, private equity performance in the three-, five- and 10-year horizon has superseded that of listed equity! This is a major feather in the cap of portfolio managers "diversifying medium and long-term investments" in SA and the African Continent. Chad Smart, Chairman of Capitalworks private equity fund, recently reinforced this view by indicating that positive future growth prospects still exist in SA, despite the more pessimistic short-term view.
So in lieu of the above can SMMEs expect a continued growth in the private equity sector, and therefore increased opportunities for funding?
We'll if the case of Capitalworks is anything to go by, the indications are certainly glaring!
Quite recently Capitalworks made an announcement that they have raised more than R2.7-billion under their second fund in just six months! The fact that most of the funds emanated from international investors also indicates the bright global outlook on opportunities in SA. Business owners of progressive enterprises will be glad to know that the fund will be open to investing in a broad spectrum of industries including:
- Medical and Healthcare
- Learning and Education
- Financial Services
- Fast Moving Consumer Goods (FMCG)
This Johannesburg based private equity firm currently has assets under management of over R5-billion. Now, as a progressive business owner you may be considering expansion in the medium to long term, as per your strategic business plan. You may therefore be wondering whether Capitalworks is evidencing a "one-of-a-kind" phenomenon, and what the chances are for greater participation in private equity investments over the next few years. Understandably, this is important as it suggests the viability and availability of capital from private equity and venture capital sources.
Well, to answer the above, you will be keen to know that over two thirds of the R2.7-billion came from international participants inclusive of large private and institutional investors, substantial charity organisations and various 'wealthy household names'. Given the calibre of these sources, amidst economic recession, it stands to reason that the global market is always seeking investment opportunities - by those with liquidity. This is independent of prevailing economic cycles and short term financial "crises". Further to this another strong indicator of the "power of PE" lies in the fact that the above case of R2.7-billion was raised in half a year, while a reasonable expectation - with experienced PE managers - can ordinarily go up to anything between 24 and 36 months, if not longer!
Private Equity options in South Africa
Apart from Capitalworks, there are a host of private equity firms operating in South Africa. According to 2013, KPMG-SAVCA Private Equity Survey the PE industry in SA indicates that around R126-billion in funds under management, was the tally as at end of 2012. In spite of the international 'flux' of funds local investors are not lying low either! The survey revealed that over 56% of funds originated locally. Below are 10 reputable PE sources worth considering. If you have a futuristic outlook, as with anything, timely research will go a long way to edifying you, and saving you in time and money.
Horizon Equity Partners
Imbewu Capital Partners
Ke Nako Capital (Pty) Ltd
Leaf Capital
PAEAN Private Equity (Proprietary) Limited
Sanlam Private Equity
STANLIB Limited
Carlyle South Africa Advisory (Pty) Ltd
Capitau Advisory Limited
Sasfin Private Equity Fund Managers (Pty) Ltd
In summing up, the picture of access to funding, including "early capital", is not as bleak as one might initially suspect. Capitalworks has proven that private equity funding is proving to be the strong 'alternative funding solution' that many businesses and stakeholders have been hoping for! The optimistic outlook bodes well for small and medium size businesses with a clear growth strategy and healthy cash-flows. Those targeting two- to seven-year growth plans will particularly be interested in evaluating private equity options now, in order to unlock greater synergies and healthy profits in the medium and long term!