Private equity in South Africa 2006

2006 will surely go down as the year in which private equity came of age in South Africa. Our annual industry survey reflects on this progress. The survey shows that:

- South African investors are beginning to understand that private equity provides positive absolute returns and significant portfolio diversification benefits.

- Black Economic Empowerment (BEE) remains a major source of activity in the industry; there are major moves by industry players not only to transform themselves but also to promote BEE investment into companies.

- While venture capital funding is still not at the levels that we would like it to be, the scale of activity in this sector of the market compares favourably with that in other markets. The SAVCA sub-committee, focused on venture capital development, will look to continue the trend towards more investor activity as they draft a consultation paper on the importance of venture capital investment for South Africa.

- The scale of activity in the industry compares favourably with that in many major international economies, which bodes well for Government’s stated growth targets, as local and international research confirms that private equity investment is a key driver of entrepreneurial activity in any economy.

Looking ahead, prospects for our industry are very positive:

- While 2005 and 2006 were periods of fund raising for many SAVCA members, it seems that, given the announced local and international “mega deals”, 2007 and beyond will be years of heightened investment activity.

- The advent of independent mezzanine funds is a positive sign for the development of our industry and the importance of captive and independent mezzanine financing in the facilitation of private equity transactions should not be underestimated. In the coming months SAVCA will further analyse this section of our industry and look to report on its contributions towards capital market development, BEE and the cost of capital.

- Following the capital gains tax amendments announced by Finance Minster Trevor Manuel in his budget speech of February 2007, private equity investors now have clarity on the taxation of private equity realisation gains. This is an important breakthrough for that industry and is likely to lead to additional investment into private equity funds.

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SAVCA - the South African Venture Capital Association - promotes the venture capital and private equity profession in Southern Africa; represents the profession at the national and international level; and develops and stimulates professional and transactional venture capital and private equity investments throughout Southern Africa. Visit their web site at www.savca.co.za