The Development Bank of Southern Africa (DBSA) and the South African Venture Capital and Private Equity Association (SAVCA) today launched the first edition of their Economic Impact of Venture Capital and Private Equity in South Africa 2009 Study.  The study aims to provide the market with real data on the changes that portfolio businesses undergo post private equity investment.  In addition, the study has also highlighted the broader social and economic impact that private equity has had on the nation as a whole.

According to J-P Fourie, SAVCA Executive Officer; in 2008, the private equity market in South Africa invested R21.3bn with new and follow-on investments being undertaken in 719 South African companies.  “These numbers are significant and while SAVCA has worked with our members over the years to produce reports on the South African private equity market and confidence levels, we have not surveyed businesses that have been recipients of the private equity investments made. Certainly we believe that gaining insight directly from the managers of businesses that have received private equity aids our insight into how these investments have influenced the broader economic and social environments of our country.”

“The study provides the market with data on the changes portfolio businesses undergo after receiving private equity investment so as to understand how these investments have influenced their business and market growth,” says Gloria Mamba, Head of Private Equity at DBSA. “To aid our understanding, IE Consulting was commissioned to undertake the primary research, which was sourced from 327 private equity backed businesses, with investments ranging from well below the R1m to nearly R25bn mark - a significant representation of these organisations locally.”

The study examined the three year period from 2005/2006 to 2008/9 and the achievements undertaken by private equity-backed companies.  “One of the key highlights that emerged from the study was the fact that over 70% of respondents indicated that post private equity investment their organisations achieved black empowerment, black-ownership or became community broad-based enterprises.  Prior to receiving private equity investment, 59% had no empowerment shareholding at all.  Certainly, these figures paint a positive picture for ongoing change in the social and economic frameworks for organisations in line with Government mandates,” says Mamba.

Fourie adds that it is encouraging to note that private equity investment has allowed 33% of respondents to acquire another business or business unit.  “Additionally, 64% of responding companies indicated that they would have developed less rapidly without private equity investment and 47% stating that they would not have existed or survived without investment. There is no doubt that while the South African market is commendably resilient to the current global economic circumstances, it has not completely escaped the negative impact that reduced debt availability, portfolio write-downs and constricted exit environments has had around the world.  However, despite these pressures, the managers of the companies invested into by the private equity industry paint an overwhelmingly positive picture of private equity investment in South Africa.”

The highlights of the study that point to positive employment, turnover and growth rates include:

-       Employment of around 427 000 in South Africa, which equates to 5% of the South African formal sector employees;

-       Average domestic employee growth rates of 10% per annum, compared with 1% across all business in South Africa and 4% for UK private equity backed businesses;

-       Average turnover growth of 20% compared to 18% for JSE businesses; and

-       Average R&D expenditure growth of 7% compared to 1% for JSE listed businesses.

“Aside from the growth benefits, private equity backing is also to contribute to economic efficiency and innovation.  As an extremely significant investor, incubator, mentor, employer and exporter, the South African private equity industry has been a strong catalyst for growth within the local economy, providing benefits well beyond those enjoyed by the individual businesses within which it has invested.  Despite the difficult economic climate, a large number of portfolio company manager’s felt that their private equity investors had improved efficiency, sales, profits and expenditure on R&D, and investment.  Indeed 46% of respondents indicated that its private equity’s ability to make contributions beyond mere financial assistance that made them choose this form of financing over alternatives,” concludes Fourie.

For a copy of the survey please contact the SAVCA office