More work needs to be done on IPO exit route
The JSE must do its bit
THERE’S MUCH CURIOSITY about this private equity lark. Most specifically, can retail investors make a bit of dosh backing the so-called “smart money”? In South Africa, specialised investment vehicles such as Paladin, RE:CM & Calibre, Reinet and Brait have captured the imagination of investors even if investment returns haven’t yet started to arrive.
The challenge that continues to be a problem isn’t so much the issue of throwing money at investments but more about who you can sell to when you want to realise a profit.
In SA that has had an added challenge, with limited appetite for Initial Public Offerings (IPOs) on public exchanges. While there’s been plenty of interest in new property listings and the likes of Brait and Reinet being able to raise capital at will – the appetite for less tried and tested teams has been limited. Especially when they’re perceived to be “ex-growth” and that all the best money has already been made by private equity investors.
Pointing to the recently listed Holdsport – which saw private equity firm Ethos net a tidy US$170m – Graham Stokoe, associate director for Transactions Advisory Services at Ernst & Young, says: “South African private equity investors continue to look at IPOs as an exit option. Due to the generally smaller market caps of South African and other African private equity (PE) owned companies, IPOs represent a lower proportion of PE exits than the more mature PE markets in the US and Europe. However, we do believe – similarly to other emerging markets – the number of IPOs across African companies is also expected to increase.”
Stokoe’s colleague Jeffrey Bunder, global private equity leader at Ernst & Young, concurs. “Despite ongoing uncertainties in the markets, momentum is clearly continuing to build throughout the IPO markets, giving PE sponsors an ever-widening window to exit holdings as investors move further out of the risk spectrum in search of companies with strong growth stories.”
That upbeat view on PE confirms what was announced by the South African Venture Capital and Private Equity Association (Savac) in its 2010 report back in June, which was conducted in conjunction with consulting firm KPMG. At the time Warren Watkins, SA and Africa head of private equity markets at KPMG, commented: “Africa’s potential growth rates are significantly higher than those of mature markets and should lead to further investment.”
This year already has seen a number of new “Africa”-focused product offerings hitting the market and participants expect that trend to continue. The asset class is also likely to receive a further boost from changes in Regulation 28, which will make private equity a more viable asset class.
Savca CEO JP Fourie says: “In the past, PE fund managers were held to a limit of 2,5% for pension fund investments in PE. That’s changed. The limitations have been