Ethos fund ”˜exceeds capital-raising expectation’
In a sign that investors continue to eye South Africa as an investment opportunity, leading private equity firm Ethos said on Wednesday it had exceeded expectations in raising $800m in its newest fund.
Ethos has successfully raised five private equity funds since 1996, but deal-making across the industry took a hit during and after the 2008-09 global recession.
South African growth was just 1.2% in the third quarter of last year and well below many of its peers on the continent. The amount raised in Fund VI was the most since the $750m in 2006.
"The fundraising market has been tough. Investors are constrained but they are looking beyond the developed markets for pockets of growth and have identified South Africa as an investment opportunity. Due to its proximity, investors also recognise South African potential as a gateway into sub-Saharan Africa," Ethos CEO AndrÃ© Roux said.
The fund is being mostly deployed in South Africa and selectively into sub-Saharan Africa. It has already made two investments in Kevro, a supplier of corporate clothing and promotional products in Africa, and in Waco, an industrial services business in South Africa, Australasia and the UK which offers services such as scaffolding and sanitation.
"The prospective investment pipeline is healthy," said Mr Roux.
Ethos head of investor relations Ngalaah Chuphi said corporate activity, as it related to "core versus noncore", would continue to drive deal flow.
"Corporate South Africa’s ongoing definition of what is core versus non-core in their businesses leads to them selling businesses that they deem no longer core," Mr Chuphi said. "This partly drives deal activity. In addition, generational change, where no family member is likely to take over a business, also leads to deal flow from families who then consider selling the businesses outright."
He said Ethos anticipated a busy year ahead due to the concurrent deal making in Fund VI and the maturing Fund V portfolio.
"Sellers and management teams have increasingly become comfortable with private equity as a source of capital, which will facilitate ownership change or fund growth," Mr Chuphi said. "Our team is actively pursuing multiple opportunities."
Private equity is gaining in prominence as a key vehicle for investing in Africa as it is a convenient way to raise funds. Pension funds have been able to invest up to 10% of their assets in private equity since July 2011, from just 2.5% before.
Statistics from the Southern African Venture Capital Association and advisory firm RisCura in October last year showed that private equity had outperformed equity investments over a three-year comparable period. South African funds, however, were generally found to be underweight in their exposure to the asset class. Private equity is equity capital raised from private sources as opposed to shares traded freely.