Foreign Private Equity May Step Up Deal Flow In Sa
Foreign private equity firms were likely to step up activity and local firms would grow rapidly, which presented a fertile ground for high-growth opportunities, investors said yesterday.
"There is no doubt that foreign players are already looking seriously at South Africa and I expect more and more of them to enter the market," said Jan Hugo, the head of private equity at Standard Bank, Africa's biggest bank by assets.
Top global player Kohlberg Kravis Roberts (KKR) is the lead partner of a private equity consortium in talks with retailer Shoprite Holdings, according to a source. Shoprite is one of three listed local companies with a combined market value of over R42 billion. The retailer said recently that it was in talks with private equity groups. Foreign firms have been identified as potential buyers for two of them. Shoprite said last week that it expected a buyout offer to be made within a few weeks.
Financial services firm Alexander Forbes said it had received a conditional buyout proposal from a private equity consortium led by Britain's Actis, which included Ethos Private Equity. If the deal goes ahead, it would be the biggest private equity buyout in the country, surpassing the R5.4 billion paid by CCMP Capital for scaffolding firm Waco International in 2005.
South Africa's private equity industry had R43.9 billion in funds under management at the end of 2005, according to a KPMG survey released in May. But this year, private equity firms such as Ethos have raised substantially more funds than in previous years, mirroring similar trends in Europe and the US.
Ethos chief executive Andre Roux said the larger South African-based firms overall might have R30 billion in funds to invest by the end of the year, compared with about R12.4 billion in 2005.
"There has been quite a big paradigm shift in the amount of money that will be available at the larger end of the market ... We have seen increased allocations from the banks, from the likes of [insurers] Sanlam, Old Mutual and the Public Investment Commissioners," Roux said.
Ethos said it had raised $750 million (R5.6 billion) in a fund it described as the largest private equity fund in Africa. Roux said that with the entrance of foreign private equity firms such as KKR, deals were likely to be on a much larger scale.
"With the speculation that there are now foreign private equity firms coming into South Africa and looking at the potential deal flow, our sense is that you are going to see a lot more transactions being done at the R10 billion-plus level." Foreign private equity firms were likely to focus on high-growth sectors such as retail for future investments, Roux added.
In the third set of talks announced last month, the country's biggest fashion retailer, Edgars Consolidated Stores (Edcon) said it was in talks with private equity firms about a deal to acquire the firm. Edcon did not name the firms involved. Hugo said foreign private equity firms with access to large liquidity pools would probably raise debt finance in the local market to finance investments.
In the past, private equity deals accounted for about 5 percent of the country's mergers and acquisitions deal flow, but this would increase substantially in future, Roux said.