Large Private Equity Deals Held Hostage
Local private equity firms would have to continue looking offshore for capital and partnerships for them to participate in larger transactions, industry pundits said yesterday.
Local private equity companies did not have the muscle to put together larger capital outlays as their international peers had, Ivan Missankov, a private equity fund manager at Momentum, said yesterday when responding to questions about an announcement by Ethos Private Equity.
Ethos, a leading private equity company, said yesterday that it had raised R5.5 billion, which would enable it to take on large acquisitions.
Missankov said the fact that Ethos, one of the largest players, had raised R5.5 billion when private equity acquisition targets were fairly large, was a sign that local players were not yet in a position to take up such transactions on their own. This was evident in the case of Alexander Forbes, in which a consortium of private equity entities were offering R8.3 billion. The market value of the financial services group was larger than the R5.5 billion Ethos had raised, he said.
Andre Roux, the chief executive of Ethos, said where deals involved more than R3 billion, local firms had to talk to partners.
The regulations limiting the amount of assets that pension funds had to invest in private equity had capped the industry's ability to raise funds locally.
Roux said by the end of the year, the private equity industry was expected to have raised between R15 billion and R20 billion, bringing the local industry's total assets under management to between R59 billion and R64 billion.
In the past two weeks, three JSE-listed companies Alexander Forbes, Edgars Consolidated Stores and Shoprite have confirmed that they were conducting discussions with potential private equity investors, an indication that large transactions were in the pipeline.
Itumeleng Kgaboesele, the chief executive of private equity outfit Sphere Holdings, said local private equity firms would continue partnering international firms as long as the size of transactions grew. It was unlikely that any of the local private equity firms would be able to raise funds of the magnitude that Ethos had.
Missankov said there was a lot of foreign capital looking for opportunities and South Africa, which was now an open economy, was seen as an investment destination.
Kevin Homann, a director at Spirit Capital, said local private equity firms had to raise funds offshore because of the low appetite for private equity among asset managers. Foreign and local private equity firms complemented one another by going into partnerships, in which local firms had an advantage of understanding the domestic environment, while international entities had the ability to raise larger capital outlays, he said.
Mark Casey, a partner at Deloitte, said while capital was one of the most important factors in private equity, industry knowledge was equally important.