Private equity investment contributes to economic growth and job creation
Private equity and venture capital investment is helping South African businesses to grow faster, create more jobs and improve their governance structures.
The South African Venture Capital and Private Equity Association (SAVCA) and the Development Bank of Southern Africa (DBSA) have launched their second research report, exploring the economic impact of venture capital and private equity on the South African economy. The survey is based on the in-depth responses of 60 South African businesses backed by private equity investments and once again provides strong evidence of how private equity investors continue to create value in the domestic and international markets.
The 2013 report shows that 56% of the surveyed investee companies – being those which are backed by private funders in the form of equity shareholdings – feel that private equity has helped their business to grow faster. They have been able to introduce more products and services, acquire capital assets such as machinery, and invest in new technology. Additionally, they have expanded locally and outside of South Africa, by winning new business, opening new offices and facilities, and even acquiring other operations.
Some respondents indicated that, without the assistance of private equity, they would not have been able to continue in business. And some commented that private equity contributions allowed the introduction of BEE into their operations or enabled them to improve on their existing BEE ratings.
The survey showed that private equity beneficiaries create much-needed employment. A subsample of 31 respondents reported that the number of staff they employed within and outside South Africa grew by around 40% over the two-year period covered by the research.
Erika van der Merwe, CEO of SAVCA, says the report shows that the contribution of private equity partners extends far beyond the provision of financial backing. “Companies surveyed report that private equity contributes greatly in strengthening corporate governance, defining strategic direction and fostering innovation. All of these play a crucial role in the sustainability and long-term profitability of a business.”
Respondents to the survey expressed a preference for private equity funding over other funding routes – and nearly half of participants said they see private equity financing as preferable to other equity funding routes such as public markets.
“The willingness among private equity investors to take risks required for operational expansion, as well as their overall flexibility, financial acumen and innovative flair, was reported by a significant number of those surveyed” says Van der Merwe.
According to the survey, 70% of investee companies acknowledged better corporate governance as one of the most important contributions from their private equity partners; 64% indicated they received invaluable financial advice from their investors; and 62% felt they gained insightful guidance on strategic matters. The investee companies surveyed also demonstrated rewarding growth in performance ratios such as revenue and profit.
Aubrey Shabane, Manager: Equity Investments at DBSA, says private equity investors can help young businesses become responsible corporate citizens, with a social conscience. “They can affect the broader South African economy and act as a key driver of economic development. As we face several economic challenges, including exceptionally high and persistent unemployment, it is rewarding to note the effect of this type of investment on job creation.”
Some further benefits of private equity cited by investee respondents include help with management recruitment, as well as improved social responsibility and environmental activities.
Click here to view the survey.