SA Has Seen The End Of The Mega Transactions* Of 2007
English Translation - Afrikaans translation available here.
At the yearly Unquote Conference for the private equity industry, all in this industry agreed that 2009 was a very difficult year for local players.
Mr Stuart MacKenzie, a partner of Ethos, said the “feast meals of cheap debt” which led to the international crisis, also led to a sharp increase in transactions in 2007 in SA.
Private Equity transactions are partly financed by debt and in 2007 a large share of debt was allocated and this made these large transactions possible. “South African companies received access to a much larger pool of debt financing because the international debt market opened up for SA.” The strong economic growth also contributed to the favourable environment in this industry. Internationally there was also a rise in a larger allotment of money by the funds to this particular asset class.
This brought the international private equity companies to South Africa for the first time and caused mega transactions such as Alexander Forbes, Consol and Edcon. MacKenzie said because of South Africa’s slow reaction to the international happenings the full impact of the international financial crisis was only felt in 2009. Official numbers are not yet available but he believes the transactions would have decreased sharply.
It was also difficult to do fundraising. He described 2009 as the most difficult year to do this. “The crisis will still influence the South African private equity industry for the measurable future.” He said it is more difficult to get debt but it is not impossible to do transactions.
One of the problems currently being experienced is the underperformance of underlying investment portfolios of private equity companies.
According to him there is a feeling that investment committees of large investment funds take a hard view of private equity funds. The biggest reason for this is the bad performance of the underlying portfolios.
The recession last year also caused a setback in the companies in which private equity funds invest. The industry expects that transactions will only start to increase in the second half of this year.
Private equity companies invest for a certain time period in private companies with money they received from investors. Investment funds see this as an alternative asset class.
*transactions larger than US$1bn