After experiencing accelerated growth for the last three years, Sub-Saharan Africa is expected to go deep into contractionary territory in 2020. Highlights from the SAVCA 2020 Private Equity Industry Survey, however, indicate that the private equity industry remained resilient in the face of weak macroeconomic circumstances during the 2019 calendar year, which bodes well for the industry’s ability to navigate the COVID-19 crisis.

This is according to Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), who was speaking at the survey launch last night. “There’s no denying that the first half of 2020 has been a total whirlwind, but this latest survey – albeit based on 2019 data – provides useful insight into industry trends and signals the valuable role that private equity will play in the region’s economic recovery.”

Notably, van Lill highlights a significant increase in funds under management. “The private equity industry had R184.4 billion in funds under management (FUM) at 31 December 2019, up from R171 billion in 2018, representing a compound annual growth rate (CAGR) of 9.2% since 1999 when the survey first began.

“This increase in FUM is a positive indicator for the industry, as it should lead to increased investment into the region,” she explains, adding that despite Southern Africa’s tough economic conditions over the past few years, the industry was still able to raise R21.7 billion in 2019 – an impressive 69.5% more than the R12.8 billion raised in 2018.

“This strong fundraising activity is indicative of the fortitude exhibited by the private equity industry,” van Lill comments, adding that of the funds raised, R7.7 billion (35.3%) stemmed from South African sources, with R3.7bn of total funds earmarked specifically for investment in South Africa.

“The cost of investments in 2019 totalled R25.4 billion – with the top sectors invested in being infrastructure and energy, followed by telecommunications, retail and real estate. Also interesting to note is that – as a proportion of investments made by cost – over 50% of the investments made were to support portfolio companies with expansion and development.”

Highlighting the significant surge in infrastructure investment, from 6.1% in 2018 to 34.7% in 2019, van Lill notes the positive knock-on effects this offers. “Private equity investment in African infrastructure has been an emerging theme over the past decade, with funds from various regions investing actively in infrastructure projects in the energy, transport and ICT sub-categories.

“This can and does serve as a catalyst for development on the continent, in a way that fosters the achievement of targeted and specified developmental goals. Moreover, infrastructure investment opens up new opportunities for add-on or related investments. For example, a toll road project creates the scope for property development, and a host of other down-stream investment activities.”

On the topic of exits, van Lill says that funds returned to investors in 2019 totalled R12 billion, with disposals during the year amounting to R5.3 billion. “In comparison, the annual average funds returned to investors over the last five years (2015-2019) was R14.3 billion, with disposals averaging R8.6 billion over that period.”

Finally, van Lill says the report offers valuable insight into the transformation that has been realised over the past year, not only through investments, but also through the private equity professionals that form part of the industry. “In 2019 we saw an increase in African professionals in the industry, which now account for 43.2% of all professionals (2018: 34.9%).

“Also encouraging is that the vast majority (98%) of fund managers now consider, at a minimum, Environmental, Social, and Governance (ESG) factors when making an investment decision, and 78% of fund managers indicated that their key performance criteria are linked to achieving goals that go beyond financial returns,” says van Lill, who notes that the industry is also having a positive financial impact on portfolio companies. “Findings from the 2020 Survey show total earnings before interest, tax, depreciation and amortisation (EBITDA) for all portfolio companies captured by the survey increased by an average of 21.4% from 31 December 2018 to 31 December 2019.

“Over the same period, the total number of employees for portfolio companies increased by an average of 23.5%, while total revenue of the portfolio companies climbed by an average 27.4%. Similarly, the total capital expenditure of portfolio companies increased by an impressive average of 44.1% from 31 December 2018 to 31 December 2019.