Still wanted: smart, strategic private equity deals
The past three years have reset benchmarks in private equity and debt markets. Whereas there was previously far more “easy” money to be had, the economic downturn has brought with it an increasingly realistic and sober approach to investment, and an appreciation that one can no longer expect to achieve the same level of gearing.
Despite this however, local private equity (PE) deal activity and price expectations remain positive. With average PE ratios on the Johannesburg Stock Exchange (JSE) still high, local investors continue chasing after comparatively few deals – driving up prices.
While we’re seeing a variety of drivers behind the most recent deals, as well as those currently in the pipeline, it’s clear that PE investors have their eye on long-term returns, and an appetite for any smart, strategic deal available in the market…
Regarding the issue of funds available, Martin Coetzee, director RMB Corvest notes that many local PE funds cut back on deals at the start of the recession, “Some of these funds are now at the point where they are ready to deploy this money. We’re thus seeing many of the larger players become more active in the market, especially now that the fundamentals are supporting deal-making.”
He adds that the recovery of valuations on the JSE has additionally offered companies an ideal exit strategy: “Certain trade players are already making use of this option and selling off non-core businesses while they have the opportunity.”
Mike Donaldson, director: RMB Corvest, maintains that BEE (Black Economic Empowerment) and BBBEE (Broad-Based Black Economic Empowerment) also cannot be discounted as a key driver of local deal activity in the current market: “Within RMB Corvest’s stable alone we’ve seen the majority of our most recent deals include an element of BEE in the transaction.
Certain companies that haven’t yet complied with empowerment requirements and need to improve their BEE credentials are making enquiries as a result.” Adding to this, mature BEE investors are also making their presence more felt in the market: “Many are starting to sell off some of their equity to the next generation of BEE shareholders.
In so doing, they’re realising the wealth created by their original deals and creating a new source of liquidity that these businesses can simultaneously tap into.” Donaldson explains that the capital generated by this type of PE sale is then often reinvested by the BEE players in strategic investments based on a longer term horizon than typical PE investment timeframes.
A high demand for liquidity is providing additional impetus for many BEE deals. “With debt markets remaining tougher to access, many companies are choosing to rather use equity as a means of generating much needed liquidity to fund expansion and/or working capital,” says Donaldson. “This is correspondingly creating points of access and entry for PE, as well as newcomer BBBEE investors. It’s also allowing these companies to use PE to fuel long-term strategic growth in their industries.”
With local PE outlook seemingly positive for 2018, smart investors will undoubtedly remain on the lookout for strategic deals that will add long-term returns to their portfolios – and chase these accordingly. “Appetite for deals will continue to be tempered by the strategic value of what’s on offer,” says Donaldson. “And, while there’s seemingly every reason to invest at present, it’s ultimately all about one’s long-term return on investment.
Investors therefore need to do their homework, understand the sector and market where they will be playing, and seek out the right PE partner before making a decision. In this way, they will be properly equipped to chase the right deals – and ensure they add strategic assets to their portfolios.”
Comments
Press Office
Announcements
What's On
Subscribe to improve your user experience...
Option 1 (equivalent of R125 a month):
Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format
Option 2 (equivalent of R375 a month):
All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors
including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.
Already a subscriber?
Forgotten your password?
Receive weekly copy of Creamer Media's Engineering News & Mining Weekly magazine (print copy for those in South Africa and e-magazine for those outside of South Africa)
➕
Recieve daily email newsletters
➕
Access to full search results
➕
Access archive of magazine back copies
➕
Access to Projects in Progress
➕
Access to ONE Research Report of your choice in PDF format
RESEARCH CHANNEL AFRICA
R4500 (equivalent of R375 a month)
SUBSCRIBEAll benefits from Option 1
➕
Access to Creamer Media's Research Channel Africa for ALL Research Reports on various industrial and mining sectors, in PDF format, including on:
Electricity
➕
Water
➕
Energy Transition
➕
Hydrogen
➕
Roads, Rail and Ports
➕
Coal
➕
Gold
➕
Platinum
➕
Battery Metals
➕
etc.
Receive all benefits from Option 1 or Option 2 delivered to numerous people at your company
➕
Multiple User names and Passwords for simultaneous log-ins
➕
Intranet integration access to all in your organisation