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KPMG and SAVCA

Venture Capital and Private Equity Industry Performance Survey of South Africa

covering the 2011 calendar year

May 2012

kpmg.co.za

b

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KPMG and SAVCA Private Equity Survey 1

Foreword 2

Highlights 4

Sources of information 8

Introduction to private equity 10

Black Economic Empowerment 14

Funds under management 16

Fund raising activity 27

Investment activity 32

Analysis of BEE investments 40

Exits 42

Performance 48

Investment professionals 50

Data Tables 52

Participants 54

Glossary 58

Contents

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in South Africa. MC8375

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2 Foreword

Both KPMG and SAVCA are again proud to have collaborated for the 12th consecutive year to produce the 2011 KPMG and SAVCA Venture Capital and Private Equity Industry Performance Survey.

It is the second year we have used an online platform which has seen increased participation and improved data evaluation. Questionnaires were sent to 95 potential participants, 56 replied who represented 73 funds. In addition, alternative information was used to obtain information on a further 17 private equity firms representing 19 funds that did not complete the questionnaire. Although these did not provide us with as much information as our questionnaire, we believe the information is complete and understated, if anything. From both KPMG and SAVCA’s understanding of the Industry, we believe that the survey represents in excess of 90% of the South African private equity industry by funds under management.

This year’s survey has again highlighted the resilience of our industry in the face of difficult market conditions. Private equity remains flexible and agile as seen by the record amount of funds deployed into follow-on investments and the amounts returned to investors. Fund raising, the life blood of the industry, continues at healthy levels. The survey saw the inclusion, for the first time of the PIC’s Isibaya fund which has some R8 billion of assets under management. Even with this inclusion the historical total assets under management in the industry has continued to grow year-on-year.

South Africa remains an attractive destination for capital with its advantages in infrastructure and skills. Many portfolio companies are, however, finding the regulatory environment restrictive. It is with increasing occurrence that funds previously wholly focused on South Africa are looking at opportunities in the rest of the continent. Africa, with its young and growing middle class population, is attracting the attention of many new investors.

Foreword


Both Independent Funds and Captives Financial Services make up the majority of the funds under management. The Banking captives in particular, are experiencing increasing regulatory reforms which may see this sector decline in time. It is the view of KPMG and SAVCA that these funds will not be lost to the industry, but will result in Semi-Captives, new Independent Funds and even be absorbed into existing funds.

The private equity industry again entrenched and facilitated Black Economic Empowerment through both their management companies and in their portfolio investments. Investments which are classified as non-empowered, remain less than 25% of the total funds under management.

Turning to the actual results for the 2011 calendar year, we will leave the reader to reflect on the detail in the report, however, it is worth noting that the reported total funds under management are at an all time high of R115.8 billion.

Undrawn commitments total R34.1 billion, reflects a significant potential for future transactions. The industry remains in a healthy and steadfast position.

SAVCA and KPMG would like to extend their thanks to all the participants who took part in the survey.

A special word of thanks also goes to the survey-committee and, in particular, the previous Executive Officer of SAVCA, J-P Fourie, who has played a vital role in compiling this and previous surveys. We also owe a deep level of gratitude to KPMG’s Private Equity Client & Sectors team for their tireless efforts in producing this survey.

Warren Watkins Director – KPMG Services (Pty) Ltd Head of Private Equity Client & Sectors – Africa Region

Emile du Toit Chairperson – SAVCA

4 Highlights

• South Africa’s private equity industry had R115.8 billion in funds under management at 31 December 2011, an increase of 1.4% from R114.2 billion at 31 December 2010. This represents a compound annual growth rate of 11.6% (excluding undrawn commitments) since 1999 when the survey first began.

• R34.1 billion of the funds under management are in undrawn commitments at the end of 2011, and are available for future investments. This represents a decrease of 5.0% from the R35.9 billion of undrawn commitments at the end of 2010.

• Of the R34.1 billion in undrawn commitments, R31.7 billion (93%) is with both Independents (R21.7 billion) and Captives-Financial Services (R10.0 billion).

• Captives-Government and fund managers that are themselves black-owned, empowered or influenced (that is, have at least 5% black ownership) had R89.0 billion of funds under management at 31 December 2011, an increase of 1.5% (2010: R87.7 billion). Of the total funds under management 76.9% are thus at least black-influenced or classified as Captives-Government (2010: 76.8%).

• R8.3 billion was raised during 2011, which is down from the R11.4 billion of funds that were raised during 2010. These funds are almost exclusively earmarked for later stage investment.

• 75.0% of all funds raised during 2011 were from South African sources (2010: 38.7%). South Africa has been the source of 47% of cumulative funds raised to date and not yet returned to investors (2010: 43%).

• Investment activity is up 32.2% from R11.8 billion during 2010 to R15.6 billion during 2011. Of the R15.6 billion invested, R8.6 billion was follow-on investments, and R7.0 billion was new investments.

• Investment activity for independents only, as a % of GDP was 0.17% (2010: 0.24%). This compares with the UK of 0.75% and the US of 0.98%. Israel retains the highest percentage at 2.05%.

• A record amount of R25.7 billion was returned to investors in 2011 (2010: R18.1 billion).

Highlights


0

20

40

60

80

100

120

20112010200920082007200620052004200320022001

13.3

5.2

7.1

10.3

35.9

8.3

6.2

10.5

37.0

10.2

5.2

8.7

39.3

11.9

5.8

7.8

39.7

13.9

7.0

7.7

42.5

18.4

10.1

6.2

59.2

24.7

12.3

6.4

86.3

31.2

14.0

10.5

109.4

39.7

12.1

5.3

105.4

21.1

Captives – Other

Captives – Government

Captives – Financial Services

Independents

12.3

2.0

114.2

12.0 15.2 14.2 13.9

24.5

53.748.3

54.8

24.0

24.1

12.2

1.7115.8

53.6

24.2

42.9

Investment Holding Company0.0 0.0

0.0 0.00.0

0.0

0.0

0.00.0

Composition of total funds under management at year end (Rbn)

Total funds under management at year end, split by undrawn commitments and investments (Rbn)

0

20

40

60

80

100

120

20112010200920082007200620052004200320022001

28.2

7.7

35.9 37.039.3 39.7

42.5

59.2

86.3

109.4105.4

114.2 115.8

7.9 13.8 13.8 16.0

25.3

31.6

40.635.0

35.9

Undrawn commitments

Invested

29.1 25.5 25.9 26.5 33.9

68.8 70.4

78.3

34.1

81.7

54.7

0

10

20

30

40

50

60

Investment Holding Company

Captives – Other



Independents

25.08

23.16

10.66

0.04

0.58 Undrawn commitments

2009

Invested

24.02

12.07

4.7433.9

31.9

21.7

53.6

24.2

12.2

10.0

2.0

Undrawn commitments (R34.1 bn)

Invested (R81.7 bn)

14.2

24.0

10.2

24.10.1

1.70.31.4

Total funds under management by type as at 31 December 2011, split by undrawn commitments and invested (Rbn)

6 Highlights

0

5

10

15

20

20112010200920082007200620052004200320022001

0.60.60.61.2 1.3

4.9

2.3 2.2

14.5

15.4

10.6

3.8

11.4

0.21.1

0.7

4.2

2.22.3

0.0 0.0

14.5

0.0

15.3

0.1

11.2

8.5

2.1

3.3

0.5 0.2

8.3

8.3

0.0

Later stage

Earlier stage

Third party funds raised during the year, analysed by fund stage (Rbn)

0

20

40

60

80

100

120

38.7%

42.0%

14.2%

0.0%0.0%3.4%1.7% 75.0%

11.9%0.0%

0.0%0.0%1.2%

11.9%

13.9

0

20

40

60

80

100

120

43%

3%5%5%

8%

4.7%3.1%

23%

13%

47%

5%

5%

6%3%

22%

12%

15.2

South Africa

United States

UK

Canada

Middle East

Other

Europe excl. UK

Funds raised during 2011


Funds raised to 31 Dec 2011

not yet returned to investors



Geographic sources of third party funds raised

0

20

40

60

80

100

120

201120102009200820072006200520042003

25.4

5.25.31.51.9

5.8

10.5

4.53.6

7.0

12.3

12.0

2.8

10.1

17.2

14.8

2.2

12.3

7.9

22.7

16.1

14.0

28.4

7.8

18.4

35.1

19.9

16.3

11.6

23.8

31.1

12.1

21.2

15.38.4

14.927.3

40.826.5

22.0

Non-empowered/unclassified


Black influenced companies

Black empowered companies

Black companies

39.3 39.742.5

59.2

86.3

109.4 105.4

114.2

10.1

23.9

30.9

24.1

26.8

115.8

Funds under management by BEE fund managers at year end (Rbn)


0

5

10

15

20

25

30

20112010200920082007200620052004200320022001

2.00.42.4

1.43.5 0.8

4.3 1.8

1.3

6.4

4.61.56.9

1.426.1

8.2

18.9

2.9

7.25.6

11.8

Follow-on investments

New investments2.13.5 4.6 3.3 5.4

10.7

4.36.2

8.6

15.6

7.0

24.7

0

200

400

600

800

1000

2010200920082007200620052004200320022001

534

261

795

229178

187

245

245

235

265150

182

651

581

627

730

806834

723

618

528


New investments

422 403 440

503

561

458 468 346

599

Cost of investments made during the year, analysed by new and follow-on investments (Rbn)

0

5

10

15

20

25

30

20112010200920082007200620052004200320022001

28.2

1.01.5

16.0

20.4

18.1

8.8

Vodacom disposal

Funds returned to investors

29.0

2.44.5 4.0 4.4

6.2

2.0

9.3

25.7

10.5Venfin disposal

Funds returned to investors during the year (Rbn)

Private Equity annual investment by independents as a percentage of GDP (%)

During 2011

During 2010

MexicoMENASouth Korea

RussiaSSABrazilJapanTurkeyPolandChinaSouth Africa

IndiaUnited Kingdom

United States

Israel

1.70

2.05

1.11

0.98

1.29

0.75

0.380.33

0.240.17 0.14 0.14

0.070.13

0.010.10

0.040.10

0.220.10 0.06 0.09 0.10 0.08 0.06 0.04 0.03 0.01 0.01 0.01

8 Sources of information

Sources of information

The principal source of information for this survey was the survey questionnaire. In addition we have used the SAVCA Handbook, held discussions with certain private equity industry participants, as well as sourced public information on private equity funds, including international surveys.

The survey questionnaire was developed jointly by KPMG in South African and a specially constituted SAVCA sub-committee.

For clarity, the guidelines for participation in this survey are as follows:

Participants must:

• Include investments if they are made in South Africa, regardless of where they are managed from

• Have as their principal business the management of capital (third party and / or proprietary capital) for the provision of capital (equity or quasi equity) primarily to unlisted companies

• Employ professionals dedicated to the management of the capital and the investments made using the capital (and capital from other providers)

• Aim to generate returns, mainly through medium to long-term returns, on investment and / or social development returns.

We note that determining the level of private equity industry activity is not an easy task. Whilst certain parties lobby for a more inclusive approach to measurement, others believe that overstating the level of local activity is a disservice to the industry as this could possibly reduce the appetite of Development Financing Institutions (DFIs) and foreign investors to commit funds to South Africa in favour of other under-funded emerging markets. The ‘purists’ also argue that this survey should only measure the activity of the independent funds, as these form the core of the professionally managed private equity industry both locally and globally. This, however, would negate the significant role played by corporates, banks and DFIs in private equity in South Africa. For the purposes of presentation, and elimination if deemed necessary by specific users, we have presented data, wherever possible, split between the various types of fund managers.

Questionnaires were e-mailed to 95 (2010:102) entities that indicated that they would consider participating in the survey, 56 (2010:55) of which (representing 73 funds (2010:68)) completed the questionnaire. In addition, alternative sources were used to obtain information on a further 17 private equity firms, representing 19 funds, that did not complete the questionnaire. Although these alternative sources did not provide us with as much information as our questionnaire, we believe that the information is complete and understated, if anything.

In analysing the data, it is worth noting that comparative data for 2010 could have been restated by participants for errors/omissions in data provided for previous surveys. In addition, 2010 data is also restated for the inclusion/exclusion of funds that did/did not participate in the 2010 survey.


Other empirical data has been sourced from various sources, including:

• EMPEA Industry Statistics – Fundraising & Investment Analytics – 2011; Historical Statistics – Since 2002; Performance Data – Q3 2011 – Data as of 15 March 2012

• EVCA/Thomson Reuters European PE Returns Preliminary Performance Benchmark Study

• RisCura South African Private Equity Performance Report – Quarter ended: 31 December 2011

• Statistics South Africa

• Zephyr – a Bureau van Dijk product

• Other sources specifically included in the footnotes.

In compiling the information for this survey, KPMG has worked closely with a SAVCA sub-committee, to try to ensure meaningful interpretation and comment has been included in this report. The sub-committee reviews the document prior to its public release, but does not have access to any of the individually completed questionnaires submitted to KPMG or any other information not presented in this publication.

Although care has been taken in the compilation of the survey results, KPMG and SAVCA do not guarantee the reliability of its sources or of the results presented. Any liability is disclaimed, including incidental or consequential damage arising from errors or omissions in this report.

10 Introduction to private equity

Introduction to private equity

The term ‘private equity’ refers to shareholder capital invested in private companies, as distinguished from publicly listed companies. Private equity funds are generally investment vehicles that invest primarily in enterprises which are not listed on a public stock exchange.

An enterprise may seek private equity financing for a variety of applications, from increasing its working capital base in times of business expansion, developing new technologies and products to grow and remain competitive, making acquisitions of other businesses, to buying out certain shareholders to restructure the ownership and management of the business. Another vital application of private equity in South Africa is facilitating the introduction of BEE investment.

The role of private equityInvestments by private equity funds into companies hold great benefits besides the mere cash effect to develop businesses. Private equity investments have considerable impacts in terms of productivity, skills development and job creation, as it includes the transfer and exchange of know-how and not only the flow of capital. Private equity fund managers play an active role in managing their investments in companies as they derive a return from the increased valuation of their investments (not just debt repayment and an associated interest rate) and hence focus on business development for the companies they invest in.

In South Africa the private equity industry represents a significant sector within the overall financial services industry, and an attractive asset class within the broader capital markets. As seen across a range of indicators, the profile of the local private equity industry is that of a productive contributor to the development of the South African economy. These contributions are detailed in The Economic Impact of Venture Capital and Private Equity in South Africa 2009 study, which is available from SAVCA. In addition private equity facilitates BEE, addresses economic imbalances of the past, promotes entrepreneurial initiatives and positions South Africa to compete successfully on the global stage.

Through the use of leverage in certain transactions, private equity sponsors can assist in improving the capital efficiency of their investee companies.

As can be seen in this survey, private equity is an important source of Foreign Direct Investment (FDI), both indirectly via the raising of offshore money by local fund managers but also by direct co-investment by foreign investors.


Investment stagesFor the purposes of this survey we have broadly classified private equity into three sub-classes, namely:

• venture capital

• development capital

• buy-out funding.

Figure 1: Private equity investment stages

Private equity category

Stage of business development

Typical application

Venture capital Seed capital Funding for research, evaluation and development of a concept or business before the business starts trading.

Start-up and early stage Funding for new companies being set up or for the development of those which have been in business for a short time (one to three years).

Development capital Expansion and development Funding for growth and expansion of a company which is breaking even or trading profitably.

Buy-out Leveraged buy-out or buy-in Funding to enable a management team or empowerment partner, either existing or new, and their backers to acquire a business from the existing owners, whether a family, conglomerate or other. Unlike venture and development capital, the proceeds of a buy-out generally go to the previous owners of the entity. Buy-outs are often leveraged.

Replacement capital Funding for the purchase of existing shares in a company from other shareholders, whether individuals, other venture-backers or the public through the stock market. Unlike venture and development capital, the proceeds of replacement capital transactions are generally paid to the previous owners of the entity.

12 Introduction to private equity

Development of private equity in South AfricaBeyond being defined as a range of investment categories applicable to non-listed companies, private equity is also a distinct asset class within the broader capital market, and is supported by a well-defined industry made up of various players and stakeholders.

The current profile of the private equity industry in South Africa is the result of various historical developments in the country and in global capital markets. In South Africa, the industry was boosted by the large number of leveraged buy-outs and management buy-outs (LBOs and MBOs), resulting from the widespread disinvestment of multinationals from South Africa in the 1980s. These transactions were structured, financed and managed by the major commercial, merchant and investment banks of the time.

As these local banks developed the in-house expertise to manage private equity investments on an internally funded basis, there was a global trend, especially in the US and Europe (more specifically the UK) towards the formation and management of private equity funds whose capital was sourced from third party investors such as pension funds, large corporations and other institutional entities.

In South Africa the private equity industry benefited from the global trend towards recognising the asset class as an attractive investment vehicle for investors, combined with its growing reputation as an effective means of economic development for Governments and development agencies. It may be argued that South Africa has one of the most sophisticated private equity industries among emerging and developed markets, with different funds at all stages of business development, from start-up venture capital funds through to late-stage and buy-out funds.

Globally in 2000 the vast majority of funds (77%), were focused on North America. This has subsequently fallen to 44.5% in 2011, as private equity has steadily globalised1.

1 Information supplied by Zephyr – a BVD product


Types of private equity firmsA distinction needs to be made between captive and independent fund managers. Fund managers include Independents who manage funds on behalf of third parties as well as Captives who manage on-balance sheet investments that were funded by a parent or group often from an indeterminate pool of money. Captive funds are for the purpose of this survey further classified into the captive funds of Government, financial services (including banks and insurance companies) and other captive funds (including corporates). A further category of funds has been included in the 2011 survey for Investment Holding Companies 2.

Independent fund managers raise cash commitments from third party investors. Generally, in terms of the agreement between the third party investors and the private equity fund manager, the private equity firm draws down on the commitments as and when investments are to be made. Independents are the dominant type of firm in the UK, the rest of Europe and in the US, where these funds are structured as limited partnerships. Private equity firms typically act as the general partner of the limited partnership, whilst institutions and other investors become limited partners.

Unlike captive funds, independent funds are usually closed ended. This means that once a fund has been raised, it is closed out, following which no further commitments are accepted from third parties. Typically, third parties’ commitments expire, often according to a time schedule based on a ‘use it or lose it’ principle, once a maximum drawdown time period expires. Professional private equity managers usually earn income from a combination of a management fee based on total commitments plus an enhanced carried interest, which is based on the performance of the fund relative to a benchmark. Captive fund managers usually do not charge any management fee.

In line with recent trends in many developed private equity markets, we are likely to soon see the ‘spin-out’ of private equity teams of some of South Africa’s financial institutions into semi-captive fund managers.

2 An investment vehicle that acts as a holding company by owning shares of other companies. Investment Holding companies typically do not have committed investable sources of capital from third parties (as the case with Independents); and typically are able to have longer term investment holding periods

Black Economic Empowerment

One of the notable features of South Africa’s private equity industry is the very significant role it plays in the development of BEE. The industry’s impact on BEE is far reaching, as detailed in the various sections of this survey. It is specifically important to note that:

• The Codes of Good Practice for Broad-Based BEE (BEE Codes), issued by the Department of Trade and Industry (DTI), stipulate the conditions under which a company may treat its ownership arising from a private equity fund as if that ownership were held by black people. These requirements were finalised in June 2007 and provide clarity on how to further increase its already significant contribution on this vital socio-economic process. The requirements can be summarised as follows:

− More than 50% of any exercisable voting rights associated with the equity instruments through which the private equity fund manger holds rights of ownership must be held by black people

− More than 50% of the profits made by the private equity fund manager after realising any investment made by it, must by written agreement, accrue to black people

− The private equity fund manager must be a black-owned company, as defined in the BEE Codes

− Over a 10-year period, the private equity fund must have more than 50% of the value of funds invested, invested in black-owned enterprises that have at least 25% direct black ownership.

• Private equity transactions enable higher gearing, whereby a combination of private equity investment and bank loans allow the implementation of an appropriately geared financial structure, allowing management of the investee company to acquire a significant stake in the company. This leveraged model also creates opportunities for the involvement of black management and other BEE parties in the ownership and management of the investee company.

• The vast majority of transactions concluded by the industry have a significant BEE component and the majority of private equity fund managers have a BEE element to their own shareholding structure.

14 Black Economic Empowerment

16 Funds under management

Funds under management

The survey shows that South Africa’s private equity industry now has a total of R115.8 billion funds under management (inclusive of undrawn commitments of R34.1 billion). This includes both Captives, Independents and Private Equity Investment Holding Companies. It also includes for the first time the PIC’s fund of some of R8 billion. This total is a R1.6 billion (1.4%) increase from funds under management at 31 December 2010 of R114.2 billion (inclusive of R35.9 billion undrawn commitments).

The industry has achieved a compound annual growth rate of 11.6% of total funds under management (excluding undrawn commitments) since 1999 when the survey began. In analysing the research it is important to note that, only comparative 2010 information has been restated, but not pre-2010 information. This takes into account participants updated returns and due to the inclusion or exclusion of funds that did or did not participate in the 2010 survey.

Funds under management by Captives-Government increased on a restated amount from 2009 to 2010 from R12.1 billion to R21.2 billion. The main reason for this is the first time inclusion in the survey of the Isibaya Fund as administered by the PIC, which amounts to R8.3 billion in 2010.

Independents have decreased total funds under management by R1.2 billion from R54.8 billion at 31 December 2010 to R53.6 billion at 31 December 2011.

Captives-Financial Services’ total funds under management increased by R0.2 billion from R24.0 billion at 31 December 2010 to R24.2 billion at 31 December 2011.

Independents and Captives-Financial Services in 2011 account for 67% of the total Funds Under Management.

General funds remain dominant, with more than two thirds of funds under management at 31 December 2011 in the category (74.5%) of General/No specific focus.

Total undrawn commitments at 31 December 2011 are R34.1 billion

(2010: R35.9 billion), of which R21.7 billion (2010: R23.5 billion) reflects the undrawn commitments of Independent fund managers.

Captives-Government and fund managers that are themselves black-owned, empowered or influenced (that is, have at least 5% black ownership) had R89.0 billion of funds under management at 31 December 2011, a increase of 1.5% (2010: R87.7 billion). 76.9% of total funds under management are thus at least black-influenced or classified as Captives-Government (2010: 76.7%).

R19.1 billion of the funds under management of at least black-influenced companies and Captives-Government at 31 December 2011 (2010: R20.2 billion) remain undrawn at year-end. This represents 56.0% of the total undrawn commitments (2010: 56.3%).


Figure 2: Total funds under management

2008 – R109.4bn2009 – R105.4bn

2010 – R114.2bn2011 – R115.8bn

21%Captives – Government R24.1bn(6 firms)

Captives – OtherR12.2bn (10 firms)

Independents R53.6bn(42 firms)

Captives – FinancialServices R24.2bn (11 firms)

11%

1%

46%

21%

Captives – Government R21.1bn(6 firms)



18%

2%

48%

38%




11%

5%

46%

28%




13%

10%

49%

Investment Holding CompanyR1.7bn (8 firms)

21%

11%

Investment Holding CompanyR2.0bn (8 firms)





Figure 3: Composition of funds under management at year end (Rbn)

0

20

40

60

80

100

120

20112010200920082007200620052004200320022001

13.3

5.2

7.1

10.3

35.9

8.3

6.2

10.5

37.0

10.2

5.2

8.7

39.3

11.9

5.8

7.8

39.7

13.9

7.0

7.7

42.5

18.4

10.1

6.2

59.2

24.7

12.3

6.4

86.3

31.2

14.0

10.5

109.4

39.7

12.1

5.3

105.4

21.1

Captives – Other

Captives – Government³


Independents

12.3

2.0

114.2

12.0 15.2 14.2 13.9

24.5

53.748.3

54.8

24.0

24.1

12.2

1.7115.8

53.6

24.2

42.9

Investment Holding Company0.0 0.0

0.0 0.00.0

0.0

0.0

0.00.0

Figure 4: Composition of total funds under management at year end by the focus of the fund (Rbn), includes Pan-African funds4

1.2 2.30.42.2

22.3

1.1

86.3

General/No specific focus

ICT

Infrastructure

Real Estate

Mining and Resources

Other

Mezzanine

2011– R115.8bn

1.1 2.41.6

2.0

21.9

1.1

84.1

2010 – R114.2bn

3 Captives-Government includes the PIC Isibaya fund for the first time in 2010 (R8.3 billion) and 2011 (R9.2 billion).

4 The total funds under management includes Pan-Africa funds who have an element of undrawn commitments that may be invested in South Africa or other unspecified African countries.


Figure 5: Total funds under management at year end, split by undrawn commitments and investments (Rbn)

0

20

40

60

80

100

120

20112010200920082007200620052004200320022001

28.2

7.7

35.9 37.039.3 39.7

42.5

59.2

86.3

109.4105.4

114.2 115.8

7.9 13.8 13.8 16.0

25.3

31.6

40.635.0

35.9

Undrawn commitments

Invested

29.1 25.5 25.9 26.5 33.9

68.8 70.4

78.3

34.1

81.7

54.7

Figure 6: Total funds under management by type as at 31 December 2011, split by undrawn commitments and invested (Rbn)

0

10

20

30

40

50

60


Captives – Other



Independents

25.08

23.16

10.66

0.04

0.58 Undrawn commitments

2009

Invested

24.02

12.07

4.7433.9

31.9

21.7

53.6

24.2

12.2

10.0

2.0

Undrawn commitments (R34.1 bn)

Invested (R81.7 bn)

14.2

24.0

10.2

24.10.1

1.70.31.4


Figure 7: Total funds under management at year end, split by invested and geographical undrawn commitments (Rbn)

0

20

40

60

80

100

120

2011201020092008

68.8

25.1

15.5

109.4105.4

114.2

19.9

15.1

18.2

17.7

70.478.3

115.8

17.1

17.0

81.7

Invested

Undrawn commitments South Africa

Undrawn commitments Pan Africa

Figure 8: Classification of undrawn commitments by stage of investments (Rbn)

0

10

20

30

40

50

2011201020092008

36.8

3.8

40.6

35.01.9

35.533.7

33.1

Later stage investments

Earlier stage investments

35.934.10.40.4


Figure 9: Classification of undrawn commitments by type of fund manager (Rbn)

0

10

20

30

40

50

2011201020092008

28.1

2.42.1

8.0

40.6

35.0 35.9

11.2

0.6

9.6

2.20.5

23.2 23.5

Independents

Captives Financial Services

Captives Government

Captives Other


0.00.1

34.1

10.0

2.00.3

21.7

0.1

Figure 10: Composition of later stage, independent undrawn commitments by focus of the fund (Rbn)

0

5

10

15

20

25

30

2011201020092008

12.7

12.3

0.30.4

25.7

21.223.1

12.415.9

General / No specific focus

Mining and resources

Other

8.5

0.30.0

6.8

0.4

0.0

21.3

14.4

6.5

0.4

0.0

Mezzanine


Figure 11: Funds under management by BEE fund managers at year end (Rbn)

0

20

40

60

80

100

120

201120102009200820072006200520042003

25.4

5.25.31.51.9

5.8

10.5

4.53.6

7.0

12.3

12.0

2.8

10.1

17.2

14.8

2.2

12.3

7.9

22.7

16.1

14.0

28.4

7.8

18.4

35.1

19.9

16.3

11.6

23.8

31.1

12.1

21.2

15.38.4

14.927.3

40.826.5

22.0

Non-empowered/unclassified




Black companies

39.3 39.742.5

59.2

86.3

109.4 105.4

114.2

10.1

23.9

30.9

24.1

26.8

115.8


Comparison to the global marketAlthough the South African private equity industry is small in comparison to those of the US and UK, it is well established and locally significant.

Using the available EMPEA information, but recalculating the South African percentages using the South African survey data, South Africa has investment activity as a percentage of GDP for 2011 of 0.17% (2010: 0.24%). The calculation relates to Independents only in order to compare directly with the EMPEA data. South Africa’s Private Equity Investment as a percentage of GDP is higher than China (0.14%), Brazil (0.10%) and Russia (0.08%), but behind India (0.33%). It is still some way off that of the United States (0.98%), the United Kingdom (0.75%) and Israel (2.05%)5.

Figure 12: Private Equity annual investment by independents as a percentage of GDP (%)

During 2011

During 2010

MexicoMENASouth Korea

RussiaSSABrazilJapanTurkeyPolandChinaSouth Africa

IndiaUnited Kingdom

United States

Israel

1.70

2.05

1.11

0.98

1.29

0.75

0.380.33

0.240.17 0.14 0.14

0.070.13

0.010.10

0.040.10

0.220.10 0.06 0.09 0.10 0.08 0.06 0.04 0.03 0.01 0.01 0.01

5 Of the five categories of funds used in the KPMG/SAVCA Survey, EMPEA only includes “Independents”. All captives, whether financial services, government or other are excluded.


The figure below uses the EMPEA data for Russia/CIS, India, China and Brazil, with South African data collated from this survey. This calculation relates to Independents only in order to compare directly with the EMPEA data.

Figure 13: Emerging markets private equity fund raising totals by select markets US$m6

0

5000

10000

15000

20000

25000

30000

2011201020092008200720062005200420032002

2.20.2

2.7

0.10.3

0.1

0.20.20.20.20.70.1

0.20.8 1.6

0.50.30.70.20.42.1

1.30.36.7

2.1

2.9

4.3

2.011.5

0.2

2.5

4.6

3.9

1.8

2.3

15.1

3.6

14.5

7.7

0.91.127.8

6.6

0.5

4.0

0.411.9

0.4 1.1

7.5

3.3

1.5 13.5

Brazil

China

India

Russia/CIS

South Africa

0.1

7.1

16.6

2.7

0.5 27.0

0.1

6 EMPEA Industry Statistics – Fundraising & Investment Analytics – 2011; Historical Statistics – Since 2002; Performance Data – Q3 2011 – Data as of 15 March 2012. South African totals are based on information supplied by the participants in the 2011 survey


The data tables below from Zephyr have been updated to reflect South African data as per this survey. The South African data includes the total investments for the 2011 year, but excludes Business Partners. Business Partners, which has many small deals, was excluded for comparative purposes as many of these smaller deals are not reported and therefore in all likelihood are not included in the Zephyr data.

Figure 14 : Country ranking7

Country Ranking - Deal Value during 2011 (US$ million)

1 United States Of America 111 342 11 Italy 5562 21 Brazil 2 775

2 United Kingdom 17 349 12 Netherlands 4760 22 Republic Of Korea 2 707

3 Canada 13 297 13 Germany 4618 23 Israel 2 620

4 France 13 141 14 Cayman Islands 4490 24 Belgium 2 588

5 Sweden 10 099 15 Peru 3934 25 Barbados 2 249

6 Japan 8 471 16 Finland 3860 26 South Africa 1 850

7 Australia 8 263 17 China 3474 27 Denmark 1 389

8 Russian Federation 7 144 18 Bermuda 3328 28 Poland 1 255

9 India 6 565 19 Switzerland 3105 29 Turkey 1 148

10 Spain 6 287 20 Luxembourg 3010 30 Hong Kong 1 145

Figure 15: Country ranking

Country ranking – Number of deals during 2011

1 United States Of America 1 368 11 Netherlands 87 21 Japan 27

2 France 396 12 Italy 81 22 Poland 26

3 United Kingdom 364 13 Finland 68 23 Republic Of Korea 23

4 India 276 14 Brazil 44 24 New Zealand 22

5 South Africa 168 15 Belgium 40 25 Switzerland 20

6 Germany 155 16 Australia 36 26 Cayman Islands 19

7 China 141 17 Israel 35 27 Ireland 18

8 Canada 116 18 Russian Federation 34 28 Turkey 15

9 Sweden 101 19 Norway 34 29 Czech Republic 13

10 Spain 91 20 Denmark 27 30 Mexico 12

7 Information supplied by Zephyr, a BvD product.


6 Zephyr - a Bureau van Dijk product


The total of third party funds raised in 2011 decreased by 27.2% from R11.4 billion during 2010 to R8.3 billion during 2011. The significant majority of these funds are for later stage investment.

The majority of reported fund raising activity during 2010 and 2011 was by Independents (52.8%).

The major fund raisers for 2011 were African Infrastructure Investment Managers, Ethos Private Equity, Old Mutual Investment Group South Africa, the Phatisa Group and Trinitas Private Equity.

In 2010 the major fund raisers included African Infrastructure Investment Managers, Adlevo Capital, Agri-Vie/Sp-Aktif Investments, Emerging Capital Partners, International Housing Solutions, Old Mutual Investment Group South Africa, Trinitas Private Equity, Vantage Risk Capital and Zico Capital.

Of the total R8.3 billion raised in 2011, only R2.1 billion (24.6%) was from foreign sources. 50% of all third party funds raised during 2011 were from pension and endowment funds (2010: 16.3%). The next largest categories during 2011 were insurance companies (19%) and fund of funds (13%).

South Africa contributed 75% (2010: 38.7%) of funds raised during 2011. Funds raised from the USA were the next highest contributor with 11.9% (2010:1.7%).

Cumulatively, of the funds raised but not yet returned to investors, South Africa is the main source of fund raising (47%), ahead of the UK (22%) and the US (12%).

When fund raising overseas, it is essential that local fund managers are able to demonstrate local support. With a 75% contribution to funds raised during 2011, local funders remain an important contributor to the South African private equity industry.

22.6% of cumulative third party funds raised and not returned to investors as at 31 December 2011 were from governments, aid agencies and DFIs, followed by pension and endowment funds (16.8%) and insurance companies (13.4%).

Fund raising activity

28 Fund raising activity

Figure 16: Third party funds raised during the year, analysed by fund stage (Rbn)

0

5

10

15

20

20112010200920082007200620052004200320022001

0.60.60.61.2 1.3

4.9

2.3 2.2

14.5

15.4

10.6

3.8

11.4

0.21.1

0.7

4.2

2.22.3

0.0 0.0

14.5

0.0

15.3

0.1

11.2

8.5

2.1

3.3

0.5 0.2

8.3

8.3

0.0

Later stage

Earlier stage

Figure 17: Source of third party funds raised during 2011 (Rm)

25.08

Local source (R 6 305.3 m)

Foreign source (R 2 062.7 m)

BanksCorporatesGovt aid agencies& DFIs

Family O�ces

Private Equity fund of funds

Insurance companies

Pension & endowment

3 619.3

510.3

4 129.6

1 077.2

370.6

859.1

197.2

1 622.3

1 622.3

2 040

1 450

19.4

1 057.8 494.6

364.5

0.0197.2

0.0112.0

112.0370.60.00.0


Figure 18: Source of third party funds raised during 2010 (Rm)

25.08

Local source (R 4 415.9m)

Foreign source (R 7 033.8m)

BanksCorporatesPrivate Equity fund of funds

Insurance companies

Family O�ces

Pension & endowment

Govt aid agencies& DFIs

3 632.8

605.5

4 238.3

1 766.2

1 156.21 226.4

945.8

1 464.6

407.2

1 871.8

2 040

1 450

1 450.1 1 226.4 459.5

486.3 0.0245.0245.01 156.2

0.00.0

316.1

Figure 19: Source of third party funds raised to 31 December 2011 not yet returned to investors (Rm)

25.08

Local source (R 27 683 m)

Foreign source (R 31 573 m)

Family O�cesCorporatesPrivate Equity fund of funds

BanksOther/Undisclosed

Insurance companies

Pension & endowment

Govt aid agencies& DFIs

2 020

11 350

13 370

7 959

6 500

7 961

6 308

9 978

7 039

546

4 041

7 237

722494.6

7 961

3 079

2 064

935

1 102

5 143

5 954

2 267

2 939

2 037

0.0

30 Fund raising activity

0

20

40

60

80

100

120

38.7%

42.0%

14.2%

0.0%0.0%3.4%1.7% 75.0%

11.9%0.0%

0.0%0.0%1.2%

11.9%

13.9

0

20

40

60

80

100

120

43%

3%5%5%

8%

4.7%3.1%

23%

13%

47%

5%

5%

6%3%

22%

12%

15.2

South Africa

United States

UK

Canada

Middle East

Other

Europe excl. UK







Figure 20: Geographic sources of third party funds raised

32 Investment activity

The reported value of private equity investments increased by 32.2% from R11.8 billion during 2010 to R15.6 billion during 2011. The total number of investments decreased by 26, from 547 to 521 during the same period.

In 2011, for the first time in the history of the survey, follow-on deals (R8.6 billion) have exceeded new investments (R7.0 billion).

The overall average investment deal size has increased from R21.6 million for the 2010 year to R29.9 million during 2011. New investments’ average deal size increased from R17.3 million during 2010 to R19.8 million during 2011 while follow-on investments average deal size increased from R29.8 million during 2010 to R51.5 million during 2011.

In terms of the number of reported investments, Business Partners, classified as Captives-Other, was again by far the most active investor in the South African private equity market, contributing 353 (67.8%) of the total number of reported investments made during 2011 (2010: 375, 68.6%), although less than 1% in terms of the cost of total investments made during 2011 (2010: 4.2%). Business Partners’ average deal size was R1.85 million in 2011 compared to R1.35 million in 2010.

If Business Partners’ investments are excluded, the total average deal size during 2011 increases to R89 million (2010: R65.7 million), new investments’ average deal size during 2011 decreases to R73.9 million (2010: R79.5 million) and follow-on investments average deal size during 2011 increases to R105.6 million (2010: R55.2 million).

Captives-Financial Services, Captives - Government and Independents dominated investment activity by value during 2011. By number, Captives-Other has the largest number of deals, as this category includes investments made by Business Partners.

Of the investments made during 2011 classified into sectors, 31.9% were in the infrastructure sector, 6.4% in the retail sector and 6.4% in the manufacturing sector.

Due to the large retail deals in 2007 and 2008 (House of Busby, Tiger Automotive, Edcon etc.) on a cumulative basis the retail sector still represents 14.7% of funds invested as at 31 December 2011. Infrastructure comprises 16.8% of all unrealized investments at 31 December 2011, with manufacturing making up 14.1%.

The cost of investments into seed, start-up and early stage entities contributed 6.3% of cumulative unrealised investments at 31 December 2011 (2010: 5.6%). This represented 17.9% of the number of investments at 31 December 2011 (2010:18.6%) and 2011, which is indicative of the proportionally larger transaction values for the later stage types of deals.

Buy-outs as a proportion of investments made increased from 23% in 2010 to 32% in 2011.

Investment activity


Figure 21: Cost of investments made during the year, analysed by new and follow-on investments8 (Rbn)

0

5

10

15

20

25

30

20112010200920082007200620052004200320022001

2.00.42.4

1.43.5 0.8

4.3 1.8

1.3

6.4

4.61.56.9

1.426.1

8.2

18.9

2.9

7.25.6

11.8



10.7

4.36.2

8.6

15.6

7.0

24.7

0

200

400

600

800

1000

20112010200920082007200620052004200320022001

534

261

795

229178

187

227

245

235

265150

188

651

581

627

730

806834

723

618

547


New investments

422 403 440

503

561

458 468359

167

521

354

599

Figure 22: Number of investments made during the year, analysed by new and follow-on investments

0

5

10

15

20

25

30

20112010200920082007200620052004200320022001

2.00.42.4

1.43.5 0.8

4.3 1.8

1.3

6.4

4.61.56.9

1.426.1

8.2

18.9

2.9

7.25.6

11.8



10.7

4.36.2

8.6

15.6

7.0

24.7

0

200

400

600

800

1000

20112010200920082007200620052004200320022001

534

261

795

229178

187

227

245

235

265150

188

651

581

627

730

806834

723

618

547


New investments

422 403 440

503

561

458 468359

167

521

354

599

8 The investment activity for 2005 repo rted in this survey excludes the acquisition of Waco for R5.4 billion (before accounting for net debt, that is, enterprise value) by CCMP Capital Asia, JP Morgan Partners Global Fund and management. The investment was not included in the survey since the private equity acquirers do not have a local office and the majority of Waco’s revenue is also generated offshore. For the 2008 year we have also excluded two investments, due to the lack of information on these investments other than enterprise value. These were the acquisition by Denham Capital of shares in an SA-based energy firm, Bio Therm Energy, with a transaction value of R1.5bn and the acquisition of a significant shareholding in Medi-Clinic Corporation by European based private equity fund, Lehman Brothers Merchant Bank, with a transaction value of R1.3bn. The investments by Brait (as an investment holding company) in Pepkor and Premier Foods in 2011 for approximately R5 billion have also been excluded.


Figure 23: Cost (Rbn) and number of investments made during the year, analysed by type of fund manager

0

5

10

15

20

20112010

4.5

1.8

0.4

0.6

4.5

3.3

0.6

11.8

15.6

3.7

0.3

1.5

6.8

20112010

63

404

387

1311

547521

1835

70

18

49


Independents

Captives – Other



Cost

of i

nves

tmen

ts (R

bn)

Num

ber o

f inv

estm

ents


Figure 24: Investments made during the year, analysed by sector9

During 2011

During 2010

Med

ia

Tele

com

s

Hea

lthca

re

Serv

ices

Info

rmat

ion

tech

nolo

gy

Bank

s, �n

anci

alse

rvic

es a

ndin

sura

nce

Infr

astr

uctu

re

Min

ing

&na

tura

l res

ourc

es

Man

ufac

turin

g

Ente

rtai

nmen

t,le

isur

e &

tour

ism

Reta

il

41.7%

39.1%

2.5%1.3%

13.3%

6.4%5.0%

6.4%

3.3% 2.6% 2.6%

15.0%

0.8% 0.6%1.7%

3.2% 2.5%0.6% 0.8% 0% 0% 0%

9 37.2% (R 5.8 billion) of investments made during 2011 were classified in the other sector category or not classified at all (2010: 13.4% / R1.6 billion). These have been excluded from the analysis shown.



Figure 25: Unrealised investment portfolio at year end, analysed by sector10

During 2011

During 2010

En

tert

ain

men

t,le

isu

re &

tou

rism

Tele

com

s

Hea

lthca

re

Ser

vice

s

Info

rmat

ion

tech

no

log

y

Ban

ks, f

inan

cial

serv

ices

an

din

sura

nce

Infr

astr

uct

ure

Ret

ail

Man

ufa

ctu

rin

g

Med

ia

Min

ing

&n

atu

ral r

eso

urc

es

16.1%16.8%

15.0% 14.7% 14.4% 14.1% 14.5%

11.8%

7.5%8.1%

6.2%6.2%

3.8%3.7%

2.3%2.8% 2.5% 2.3% 2.3%

1.7% 1.5% 1.3%

10 16.5% (R13.5 billion) of investments made during 2011 were classified in the other sector category or not classified at all (2010: 13.9% / R10.9 billion). These have been excluded from the analysis shown.


Figure 26: Analysis of investments by stage based on cost of investments11

0

20

40

60

80

100

Investments made during

2011


2010

4.3%

23.1%

67.5%

5.1%0%

32.1%

9.0%

53.8%

5.1%0%

15.2 14.3 13.9

0

20

40

60

80

100

Unrealised investements at 31 Dec 2011

Unrealised investments at

31 Dec 2010

12.9%

28.9%

52.6%

4.3%1.3%

29.9%

13.6%

50.2%

5.1%1.2%

15.2 14.3 13.9Seed Capital

Start up and early stage

Expansion and development

Replacement capital

Buyout

Figure 27: Analysis of investments by stage based on number of investments11

0

20

40

60

80

100


2011


2010

Unrealised investments

as at 2011

Unrealised investments

as at 2010

8.8%

18.1%

59.0%

14.1%

0%

16.5%

7.7%

59.1%

16.7%

0%

15.2

10.5%

16.2%

54.7%

17.7%

15.8%

10.9%

55.4%

16.9%15.2 14.3 13.9

Seed Capital

Start up and early stage

Expansion and development

Replacement capital

Buyout

0.9% 1.0%

11 Investments not classified by stage have been excluded.


Figure 28: The figure below provides an analysis of the Top 10 largest reported private equity transactions in 2011

Name of investment

Equity provider/s

Debt provider/s

Total funding raised (Rm)

Type of investment

PE Fund's equity interest

Part of syndication

BEE ownership (post deal)

Tracker Actis, MIC, RMB

Nedbank, Standard

Bank, RMB

3 900 Replacement capital

40% Yes Black empowered company

Liberty Star Consumer Holdings (Pty) Ltd

OMPE n/a 2 065 Replacement capital

15% No Black company

Universal Industries

Ethos Nedbank 1 300 LBO Controlling interest

No Not empowered

Kevro Ethos Nedbank 850 LBO Controlling interest

No Not empowered

Lodestone Brands

Standard Chartered

Private Equity

– 300 Later stage expansion

capital

Not disclosed No Not disclosed

Afrifresh Group

Standard Chartered

Private Equity

– 232 Later stage expansion

capital

30% No Not disclosed

Ferro Industrial Products (Pty) Ltd

Investec Investec 187 LBO Not disclosed No Not empowered

Vox Telecom Ltd

Investec – 172 LBO Not disclosed No Black empowered company

Teraco Treacle DBSA 157 Early stage expansion

capital

32% Yes Black empowered company

Alexander Forbes

Ethos – 100 Replacement capital

Not disclosed No Black influenced company


Figure 29: The figure below provides an analysis of the Top 10 largest reported private equity transactions in 2010

Name of investment

Equity provider/s

Debt provider/s

Total funding raised (Rm)

Type of investment

PE Fund's equity interest

Part of syndication

BEE ownership (post deal)

Autozone RMB Corvest ABSA 388 MBO 47% No Black empowered

company

Boxmore Investec Investec 284 Replacement capital

Not disclosed No Black empowered

company

South Point Lereko Metier – 224 Later stage expansion

capital

69% No Black company

NCS Resins Investec Investec 180 Replacement capital

Not disclosed No Black influenced company

TrenStar SA Vantage Capital

Vantage Capital and

RMB

135 Later stage expansion

capital

26% No Black empowered

company

Efficient Eng RMB Corvest FNB 120 MBO 26% No Black empowered

company

Burncrete Ethos/ Brandcorp

- 105 Follow-on investment

Controlling interest

No Black influenced company

Matlapeng Musa Kubu Musa Kubu 50 Early stage investment

55% No Black influenced company

Calulo Petroche

Investec – 40 Replacement capital

Not disclosed No Black company

ARIH Investec – 35 Replacement capital

Not disclosed No Black company

40 Analysis of BEE investments

The cost of investment into entities that are at least black influenced companies in 2011 was R8.1 billion, a increase of 11.0% from 2010 levels. The number of BEE investments decreased from 209 during 2010 to 183 during 2011. However, the level of activity, when compared to M&A activity in South Africa reflects that private equity BEE investments are an important element of the South African economy.

The average black economic empowerment deal size in 2011 was R44.3 million compared to R34.9 million during 2010. These are investments into black owned, empowered or influenced companies.

Figure 30: Cost of BEE investments made during the year (Rbn) (excluding Captives – Government)

0

3

6

9

12

15

During 2011

During 2010

During 2009

During 2008

During 2007

During 2006

During 2005

During 2004

During 2003

1.7%

2.9

1.7

0.04.6

0.3 0.6 1.1

1.9

0.1

3.1

1.2

1.8

3.6

0.60.51.4

3.4

6.1

2.3

11.8

5.5

1.72.7

2.5

2.1

7.3

5.2

2.5

0.48.1

2.8

1.1

5.6

5.0

2.7

13.2

Black companies


Black in�uenced companies

Figure 31: Number of BEE investments made during the year (excluding Captives – Government)

0

50

100

150

200

250

300

350

400

201120102009200820072006200520042003

26

144

15185

51

203

268

227

52

287

251

79

341

284

74

390

70

32

16319

233

173

49

39Black companies


14

8

11

18240

150

20209

120

53

10183


Analysis of BEE investments

42 Exits

Exits

Funds returned to investors increased by R7.6 billion from R18.1 billion during 2010 to R25.7 billion during 201112.

The value of disposal13 proceeds increased from R4.8 billion in 2011 to R16.5 billion during 2010. Disposals to other private equity firms or financial institutions was the most popular in value terms which it has been in the past. Sale of listed shares and IPOs was the next most popular method of disposal.

The average proceeds per disposal increased from R58 million in 2010 to R217 million in 2011.

Figure 36 shows that the reported profit (proceeds less cost of investment) on disposals of R14.2 billion during 2011 was substantially higher than the R1.9 billion during 2010. The sale to another private equity firm category was the main contributor in 2011 with R10.2 billion, however, for 2010 the sale of listed shares category with R1.1 billion was the largest contributor.

The implied times money back multiple during 2011 was 7.1 times, significantly higher than the 1.6 times reported for 2010 disposals.

12 Included in the total of R11,3 billion for 2011 “Sale to another private equity firm or financial institution” is R5.2 billion resulting from the purchase by Brait SE (listed investment holding company) of the interest held by private equity funds in Pepkor Holdings Limited and Premier Group (Pty) Limited.

13 Disposal proceeds exclude the proceeds on the repayment of preference shares/loans, proceeds from disposals for a nominal amount and dividend and interest payments.


Total funds returned to investors

Figure 32: Funds returned to investors during the year (Rbn)

0

5

10

15

20

25

30

20112010200920082007200620052004200320022001

28.2

1.01.5

16.0

20.4

18.1

8.8

Vodacom disposal

Funds returned to investors

29.0

2.44.5 4.0 4.4

6.2

2.0

9.3

25.7

10.5Venfin disposal

Figure 33: Proceeds of funds returned to investors during the year (Rm) (Excluding Venfin disposal)

During 2011 (R 25 745.2m)

During 2010 (R 9 234.0m)

Sale

to m

anag

emen

t with

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quity

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ent o

fan

othe

r �na

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ion

Writ

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ing

sale

s for

a n

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e

Div

iden

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st p

aym

ents

Shar

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List

ing

or IP

O

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le

Sale

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iste

d sh

ares

Repa

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ares

/ lo

ans

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Uns

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�rm

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n

1 569.3

11 347.6

713.7

4 899.4

3 188.93 105.4

1 646.72186.4

947.1

1 932.3

501.5 705.0

10.2676.5

160.2 317.3 276.4 20.1303.5 471.7

44 Exits

Disposals Figure 34: Analysis of disposals made during the year based on proceeds (Rm) (excludes the Vodacom disposal during 2006 and the Venfin disposal in 2010)

0

5000

10000

15000

20000

2011201020092008200720062005200420032002

28.2

083

39728136

797

167514289703

1 937

1 5797

663608544

3 401

9513 164

507325

1 274107 2

998451843781

3 075

110

4 029

2 859

411

1 704

9 113

2641 434

305

2 718

37255

4 884

984426713495836

65.91

502

1 569

947160

1 6574 835

705

11 348

1 932

317

2 186

16 488

Share buy-back by portfolio company

Sale to another private equity firm/financial institution

Trade sale

Sale to management (buy-back)

Sale of listed shares and IPO’s

Figure 35: Analysis of disposals made during the year based on number (excludes the Vodacom disposal during 2006 and the Venfin disposal in 2010)

0

30

60

90

120

150

2011201020092008200720062005200420032002

35

28

36072

16

74

16

105

16

78

18

2

19

133

4129

4

28

8

85 86

8

617

108

90

24

11

28

135

62

80

4222

90

6543

62

4444

8

12

9

1083

40

11

12

3

1076

Sale to management (buy-back)

Sale to another private equity firm/financial institution

Sale of listed shares and IPO’s

Trade sale

Share buy-back by portfolio company


Figure 36: Proceeds and cost of investments made during 2011 (Rm)

Proceeds

Cost

Shar

e bu

y-ba

ckby

por

tfol

io

Sale

of l

iste

d sh

ares

Trad

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le

Sale

to a

noth

erpr

ivat

e eq

uity

firm

or fi

nanc

ial i

nstit

utio

n

Tota

l

16 488.6

2 326.5

11 347.6

1 113.9

2 186.4

365.0

1 932.3

671.1 705.0 317.357.6 118.9

Sale

to m

anag

emen

t(B

uy-b

ack)

46 Exits

Figure 37: Proceeds and cost of investments made during 2010 (Rm)

Proceeds

Cost

Shar

e bu

y-ba

ckby

por

tfolio

com

pany

Sale

of l

iste

d sh

ares

and

IPO

’s

Trad

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le

Sale

to a

noth

erpr

ivat

e eq

uity

�rm

or �

nanc

ial i

nstit

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n

Tota

l

4 835.0

2 966.4

1 656.9

554.9

1 569.3 1 585.6

947.1

583.3 501.5

160.2176.466.2

Sale

to m

anag

emen

t(B

uy-b

ack)

Write-offs31 investments were written off during 2011, inclusive of sales for nominal amounts (2010: 24 investments). The net loss on these investments (cost less proceeds) was R1.2 billion in 2011 (2010:R417.2 million).

Cancelled/expired fundsR1.3 billion (2010: R9.4 billion) of committed but undrawn funds at 1 January 2011 were cancelled and/or expired during 2011 and are thus no longer available for investment by the fund manager. (Pamodzi Resources Fund1 R8.4 billion in 2010).

B100538_Paidf_Ad African Inv fa.pdf 1 11/16/10 11:31 AM


B100538_Paidf_Ad African Inv fa.pdf 1 11/16/10 11:31 AM

48 Performance

Performance

BackgroundMeasuring the performance of private equity funds on a consistent basis can be difficult as private equity investments’ valuations are, by their very nature, highly subjective. The overriding principle of the International Private Equity and Venture Capital Valuation Guidelines is to show a fair valuation of investments to the investor. These guidelines were released during 2005 and adopted by the majority of global private equity associations, including SAVCA and EVCA.

RisCura Fundamentals, in conjunction with SAVCA, produces a quarterly South African Private Equity report. The reported returns over different time periods show that private equity has, in most instances, out performed the Johannesburg Stock Exchange compared to listed entities as seen in Figure 38 and 39.

The disclosed 2011 valuation of unrealised investments was R79.0 billion, with a related cost of R81.7 billion. This is the first time in the history of the survey that this ratio is negative.


Figure 38: Returns over different time periods (ZAR)14

Times Money

Time period Pooled IRR Realised Unrealised Total

10 Year 23.1% 1.03 0.68 1.71

5 Year 20.0% 0.81 0.86 1.67

3 Year 17.0% 0.60 0.86 1.46

Figure 39: Listed equity comparison (ZAR)14

CAGR

Year period Pooled IRR ALSI TRI* FINDI TRI* SWIX TRI*

10 Year 23.1% 14.0% 15.9% N/A**

5 Year 20.0% 7.3% 8.9% 8.5%

3 Year 17.0% 16.4% 20.0% 17.9%

* Listed index returns are before fees** SWIX only formed in 2002TRI Total return to investors

Figure 40: Unrealised investments at year end – cost compared to valuation (Rbn)

0

20

40

60

80

100

At 31 Dec 2011

At 31 Dec 2010

At 31 Dec 2009

At 31 Dec 2008

At 31 Dec 2007

At 31 Dec 2006

At 31 Dec 2005

25

17

39

25

59

36

73

57

7673

90

78 7982

Cost

Latest valuation

14 SAVCA and RisCura South African Private Equity Performance Report – Quarter ended: 31 December 2011.

50 Private equity investment professionals

The total number of investment professionals employed in the private equity industry decreased from 599 in 2010 to 490 in 2011. Private equity funds in general did not replace their “natural” attrition leavers during 2011.

The figure below illustrates that white males still make up approximately half of all private equity investment professionals (2011:50.6%; 2010: 45.2%). The second largest category is black males which contributes 11.2% of the total reported numbers at 31 December 2011 (2010: 12.7%).

Indian, coloured and black professionals employed by the private equity industry decreased by 27 during 2011 to 146, representing a 15.6% decrease. The proportion of these professionals to the total number of professionals increased from 28.9% at 31 December 2010 to 29.8% at 31 December 2011.

18.8% of all professionals were females (2010: 24.7%).

2011

White Indian Coloured Black Not specified Total

Male 248 40 14 55 41 398

Female 37 7 5 25 18 92

Total 285 47 19 80 59 490

% Breakdown (% of total)

Male 51% 8% 3% 11% 8% 81%

Female 8% 1% 1% 5% 4% 19%

2010

White Indian Coloured Black Not specified Total

Male 271 39 16 76 49 451

Female 63 9 7 26 43 148

Total 334 48 23 102 92 599

% Breakdown (% of total)

Male 45% 7% 3% 13% 8% 75%

Female 11% 2% 1% 4% 7% 25%

Private equity investment professionals

52 Data Tables

Total funds under management at year end

Undrawn commitments

at year end

Fund raising activity during

the year

Investment activity during

the year

Proceeds from exits during the

year

R billions R billions R billions R billions R billions

Year ended 31 December 2011

Early stage funds

• Independents 0.963 0.389 0.034 0.021 0.001

• Investment Holding Companies – – – – –

• Captives (Financial Services) – – – – –

• Captives (Government) 0.111 – – 0.111 –

• Captives (Other) 0.291 0.057 – 0.029 0.845

1.364 0.446 0.034 0.161 0.846

Later stage funds

• Independents 52.633 21.331 4.377 3.299 8.396

• Investment Holding Companies 1.736 0.341 0.038 0.195 0.486

• Captives (Financial Services) 24.241 9.871 1.584 6.821 13.896

• Captives (Government) 23.948 0.132 2.318 3.600 1.320

• Captives (Other) 11.934 1.992 – 1.456 0.717

114.492 33.666 8.318 15.372 24.816

115.856 34.112 8.351 15.532 25.662

Year ended 31 December 2010

Early stage funds

• Independents 0.944 0.380 0.205 0.112 0.003

• Investment Holding Companies – – – – –

• Captives (Financial Services) – – – – –

• Captives (Government) 0.046 – – 0.046 –

• Captives (Other) 0.328 0.036 – 0.021 –

1.319 0.416 0.205 0.179 0.003

Later stage funds

• Independents 53.918 23.116 9.845 4.423 2.131

• Investment Holding Companies 1.962 0.452 0.533 0.304 0.061

• Captives (Financial Services) 23.967 9.628 0.717 4.531 4.732

• Captives (Government) 21.127 0.124 – 0.601 0.751

• Captives (Other) 11.933 2.171 0.150 1.757 1.639

112.908 35.492 11.245 11.617 9.315

114.226 35.908 11.450 11.796 9.317

Data Tables

54 Participants

Participants

KPMG and SAVCA would like to thank all of the participants for their input. Without their time and effort, this survey would not be possible.

Name Min investments (Rm) Max investment (Rm) Contact name Contact no.

Absa Capital Private Equity R250m R1 b Gareth Druce 011 895 6896

Acorn Private Equity R5m R50m Pierre Malan 021 852 2887

Actis Africa Limited US$50 US$250 Dean Smart 011 778 5900

African Infrastructure Investment

Managers (South Africa)(Pty)ltd

R200m R700m Andrew Johnstone 021 670 1234

Aureos South Africa Advisers (Pty) Ltd,

A Division Of Aureos Capital

US$1m US$38m (10% of fund size) Ron den Besten 011 884 2066

Batian Fund 1 US$3m US$10m Shaun Collyer 011 550 6000

Brait Private Equity R5m R1 bn Shaun Dougherty 011 507 1000

Business Partners Limited R 150 000 R20m Nazeem Martin 011 713 6600

Capitalworks Equity Partners (Pty) Ltd R70m R450m Garth Willis 011 301 3000

Capricorn Capital Partners (Pty) Ltd R10m R 150m Gavin Chadwick 011 666 0700

Collins Private Equity Holdings (Pty)

Ltd

Nil R25m Bruce Chelius 031 536 8004

Convergence Partners Idan Segal 011 550 5320

Development Bank Of Southern Africa R100m R700m Rashied Essop 011 313 3126

Development Partners International

LLP

€10m €40m Eduardo Gutierrez 044 207 349 5030

Emerging Capital Partners US$30m US$90m Alex-Handrah Aime 011 685 0830

Enablis Financial Corporation SA R 25 000 R2.5m Darryl Rose 021 422 0690

Edge Growth R2m R15m Daniel Hatfield 011 292 7974

Ethos Private Equity R100m R800m Craig Dreyer 011 328 7400

4Di Capital (Pty) Ltd R100 000 R5m Anton van Vlaanderen 021 659 2042

Glenhove Fund Managers (Pty) Ltd 0 0 Alun Frost 011 277 4060

Grindrod Bank Limited R10m R30m Jannie Grobbelaar 011 459 1860

Harith Fund Managers US$10m US$100M Emile du Toit 011 384 4000



Horizon Equity Partners R20m R50m Richard Flett 011 502 6940

Industrial Development Corporation

(IDC)

R1m Dependent on nature of transaction

Christo Fourie 011 269 3000

Inspired Evolution Investment

Management (Pty) Ltd

R 10 m R 100 m plus (with co-investment rights)

Christopher Clarke 021 702 1290

International Housing Solutions (Pty)

Ltd

R 25m R 250m Pamela Lamoreaux 011 215 8300

Invenfin (Pty) Ltd None None Alexandra Fraser 021 888 3355

Knife Capital R10m R30m Keet van Zyl 021 554 1573

Leaf Capital R15m R30m Paul Leaf-Wright 021 425 2295

Lereko Metier Capital Growth Fund

Managers

R 50m R 750m Paul Botha 011 268 4055

Medu Capital (Pty) Ltd R 30m R 175m Nhlanganiso Mkwanazi 011 268 9140

Musa Capital R5m R100m William Jimerson 011 771 6300

National Empowerment Fund R 250 000 R75m Setlakalane Molepo 011 305 8105

Nedbank Capital Private Equity R30m R120m Clive Howell 011 294 3321

Nodus Equity R5m R25m Erich Schulenburg 011 327 6907

Old Mutual Investment Group

Alternative Investments

R 5m R 500m - R1bn Mark Gevers 021 509 3182/6869

Pan-African Private Equity 1 Fund

Managers

R2m R200m Kuhle Kunene 011 883 8036/7

Phatisa US$5m (10% of fund size) US$20m (10% of fund size) Stuart Bradley 011 463 1920

Public Investment Corporation R50m R2bn Roy Rajdhar 012 742 3400

RMB Corvest (Pty) Ltd R 10m R 500m Kerry-Lee Hurst 011 380 8300

Sanlam Private Equity R 100m R 250m Alton Solomons 011 778 6613

Senatla Capital R10m R25m Owen Maubane 011 784 5929

SP-aktif Investments (Pty)ltd R20m N/A Herman Marais 083 377 6234

56 Participants


Sphere Private Equity (Pty) Ltd R 10m R 50m Aadil Carim 011 944 7800

Standard Chartered Principal Finance US$20m US$150m Adrian Smith 011 217 6600

Tamela Holdings (Pty) Ltd None None Sydney Mhlarhi 011 783 5027

Treacle Private Equity (Pty) Ltd R 10m R 92m Rudolf Pretorius 011 463 7476

Trinitas Private Equity R40m R150m Andrew Hall 011 809 7529

Trium Investments (Pty) Ltd N/A R 20m Andre’ Stürmer 012 803 1039

Utho Capital Fund Managers R2m R12m Stephen Pearce 011 234 1370

Vantage Risk Capital R 40m R 350m (with co-investment)

Luc Albinski 011 530 9100

Venture Partners Botswana (VPB) N$5m N$32m Anthony Siwawa 00 267 318 1012

Zico Capital (Pty) Ltd R15m R500m Tshego Sefelo 011 217 3300

Note: Only those participants in the survey that permitted the disclosure of their participation have been included in the list above

58 Glossary

Glossary

BEE Black Economic Empowerment BEE, as defined in the Financial Sector Charter, means the economic empowerment of all black people, including women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socio-economic strategies.

The definitions used in this survey for BEE companies are stated below:

• ‘Black companies’ refers to companies that are more than 50% owned and are controlled by black people. Control centres on the authority and power to manage assets, the determination of policies and the direction of business operations. ‘Black people’ refers to all Africans, Coloureds and Indians who are South African citizens and includes black companies.

• ‘Black empowered companies’ refers to companies that are more than 25% owned by black people (but not more than 50%) and where substantial participation in control is vested in black people.

• ‘Black influenced companies’ refers to companies that are between 5% and 25% owned by black people and with participation in control by black people.

• ‘Not empowered companies’ refers to companies that are less than 5% owned by black people.

BRIC Grouping of the countries of Brazil, Russia, India and China

Captive fund Those funds making investments mainly on behalf of a parent or group, typically an insurance company, bank or institutional asset manager, often from an indeterminate pool of money.

Carried interest This represents a fee enhancement for a private equity fund manager for achieving a benchmark return or hurdle rate. The fee is often set at 20% of the value of returns achieved in excess of the benchmark return.

DBSA Development Bank of Southern Africa

DFIs Developmental Finance Institutions

Edcon Edgars Consolidated Stores Limited

EMPEA Emerging Markets Private Equity Association

EVCA European Private Equity and Venture Capital Association

Follow on investments

Investments into companies where at least one round of funding has already been made.

FSC Financial Services Charter

GDP Gross Domestic Product

Gross IRR IRR before the deduction of management fees and carried interest.

Gross realised IRR Gross IRR on the total realised portfolio of investments.

Independent fund Those private equity companies, managers or funds raising and disbursing capital which has been sourced mainly from third party investors.


IPO / Listing When a company’s equity is sold to investors via a listing on an exchange.

IRR Internal Rate of Return

KPMG KPMG Services (Proprietary) Limited

LBO Leveraged buy-out

M&A Mergers and acquisitions

MBO Management buy-out

Mezzanine debt Debt which ranks behind senior secured debt but ahead of trade credit and shareholders' funds in terms of security. Mezzanine debt is often used in higher leveraged transactions to maximise funding availability from a company's own balance sheet. It may provide for equity-like features such as attached share purchase warrants or participation in cash-flow.

OMIGSA Old Mutual Investment Group of South Africa

NVCA National Venture Capital Association (US)

PIC Public Investment Corporation

Private Equity Investment Holding Company

An investment vehicle that acts as a holding company by owning shares of other companies. Private Equity Investment Holding companies typically do not have committed investable sources of capital from third parties (as the case with Independents). Private Equity Investment Holding Companies typically display the same characteristics of private equity funds who invest with management in the business with an aim to exit in three to five years. Private Equity Investment Holding Companies have the ability to delay this exit as they generally do not have a predefined date to return capital to third party investors and typically are able to have longer term investment holding periods.

PwC PricewaterhouseCoopers

SAVCA The Southern African Venture Capital and Private Equity Association

Semi-captive fund managers

Semi-captive fund managers can be subsidiaries of: a financial institution, an insurance company or an industrial company, that operate as independent companies. They manage funds in which, although their main shareholder contributes a large part of the capital, a significant share of the capital is raised from third parties.

Total funding Total funds raised by all providers of capital during a transaction. This could include the purchase consideration, funds to pay advisors fees, funds required for immediate working capital requirements, etc. This could be in the form of equity, shareholder loans, senior, mezzanine and junior debt and working capital facilities.

Trade sale Sale of business to a third party, often referred to as M&A and frequently to an acquirer within the industry of the business being sold.

UK United Kingdom

US United States of America


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and BEE credentials make it your equity partner of choice

Harvest your potential

with us

www.meducapital.co.za

Call: +27 11 268 9140

Medu Capital is an authorised fi nancial services provider

You know you want it but will you get it?

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To make them happen, you need solid advice backed by the right team with a name that speaks for itself.

To meet your needs, KPMG is also well positioned to provide Audit, Tax and a range of other Advisory services that

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For more information, please contact Warren Watkins on 011 647 7128 or email

[email protected]

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