BEE & Private Equity powering on together by ProQuest

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While 2008 saw the rest of the world go into a financial tailspin, it appears that the South African private equity industry remained in a relatively healthy position. This bodes well for Black Economic Empowerment (BEE) in South Africa as, despite the recent negative media attention, the past year saw investments into BEE grow, and we expect this trend to continue in 2009 and beyond. Private equity investments in entities that are black owned, empowered or influenced are up 38% from RTI. 8 billion during 2007 to R16.3 billion during 2008. This R16.3 billion was invested across 331 BEE investments in 2008 at an average deal size of R49 million. R29 billion is available for further investment by the whole industry, just on 80% of these available funds are managed by fund managers that are at least black influenced or managed by governmental funds. This represents a significant pool of capital for funding businesses and continuing the vital socioeconomic BEE process.

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     BEE
     W     hile 2008 saw the rest of the world go into a financial tailspin,
           it appears that the South African private equity industry
     remained in a relatively healthy position. Even though both deal
     value and flow during the past few months were lower than
                                                                & Private Equity



     the previous year, the industry still reported over R20 billion of
                                                                               powering on together


                                                                                  • 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
     investment activity in 2008. The private equity industry in South              ownership.
     Africa also reached a momentous milestone in 2008 when total
     assets under management exceeded R100 billion.                            South Africa’s private equity industry boasts total funds under
                                                                               management of R103.1 billion (inclusive of undrawn commitments
     This bodes well for Black Economic Empowerment (BEE) in South             that are available for further investment of R29.2 billion). This is
     Africa as, despite the recent negative media attention, the past          a R16.8 billion (19.5%) increase from funds under management
     year saw investments into BEE grow, and we expect this trend to           at end 2007 of R86.3 billion (inclusive of R31.6 billion undrawn
     continue in 2009 and beyond. Private equity investments in entities       commitments). The industry has achieved a compound annual
24   that are black owned, empowered or influenced are up 38% from             growth rate of 14.4% of total funds under management since 1999.
     R11.8 billion during 2007 to R16.3 billion during 2008. This R16.3        If one analyses the funds under management from a BEE
     billion was invested across 331 BEE investments in 2008 at an             perspective and include funds that are provided by the South
     average deal size of R49 million. R29 billion is available for further    African government (such as the National Empowerment Fund, The
     investment by the whole industry, just on 80% of these available          Industrial Development Corporation, the Umsobomvu Youth Fund
     funds are managed by fund managers that are at least black                and others) the growth is also staggering; R68.6 billion of funds
     influenced or managed by governmental funds. This represents a            under management at end 2008, an increase of 16.3% from 2007
     significant pool of capital for funding businesses and continuing the     (R59 billion) a dramatic increase from the funds under management
     vital socio-economic BEE process.                                         levels of 2004 (R24.4 billion) and 2005 (R34.1 billion).

     Private equity in South Africa is a significant role player in the        Figure 1 – Funds under management by BEE fund managers at
     development of BEE. The industry’s impact on BEE is far reaching          year end (Rbn)
     and it is important to note that:                                         Source: SAVCA KPMG 2009 Private Equity Industry Performance
                                                                               Survey
     • Private equity transactions enabled higher gearing, whereby a
       combination of private equity investment and loans allow the                                                       103.1

       implementation of an appropriately geared financial structure,                                                     16.1    Black companies
       allowing management of the investee company to acquire a                                                   86.3

       significant stake in the company. This leveraged model also                                                16.1
                                                                                                                          10.1    Black empowered companies

       creates opportunities for involvement of black management and
                                                                                                                  7.9
       other BEE parties in the ownership and management of the                                          59.3             28.7    Black influenced companies
       investee company.                                                                                  2.2
                                                                                                                  22.7
                                                                                                         14.8
                                                                                39.3             42.5
                                                                                 1.9     39.7                             13.7    Captives - Government
     • The vast majority of transactions concluded by the private equity         1.5      3.6
                                                                                                  2.6
                                                                                          4.5    12.0    17.2     12.3
       industry have a significant BEE 
								
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