Positive outlook for private equity investments in Southern Africa

Private equity investments in Southern Africa have shown signs of recovery, nudging up 2.7 per cent to R14.9 billion, according to the latest SAVCA report. While the number of investments dropped by 20 per cent to 135, experts remain optimistic about the future outlook for private equity in the region. Langa Madonko, the Co-founder and Investment Principal at Summit Africa, discussed the factors influencing the growth of private equity investments during an interview with CNBC Africa. Madonko highlighted the impact of the global pandemic on investor sentiment, noting that institutions, high-net-worth individuals, and family offices had initially taken a cautious approach towards private equity. However, he emphasized that there has been a considerable rebound, indicating a renewed focus on increasing private equity investments. He suggested that the coming year could see a brighter picture for the industry. Infrastructure investments, which have traditionally attracted significant capital, are expected to remain a key focus for investors. The urgent need for development in areas such as road and rail infrastructure, social infrastructure (hospitals, schools, housing), and power infrastructure (addressing challenges like load shedding) continues to drive interest in this sector. Additionally, Madonko highlighted emerging sectors like food security and financial inclusion as areas likely to attract substantial investment in the future. Discussing the recent trend in exits, Madonko noted a doubling in the number of exits, despite a decrease in their overall value. He attributed this trend to the impact of COVID-19 on market conditions, leading to revaluations and adjustments in asset pricing. The concept of a 'COVID discount' emerged, whereby valuations were adjusted to account for reduced productivity and sales volumes across different industries. When addressing the potential impact of rising interest rates, high inflation, and tightening global financing conditions on deal flow, Madonko expressed confidence in private equity's ability to navigate these challenges. He explained that rising inflation often makes equity more attractive as a financing tool, especially in a scenario where traditional debt becomes less viable. Despite potential market pressures, he anticipated an increase in deal flow, driven by the need for price corrections and innovative solutions within the private equity space. In the context of exits and market dynamics, Madonko highlighted a trend of delistings, with more companies opting to go private or stay private due to the challenges of the listed space. He emphasized the need to reassess the objectives of listing and explore alternative capital sources available in the private markets. While global IPOs have seen a decline, the African continent is witnessing an increase in delistings, indicating a shift towards private market activities. Overall, Madonko's insights shed light on the evolving landscape of private equity investments in Southern Africa. Despite facing uncertainties and market fluctuations, the sector remains resilient and poised for growth in the coming years.