Unpacking South African private equity exit trends
** This article was first published in the Southern African Venture Capital and Private Equity Association (SAVCA) annual journal.**
By Jaco Maritz, editor, Africa Private Equity News
Examining the prominent South African private equity exit trends, particularly the continued interest from foreign investors, the significant contribution of trade sales, and buyers’ interest in consumer-oriented companies.
1. Foreign investor interest defies economic headwinds
Despite South Africa’s myriad economic challenges – including high unemployment, stagnant growth and a beleaguered power sector – foreign investors remain willing to make substantial capital commitments to the country, as seen in private equity sales to international buyers over the past two years.
In one of the largest exits the country has seen, a consortium of investors that included Old Mutual Private Equity, Sanlam Private Equity and Brait sold their stakes in glass manufacturer Consol to Luxembourg-based Ardagh Group for an equity value of R10.1 billion ($524 million). Now rebranded as Ardagh Glass Packaging – Africa, the company operates not only in South Africa but also maintains smaller production facilities in Kenya, Nigeria, and Ethiopia. Ardagh chairman Paul Coulson remarked that the acquisition positions the company to capitalise on the growing consumer demand for glass packaging across Africa.
In 2022, Berkshire Partners and Permira, fund managers from the US and UK respectively, disposed of a majority of their shareholding in Teraco, a data centre company, to New York Stock Exchange-listed Digital Realty. Teraco operates seven data centres in Johannesburg, Cape Town, and Durban. Upon announcing the investment, Digital Realty emphasised the strategic importance of the acquisition, which complements its existing operations in Kenya, Mozambique and Nigeria.
Signalling faith in South Africa’s economy, Infinity Power – a joint venture between Egypt’s Infinity and the UAE’s Masdar – acquired renewable energy company Lekela from Actis and global wind and solar firm Mainstream in March 2023. Lekela operates five wind farms in South Africa and has two projects in other African countries. In a related development the same month, Danish fund manager Copenhagen Infrastructure Partners announced its first South African investment by obtaining a majority stake in clean power platform Mulilo Energy Holdings, which has developed 440 MW of operating wind and solar projects.
2. Trade sales leading the way
Since the start of 2021, about 60% of reported private equity exits in South Africa have been trade sales to strategic buyers, with the remainder of disposals primarily directed to other private equity funds.
Illustrative examples of trade sales include Apis Partners’ divestiture of its stake in South African small business financier Retail Capital to TymeBank – a move expected to enhance TymeBank’s business banking capabilities. In another notable transaction, Sanlam Private Equity relinquished its stake in Weldamax, a distributor of welding and gas products in South Africa, to industry supplier Air Products. Additionally, in 2022, US-based investment firm Carlyle and Ethos Private Equity (now part of The Rohatyn Group) received final approval for the sale of their respective shareholding in logistics firm J&J Group to Johannesburg-based Imperial.
Several exits to alternative investment funds have also been observed, including Sanlam Private Equity’s divestment of its stake in the internet fibre company MetroFibre Networx, which was acquired by investors such as African Infrastructure Investment Managers (AIIM) and the French infrastructure fund manager STOA. In 2022, Carlyle consented to offload its majority shareholding in Amrod, a supplier of branded promotional products, to Oppenheimer Partners. Additionally, in 2021, Metier disposed of three South African wind farm assets to the Revego Africa Energy Fund.
While exits via stock exchange listings have been scarce in South Africa in recent years, Brait, advised by The Rohatyn Group, floated part of its stake in consumer packaged goods company Premier Group on the Johannesburg Stock Exchange in March 2023. Premier produces well-established brands including Blue Ribbon bread, Snowflake flour, Iwisa maize meal and Super C sweets. Brait has received gross proceeds of R3.6 billion ($187 million) from the listing and continues to hold 47% of the company.
3. Stocking up on consumer companies
A noticeable trend in private equity exits has been the prevalence of consumer sector deals, encompassing food products, restaurants and retailers, highlighting ongoing confidence in the South African consumer.
For instance, in 2022, Actis and Westbrooke sold their respective stakes in Tapestry Home Brands to JSE-listed retailer The Foschini Group (TFG). Tapestry’s portfolio includes furniture retailer Coricraft, bedding retailers Dial-a-bed and The Bed Store, as well as home textile retailer Volpes. TFG’s motivation for the investment included the desire to expand into new product categories, enhance Tapestry’s growth using TFG’s retail credit offering, and capitalise on Tapestry’s scalable manufacturing and distribution capabilities.
In the same year, RMB Ventures concluded the sale of the Studio 88 retail group – owner of outlets such as Studio 88, Skipper Bar, Side Step and John Craig – to Mr Price, marking the end of a 10-year partnership that saw the branded athleisure business grow from 100 outlets to 777.
Health and wellness-related consumer products have also garnered interest. In March 2023, Kleoss Capital completed its full exit from Real Foods, which holds a controlling interest in Highveld Honey Farms, South Africa’s largest honey manufacturer and distributor, as well as various other health food manufacturers and distributors. The firm partially exited in March 2022 when Real Foods sold the Kauai and Nu Health quick-service restaurants to the Virgin Active Group. The full exit was realised through a recapitalisation led by Rand Merchant Bank, Network Investment Partners, and various family offices and private investors.
Cape Town-based private equity investment holding firm Infinitus has divested its stakes in two South African consumer health and wellness companies to EXEO Capital’s Agri-Vie Fund II. In 2021, Infinitus sold its stake in Maia Group, a holding company that encompasses both Wellness Warehouse and True Health Holdings. Wellness Warehouse is a retailer offering natural health, food, beauty and homecare products, while True Health Holdings operates as a manufacturer, wholesaler and distributor catering to the broader natural healthcare market. Following this, in 2022, Infinitus executed another exit to EXEO, this time relinquishing its stake in Vital Health, one of the nation’s most established producers and distributors of vitamins, minerals and supplements.
In conclusion, despite economic headwinds, South African assets continue to attract attention from both local and international investors. Recent exit activity illustrates the interest from trade buyers aiming to expand their reach and diversify their offerings through the acquisition of private equity backed companies. Additionally, Africa-focused private equity funds, armed with dry powder, are actively seeking new investment opportunities.