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South Africa Venture Capital Survey  April 1, 2001

Happy returns
Survey: SA Venture capital and private equity
KPMG and the SA Venture Capital and Private Equity Association have teamed up to provide research data on the SA venture capital and private equity industry. Erina Botha speaks to industry players about the results for the 2000 calendar year
Private equity and venture capital have the ability to make black economic empowerment succeed
THE private equity and venture capital industry with its strong business support and skills transferral component is better suited to black economic empowerment deals than traditional financing or the vagaries of the stock market.
An example is the R500-million buyout initiated and led by Ethos of hospitality industry market leader Fedics. The consortium included empowerment groups Nozala and Siphumelele Investments.
Fedics was subsequently delisted from the Johannesburg Stock Exchange.
Ethos partner Peter Schmid says the deal entrenched black ownership and, with management, the empowerment companies now control the business with a 50.1% shareholding. Ethos holds the remaining 49.9%.
The Fedics deal highlights a strong track record held by Ethos in black economic empowerment, as well as pointing to the potential of private equity in the empowerment arena. Schmid notes that Ethos has now led 11 empowerment transactions and successfully exited five of them.
"The Ethos empowerment deals have given us very satisfactory returns on equity," says Schmid, "and we are strongly differentiated from our competitors in this regard. Analysis of our empowerment investments and exits shows that black empowerment, when properly aligned with business objectives, can play an important role in the success of a private equity transaction."
Kagiso Ventures is another player in this arena with a R265-million fund which focuses on a broad range of investments, including leveraged buyouts, direct equity investments and exceptional privatisation opportunities.
LEAN MACHINE: Thando Mhlambiso's Kagiso has a R265-million fund (pictured in background)

Joint executive director of Kagiso Ventures Limited, Thando Mhlambiso, says although the fund is a wholly-owned subsidiary of Kagiso Trust Investment Company, a lean decision-making process has been introduced so that the fund's investment committee does not delay investment decisions.
Co-executive director Afzal Patel says Kagiso Ventures has an advantage over competitors in attracting deals because it has skilled and experienced black venture capitalists on its team. Formed in July 1998, Kagiso has to date consummated two transactions which together account for 15% of the fund's total commitments. It is a 34% shareholder of Callguard Holdings, the third largest security guarding company in the country and also a 25% shareholder of Debis Fleet Management, a leading vehicle fleet management company.

STABILITY IN MIND: Steve Weddle's SAEDF has invested $45-million


The US government-funded Southern Africa Enterprise Development Fund has been a major player in empowerment deals. With $100-million (about R800-million) under management, it has to date invested $45-million (about R360-million) in 18 companies in Southern Africa in 23 deals.
SAEDF CEO Steve Weddle says: "We look at a broad range of businesses, but we do have a preference for food processing, health care, financial services, manufacturing, IT, broadcasting and media."
SAEDF does not invest in seed or early stage businesses. Its minimum investment level is $1-million (about R8-million) and the average is $2-million (about R16-million).
"The US government would like to see stability and economic growth in the Southern Africa region. It is well aware of the stabilising effect of economic empowerment ."