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KPMG and SAVCA

Venture Capital and Private Equity Industry Performance Survey of South Africa covering the 2012 calendar year June 2013 kpmg.co.za

KPMG and SAVCA Private Equity Survey

Contents
Foreword 2 Highlights Sources of information Introduction to private equity Black Economic Empowerment Funds under management Fund raising activity Investment activity Analysis of BEE investments Exits 4 8 10 14 16 27 32 40 42

Performance 48 Private equity investment professionals Participants Glossary 50 54 58

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. 2013 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. MC10034

Foreword

Foreword
KPMG and SAVCA are proud to have collaborated for the thirteenth year in producing the 2012 KPMG and SAVCA Venture Capital and Private Equity Industry Performance Survey. The survey is widely recognised as one of the most detailed of its type globally and has given participants and other stakeholders greater understanding of the industry and its trends. Questionnaires were emailed to 126 potential survey participants; 95 participants representing 102 funds responded. Alternative sources were used to obtain information on a further 15 private equity firms representing 15 funds. Although these did not provide us with as much detail as our questionnaire, we believe the information is complete and understated if anything. From both KPMG and SAVCAs 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 years survey reflects an industry on the move, driven by revitalised global investor appetite and beckoning opportunity in the African and South African market. The lift in funds under management in the South African market reflects both the sturdy growth in portfolio values and the outcome of successful fundraising programmes during the course of 2012. Over three, five and ten years, the returns from private equity continue to outshine those from listed equity and is one reason why local and offshore investors are paying attention and committing capital to the asset class. The fundraising drive has accelerated into 2013 and already includes some headline-grabbing fund closes; next years survey therefore is likely to show an even more sizeable rise in commitments. Supported by fund managers growing access to funds, and from a post-crisis inclination towards follow-on investments in existing portfolio companies, there now is a discernible shift back in favour of making investments into new assets. Although deals are being signed across industries, a focus on infrastructure is evolving and shows an appreciation of the tremendous growth and developmental opportunity in the energy, transport, telecommunications and social infrastructure sectors. A related trend is the expanding geographic reach north of the South African border, as pan-African mandates become more popular and fund managers expand their networks. Many South African private equity houses are sitting on mature portfolios and are readying for exits. The deal flow trend is likely to gather pace during the course of 2013 and will be a blend of sales to trade buyers, to other private equity firms and possibly through listings on the stock exchange. Regulation remains a predominant theme in South African private equity and is one of the highlights of the past five years or so. Now, with far greater clarity on the regulation and legislation that govern the industry, fund managers and investors are able to navigate the asset class with a degree of confidence that didnt exist a few years ago.

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KPMG and SAVCA Private Equity Survey

Changes to pension fund regulation that gives trustees scope to allocate up to one-tenth of their portfolios to private equity, and therefore to improve portfolio diversification, are heartening. So too is the commitment made by the Government Employee Pension Fund, the largest pension fund in Africa, to allocate up to 5% of its R1.2 trillion portfolio to private equity. For pension funds, development finance institutions and other institutional investors, private equity, through its relationship-driven investment approach, its accountability to investors and its medium to long-term horizon, is a powerful tool for the implementation of sustainable-investment mandates. The asset class therefore has an increasingly important function in the development of the African region, in a way that satisfies investors need for returns. The South African private equity industry has a notable role to play in this. This survey enables all interested parties a greater understanding of the industry and its trends. KPMG and SAVCA would like to extend their thanks to all the participants in the survey. We are also grateful to the survey committee and to KPMGs Private Equity Clients and Sectors team for all their efforts in producing this survey.

Warren Watkins
Director KPMG Services (Pty) Ltd Head of Private Equity Markets Africa Region

Erika van der Merwe


CEO: South African Venture Capital and Private Equity Association

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Highlights

Highlights
South Africas private equity industry has R126.4 billion in funds under management at 31 December 2012, an increase of 10.4% from R114.5 billion at 31 December 2011. This represents a compound annual growth rate of 11.6% (excluding undrawn commitments) since 1999 when the survey first began R35.3 billion of the funds under management are in undrawn commitments at the end of 2012. R19.9 billion is exclusively available for future investments in South Africa and R15.4 billion for Pan Africa (Africa including South Africa). This represents an impressive increase of 15.5% from the R30.6 billion of the total undrawn commitments at the end of 2011 Of the R35.3 billion in undrawn commitments, 87.9% is with Independents (R25.8 billion) and 15.0% Captives-Financial Services (R5.3 billion) Captives-Government and fund managers that are themselves black-owned, empowered or influenced (that is, have at least 5.0% black ownership) had R94.6 billion of funds under management at 31 December 2012, an increase of 4.4% (2011: R90.6 billion). Of the total funds under management, 74.8% are thus at least blackinfluenced or classified as Captives-Government (2011: 79.1%) R14.4 billion was raised in 2012 which is an increase from the R10.7 billion raised during 2011 56.2% of all funds raised during 2012 were from South African sources (2011: 62.0%). South Africa has been the largest source of 46.0% of cumulative funds raised to date and not yet returned to investors (2011:45.4%) Investment activity for independents only, as a % of GDP, was 0.10% (2011: 0.14%). This compares with the UK of 1.05% and the US of 0.86%. Israel remains the highest percentage at 1.81% Investment activity is at R10.6 billion during 2012 where it was at R16.5 billion in 2011. Of the R10.6 billion invested, R5 billion was for follow-on investments, and R5.6 billion was for new investments In 2012, R7 billion of funds were returned to investors (2011: R25.7 billion).

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KPMG and SAVCA Private Equity Survey

150 120 90 60

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


126.4 114.2 105.4 0.0 5.3 12.1 2.0 12.3 21.1 114.5 0.9 10.3 28.8 1.5 4.6

109.4 0.0 10.5 86.3 0.0 6.4 12.3 59.2 0.0 6.2 10.1 18.4 42.9 24.5 13.9 53.7 14.0

24.0 29.8

31.2

39.7

24.0

21.7

35.9

30 0

0.0 10.3 7 .1 5.2 13.3

37.0 0.0 10.5 6.2 8.3 12.0

39.3 0.0 8.7 5.2 10.2 15.2

39.7 0.0 7 .8 5.8 11.9 14.3

42.5 0.0 7 .7 7 .0 13.9

24.7

Investment Holding Company


48.3 54.8 57 .5 61.7

Captives Other Captives Government Captives Financial Services Independents

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

150 120 90 60

Total funds under management at year end, split by undrawn commitments and investments (Rbn) 1
126.4 114.2 109.3 15.5 86.3 25.0 31.6 59.2 42.5 16.0 54.7 29.1 25.5 25.9 26.5 33.9 91.1 25.3 68.8 70.4 78.3 83.9 20.0 105.4 15.0 18.2 17 .7 114.5 13.4 19.9 17 .2 15.4

35.9

37.0 7 .9

39.3 13.8

39.7 13.8

30 0

7 .7

Undrawn commitments Pan Africa Undrawn commitments South Africa Invested

28.2

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

80 70 60 50 40 30 20 10 0
Independents 35.9 24.5 26.7 4.5 1.0 3.5 Captives Captives Financial Services Government Captives Other 1.6 1.1 0.4 Investment Holding Company
1

Total funds under management by type as at 31 December 2012, split by undrawn commitments and invested (Rbn) 1
61.7

25.8

29.8 5.3

30.4 2.1

Undrawn commitments (R35.3 bn) Invested (R91.0 bn)

Pan-African funds have an element of undrawn commitments that may be invested in South Africa or other unspecified African countries. A portion of the undrawn commitments is inclusive of a provision for future management fees.

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Highlights

150 120

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


126.4 114.2 109.4 18.4 86.3 16.1 7 .8 19.9 28.4 35.1 14.0 12.3 12.1 12.3 7 .0 8.4 10.1 27 .4 14.8 40.8 22.0 26.5 23.9 31.8 21.2 24.0 31.1 32.2 105.4 16.3 23.8 11.6 114.5 9.1 25.3 36.5 4.7 24.6

90 60 30 0
39.3 1.9 1.5 5.3 5.2 25.4 39.7 3.6 4.5 10.5 5.8 15.3 42.5 2.8 12.0 59.2 2.2 14.8 17 .2

7 .9 22.7

28.8

Black companies Black empowered companies Black inuenced companies Captives Government Non-empowered/unclassied

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

20
Third party funds raised during the year, analysed by fund stage (Rm)
15.4 14.5 14.4

15

11.4

10
15.3 14.5

10.6

10.7

13.9 8.5 11.2 3.6 9.9

5
1.2 0.6 0.6 1.3 1.1 0.2

4.9

4.2

2.3 2.3

2.2 2.2 0.0 0.0 0.1 2.1

3.3 0.3 0.2 0.8 0.5

Later stage Earlier stage

0.7

0.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Geographic sources of third party funds raised

100
15%

8%

100 80 60

8% 5.1%

7 .8% 6.2% 5.1% 2.1%

80 60 40

10,8% 0.0% 0.0% 0.6% 11.6%

14.2% 9.6% 0.0% 3.8% 7 .9%

5.4% 2.4%

21.3%

21.2%

12.3%

11.5%

40
62.0% 56.2%

Europe excl. UK Other Middle East Canada UK United States South Africa Funds raised to 31 Dec 2012 not yet returned to investors

20 0Funds raised
during 2011

20

45.4%

46.0%

Funds raised during 2012

0Funds raised

13.9

to 31 Dec 2011 not yet returned to investors

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KPMG and SAVCA Private Equity Survey

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


2.06 1.81

1.05 0.78

1.02 0.86

0.34 0.22 0.04 0.10 0.18 0.14 0.14 0.10 0.09 0.09 0.10 0.08 0.14 0.08 0.09 0.06 0.05 0.13 0.05 0.10 0.04

During 2011 During 2012

0.01

Israel

United Kingdom

United States

South Korea

Brazil

India

South Africa

SSA

Japan

China

Russia

MENA

Poland

Turkey

30 25 20 15

Cost of investments made during the year, analysed by new and follow-on investments (Rbn)
26.1 1.4

18.9 16.5 8.2 24.7 11.8 8.8 10.6 5.0

10
6.4 6.9 4.6 1.3 4.6 3.3 5.4 4.3 1.5 10.7 7.2 2.9

5.6

5 0

2.4 0.4 2.0

3.5 1.4 2.1

4.3 0.8 3.5

1.8

6.2

7 .7

5.6

Follow-on investments New investments

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

30

1000 25 800 20 600 15

Funds returned to investors during the year (Rbn)


25.7

795

20.4
730

806

834

235 245

723 18.1 618 265

261

651 581 229 178

627

245

187

8.8 150 25.7

528 182

16.0

10 400 5 200 0 0
534

10.5

561

6.2 599
458

7.0 9.3

4.5 29.0 422 2.4 403 1.5 4.5 2.4 1.5

4.0
440 4.0

503

10.5 6.2 2.0 2.0

28.2 1.0 1.0

468

346 7 .0

Venn disposal Vodacom disposal Funds returned to investors Follow-on investments

4.4

2001
2001

2002

2003

2004

2005
2004

2006
2005

2007
2006

2008
2007

2009

2010

2011

2012
2010

New investments

2002

2003

2008

2009

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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); and 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 126 (2011:95) entities that indicated that they would consider participating in the survey. 95 (2011:56) of them (representing 102 funds (2011:73)) completed the questionnaire. In addition, alternative sources were used to obtain information on a further 15 private equity firms, representing 15 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.

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Other empirical data has been sourced from various sources, including: EMPEA Industry Statistics Fundraising & Investment Analytics 2012; Historical Statistics Since 2003; Performance Data Q3 2012 Data as of 4 February 2013 RisCura South African Private Equity Performance Report Quarter ended: 31 December 2012 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.

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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 equity


Investments 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 2012 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.

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11

Investment stages
For 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 Venture capital

Stage of business development Seed capital Start-up and early stage

Typical application Funding for research, evaluation and development of a concept or business before the business starts trading. 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). Funding for growth and expansion of a company which is breaking even or trading profitably. 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. 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.

Development capital Buy-out

Expansion and development Leveraged buy-out or buy-in

Replacement capital

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12 Introduction to private equity

Development of private equity in South Africa


Beyond 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 buyouts (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 more 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.

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13

Types of private equity firms


A 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 were 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.

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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

14 Black Economic Empowerment

Black Economic Empowerment


One of the notable features of South Africas private equity industry is the very significant role it plays in the development of BEE. The industrys 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 the industry 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 manger after realising any investment made by it, must by written agreement, accrue to black people. - The private equity fund manger 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.

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15

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16 Funds under management

Funds under management


The survey shows that South Africas private equity industry now has a total of R126.4 billion funds under management (inclusive of undrawn commitments of R35.3 billion). This is a R11.9 billion (10.4%) increase from funds under management at 31 December 2011 of R114.5 billion (inclusive of R30.6 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 2011 information has been restated but not pre-2011 information. This is in order to take into account participants updated returns and also due to the inclusion or exclusion of funds that did or did not participate in the 2011 survey. Funds under management by Independents have increased total funds under management by R4.2 billion from R57.5 billion at 31 December 2011 to R61.7 billion at 31 December 2012. Captives-Financial Services total funds under management increased by R8.1 billion from R21.7 billion at 31 December 2011 to R29.8 billion at 31 December 2012. General funds remain dominant, with more than two thirds of the funds under management at 31 December 2012 in the category of General/ No specific focus (92.0%). Total undrawn commitments at 31 December 2012 are R35.3 billion (2011: R30.6 billion), of which R25.8 billion (2011: R 23.3 billion) reflects the undrawn commitments of independent fund managers. Captives-Government and fund managers that themselves black-owned, empowered or influenced (that is, have at least 5.0% black ownership) had R94.6 billion at 31 December 2012, a increase of 4.4% (2011: R90.4 billion).

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17

Figure 2: Total funds under management


2012 R126.4bn
Captives Other R3.0bn (6 rms) Investment Holding Company R1.6bn (2 rms)

2011 R114.5bn
Investment Holding Company R0.9bn (8 rms) 1%

Captives Government R30.4bn (6 rms)

1% 2% 24%

Captives Other R10.3bn (10 rms) 9%

48,8%

Independents R61.7bn (47 rms)

Captives Government R24.0bn (6 rms)

21% 50,2% Independents R57 .5bn (42 rms)

24% Captives Financial Services R29.8bn (13 rms)

19% Captives Financial Services R21.7bn (11 rms)

2010 R114.2bn
Captives Other R12.3bn (10 rms) 11% Investment Holding Company R2.0bn (0 rms) 2%

2009 R105.4bn
Captives Other R5.3bn (7 rms) 5% 11%

Captives Government R12.1bn (1 rms)

Captives Government R21.1bn (4 rms)

18% 48,0%

Independents R54.8bn (55 rms)

45,8%

Independents R48.2bn (37 rms)

38% 21% Captives Financial Services R24.0bn (16 rms) Captives Financial Services R39.7bn (10 rms)

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18 Funds under management

Figure 3: Composition of total funds under management

150 120 90 60 30 0
35.9 0.0 10.3 7 .1 5.2 13.3 37.0 0.0 10.5 6.2 8.3 12.0 39.3 0.0 8.7 5.2 10.2 15.2 39.7 0.0 7 .8 5.8 11.9 14.2 42.5 0.0 7 .7 7 .0 13.9 13.9 59.2 0.0 6.2 10.1 18.4 42.9 24.5 53.7 54.9 48.3 57 .5 61.7 86.3 0.0 6.4 12.3 24.7 109.4 0.0 10.5 14.0 114.4 2.0 12.3 21.2 114.5 0.9 10.3 24.0 29.8 31.2 39.7 24.0 21.7 126.4 1.5 3.0 30.4

105.4 0.0 5.3 12.1

Investment Holding Company Captives Other Captives Government Captives Financial Services Independents

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Figure 4: Composition of total funds under management at year end by the focus of the fund (Rbn), includes Pan-African funds 3
2012 R126.4bn
2.2 - 4.8

2011 R114.5bn
- 3.1 2.5

2.8

2.8

23.9

22.8

0.7 92.0

General/No specic focus


0.7 82.7

ICT Infrastructure Real Estate Mining and Resources Other Mezzanine

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.

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KPMG and SAVCA Private Equity Survey

19

Figure 5: Total funds under management at year end, split by undrawn commitments and investments (Rbn) 4

150
126.4

120 90 60
35.9 37.0 7 .9 39.3 13.8 39.7 13.8 42.5 16.0 59.2 86.3

114.2 109.4 105.4 35.9 40.6 35.0

114.5 30.6

35.3

31.6

91.1 25.3 78.3 54.7 68.8 70.4 83.9

30 0

7 .7

28.2

29.1

25.5

25.9

26.5

33.9

Undrawn commitments Invested

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

80 70 60 50 40 30 20 10 0
Independents
35.9 26.7 4.6 10.2 1.1 3.5 1.6 1.1 0.5 29.8 5.3 28.8 2.1

Figure 6: Total funds under management by type as at 31 December 2012, split by undrawn commitments and invested (Rbn) 4
61.7 25.8

24.5

Undrawn commitments (R35.3 bn) Invested (R91.0 bn)

Captives Financial Services

Captives Government

Captives Investment Holding Other Company

A portion of the undrawn commitments is inclusive of a provision for future management fees.

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20 Funds under management

150Figure 7: Total funds under management at year end, split by invested and geographical undrawn commitments (Rbn)
126.4

120 90 60
35.9 37.0 7 .9 39.3 13.8 39.7 13.8 42.5 16.0 54.7 29.1 25.5 25.9 26.5 33.9 59.2 86.3

114.2 109.3 15.5 105.4 15.0 18.2 25.0 31.6 20.0 17 .7

114.5 13.4

15.4

19.9 17 .2

91.1 25.3 68.8 70.4 78.3 83.9

30 0

7 .7

Undrawn commitments Pan Africa Undrawn commitments South Africa Invested

28.2

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

50 40 30 20 10

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


40.5 3.7 35.0 1.9 35.9 0.4 30.6 5.4 35.3 5.2

30.1 36.8 33.1 35.5 25.2

Early stage

Later stage
2008 2009 2010 2011 2012

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KPMG and SAVCA Private Equity Survey

21

50 40 30 20

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


40.5 8.0 2.1 2.4 35.0 0.6 0.0 11.2 35.9 0.5 2.2 0.1 9.6 35.3 1.1 1.0 2.1 5.3

30.6 0.2 1.7 0.1 5.5

28.1

23.2

23.5 23.0

25.8

10 0

Investment Holding Company Captives Other Captives Government Captives Financial Services Independents

2008

2009

2010

2011

2012

30 25 20 15 10

Figure 10: Composition of later stage, independent undrawn commitments by focus of the fund (Rbn) 5
25.7 0.3 0.4 21.1 0.3 0.0 12.3 8.5

23.1 0.4 20.6 18.0 0.7 0.0 4.5 0.0 6.1 1.6

6.8

0.0

15.9

5 0

12.7

12.4

12.8

12.9

Mezzanine Other Mining and resources General / No specic focus

2008

2009

2010

2011

2012

A portion of the undrawn commitments is inclusive of a provision for future management fees.

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22 Funds under management

150 0,010 120

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

126.4 114.2 109.4 105.4 16.3 11.6 23.8 114.5 9.1 25.3 36.5 31.1 35.1 21.2 12.3 40.8 27 .4 22.0 26.5 23.9 12.1 31.8 24.0 32.2 4.7 24.6

0,008 90 0,006 60 0,004 30 0,002 0,000 0


39.3 1.9 1.5 5.3 5.2 25.4 39.7 3.6 4.5 10.5 5.8 15.3 42.5 2.8 12.0 12.3 7 .0 8.4 59.2 2.2 14.8 17 .2 10.1 14.8

18.4 86.3 7 .8 16.1 7 .9 28.4

19.9

22.7

14.0

28.8

Black companies Black empowered companies Black inuenced companies Captives Government Non-empowered/unclassied

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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KPMG and SAVCA Private Equity Survey

23

Comparison to the global market


Although 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 2012 of 0.10% (2011: 0.14%). The calculation relates to investments made by Independents only in order to compare directly with the EMPEA data. South Africas Private Equity Investment as a percentage of GDP is higher than China (0.08%) and Russia (0.06%), but behind Brazil (0.18%), India (0.14%). It is still some way off that of the United States (0.86%), the United Kingdom (1.05%) and Israel (1.81%).
Figure 12: Private Equity annual investment by independents as a percentage of GDP% 6
2.06 1.81

1.05 0.78

1.02 0.86

0.34 0.22 0.04 0.10 0.18 0.14 0.14 0.10 0.09 0.09 0.10 0.08 0.14 0.08 0.09 0.06 0.05 0.13 0.05 0.10 0.04

During 2011 During 2012

0.01

Israel

United Kingdom

United States

South Korea

Brazil

India

South Africa

SSA

Japan

China

Russia

MENA

Poland

Turkey

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.

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24 Funds under management

The figure below uses EMPEA data for Russia/CIS, India, China and Brazil, with South African data collated from the 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$Rbn 7
27.7 1.1 0.9

30

27.3 0.7 0.1 2.7

25

7 .7

20
15.1 2.3 11.5 2.0 0.2 6.7 0.3 1.3 1.5 0.7 0.2 0.2 0.2 0.2 2.1 0.4 0.2 0.7 0.3 0.5 2.7 2.2 0.2 2.9 1.8 14.5 11.9 0.4 0.5 4.0 13.5 1.5 0.1 3.3 16.6

15

16.9 1.0 0.4 2.1

10 5 0

4.6

10.8

South Africa Russia/CIS India

4.3

3.9 3.6

6.6

7 .5 7 .1 1.1 2.6

China Brazil

2.1

2.5

0.4

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

EMPEA Industry Statistics Fundraising & Investment Analytics 2012; Historical Statistics Since 2003; Performance Data Q3 2012 Data as of 4 February 2013. South African totals are based on information supplied by the participants in the 2012 survey

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25

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 2012 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 comparative Zephyr data.
Figure 14 : Country ranking 8

Country Ranking - Deal Value during 2012(US$ million) 1 2 3 4 5 6 7 8 9 10 United States Of America United Kingdom France Sweden Brazil Australia Italy India China Chile 34 199 12 247 4 184 3 098 2 823 2 176 2 085 1 346 1 298 1 210 11 12 13 14 15 16 17 18 19 20 South Africa Russian Federation Spain Germany Denmark Norway United Arab Emirates Hong Kong Canada Cayman Islands 1 177 21 Israel 1 129 22 Luxembourg 1 014 23 Belgium 910 24 Poland 899 25 Japan 758 26 Morocco 695 27 New Zealand 649 28 Indonesia 478 29 Korea Republic Of 433 30 Ireland 367 289 287 285 274 243 203 198 125 122

Figure 15: Country ranking 8

Country ranking Number of deals during 2012 1 2 3 4 5 6 7 8 9 10 United States Of America South Africa United Kingdom France India Germany Spain Canada Sweden China 417 164 141 130 60 52 43 37 33 30 11 12 13 14 15 16 17 18 19 20 Italy Netherlands Brazil Israel Finland Australia Russian Federation Belgium Denmark Norway 25 21 Ireland 20 22 New Zealand 16 23 Austria 15 24 Poland 14 25 Switzerland 12 26 Japan 12 27 Turkey 11 28 Singapore 11 29 Korea Republic Of 11 30 Portugal 7 7 6 6 5 4 4 4 4 3

Information supplied by Zephyr, a BvD product.

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26 Funds under management

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Zephyr - a Bureau van Dijk product

KPMG and SAVCA Private Equity Survey

27

Fund raising activity


The total of third party funds raised in 2012 increased by 34.8% from R10.7 billion during 2011 to R14.4 billion during 2012. The majority of reported fund raising activity during 2011 (55.3%) and 2012 (59.9%) was by Independents. The major fund raisers for 2012 were Ethos Private Equity, OMIGSA Alternative Investments and Vantage Risk Capital. In 2011 the major fund raisers included African Infrastructure Investments Managers, Ethos Private Equity, OMIGSA Alternative Investments and Phatisa. Of the total R14.4 billion raised in 2012, R6.3 billion (43.8%) was from foreign sources. 36.3.0% of all third party funds raised during 2012 were from pension and endowment funds (2011: 40.7%). Government, aid agencies & DFIs accounted for 25.0% (2011: 28.1% and Insurance companies 16.4% in 2012 (2011: 16.3%). South Africa contributed 56.2% of funds raised during 2012 (2011: 62.0%). Cumulatively, of the funds raised but not yet returned to investors, South Africa is the main source of fund raising (46.02%), ahead of the UK (21.2%) and the US (11.5%). 26.9% of cumulative third party funds raised and not returned to investors were from Governments, Aid Agencies and DFIs as at 31 December 2012, followed by pension and endowment funds (20.7%) and Insurance Companies or Institutions (14.5%).

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28

Fund raising activity

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

15

15.4 14.5 14.4

15.3

11.4 10.6

10
14.5

10.7

8.5

5
1.2 0.6 0.6 1.3 1.1 0.2

4.9 3.6 4.2 2.3 2.3 0.7 0.0 2.2 2.2 0.0 0.0 0.1 2.1 3.3 0.3

11.2

9.9

13.9

Later stage
0.2 0.8 0.4

Earlier stage

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Figure 17: Source of third party funds raised during 2012 (Rbn)
5.2

25.08 3.6 0.2 4.7

2.3

2.4

3.3 2.3 2.2 0.6 0.2 0.5 0.6

3.3

1 450

0.3 0.3

0.1 0.1 0.0

1 750.0

Local source (R 8.1 billion) Foreign source (R 6.3 billion)

Private Equity fund of funds

Insurance companies

Pension & endowment

Banks

Govt aid agencies& DFIs

Private individuals

Corporates

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KPMG and SAVCA Private Equity Survey

29

Figure 18: Source of third party funds raised during 2011 (Rbn)
4.4

25.08

3.0 0.5 3.8 1.7 2.5 2.5 1 450

0.6 0.0 0.6

1.7 0.5 0.0

3.8 0.3 0.4 0.2 0.2 0.0 0.6 0.0 0.0

Local source (R 6.6 billion) Foreign source (R 4.1 billion)

Private Equity Insurance fund of funds companies

Pension & endowment

Banks

Govt, aid agencies & DFIs

Private individuals

Corporates

Figure 19: Source of third party funds raised to 31 December 2012 not yet returned to investors (Rbn)
18.2 1.7

14.0

9.8 16.5 11 350 5.8 1.5 9.0 5.7 4.3 2.9 0.8 2.4 1.2 494.6 0.9 1.2 1.1 1.0 0.2 11.1

9.7

6.6

9.7

Local source (R 31.1 billion) Foreign source (R 36.6 billion) Other / Undisclosed

Private Equity fund of funds

Govt, aid agencies & DFIs

Pension & endowment

Insurance companies

Banks

Corporates

Private individuals

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30

Fund raising activity

Figure 20: Geographic sources of third party funds raised

100
15.0%

8.0%

100 80 60

8.0% 5.1%

7 .8% 6.2% 5.1% 2.1%

80 60 40

10.8% 0.0% 0.0% 0.6% 11.6%

14.2%

5.4% 2.4% 21.3%

9.6% 0.0% 3.8% 7 .9%

21.2%

12.3%

11.5%

40
62.0% 56.2%

Europe excl. UK Other


45.4% 46.0%

20 0Funds raised
during 2011

20

Middle East Canada UK United States South Africa

Funds raised during 2012

0 Funds raised

13.9

to 31 Dec 2011 not yet returned to investors

Funds raised to 31 Dec 2012 not yet returned to investors

15.2

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31

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32

Investment activity

Investment activity
The reported value of private equity investments decreased by 35.8%% from R16.5 billion during 2011 to R10.6 billion during 2012. The total number of investments decreased by 53, from 537 to 484 during the same period. New Investments during 2012 amounted to R5.6 billion (2011: R7.7 billion) and Follow-on Investments during 2012 amounted to R5.0 billion (2011: R8.8 billion) The overall average investment deal size decreased from R30.7 million for the 2011 year to R21.9 million during 2012. New investments average deal size decreased from R21.2 million during 2011 to R19.2 million during 2012 while follow-on investments average deal size decreased from R50.6 million during 2011 million to R26.2 million during 2012. 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 320 (66.1%) of the total number of reported investments made during 2012 (2011: 353, 65.7%), although 5.8% in terms of the cost of total investments made during 2012 (2011: 4.0%). Business Partners average deal size was R1.92 million in 2012 compared to R1.85 million in 2011. If Business Partners investments are excluded, the total average deal size during 2012 increases to R60.9 million (2011: R86.0 million), new investments average deal size during 2012 decreases to R71.8 million from R74.0 million during 2011 and follow-on investments average deal size during 2012 decreases to R52.7 million from R99.4 million during 2011. Captives-Financial Services and Independents dominated investment activity by value during 2012. By number, Captives-Other has the largest number of deals, as this category includes investments made by Business Partners. Of the investments made during 2012 classified into sectors, 13.3% were in the manufacturing sector, 27.5% in the Infrastructure sector and 2% in the mining and natural resources sector. Due to some large retail deals in 2007 and 2008 (House of Busby, Tiger Automotive, Edcon etc) on a cumulative basis the retail sector still represents 13.7% of funds invested as at 31 December 2012. Infrastructure comprises 16.6% of all unrealized investments at 31 December 2012, with manufacturing making up 22.7% and mining and natural resources 11.7%. The cost of investments into seed, start-up and early stage entities contributed 9.3% of cumulative unrealised investments at 31 December 2012 (2011: 6.1%). This represented 16.3% of the number of investments at 31 December 2012 (2011:18.3%), which is indicative of the proportionally smaller transaction values for the early stage types of deals. Buy-outs as a proportion of investments made by cost, decreased from 36.0% in 2011 to 31.4% in 2012.

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KPMG and SAVCA Private Equity Survey

33

30
26.1 1.4 25 Figure 21: Cost of investments made during the year, analysed by new and follow-on investments (Rbn) 30
9

20 25 15 20

26.1 1.4 18.9 16.5 8.2 18.9 24.7 11.8 8.8 16.5 10.6 5.0 8.8 7 .7 10.6 5.6 5.0

10 15
6.4

6.9 4.6 1.3 1.5 24.7

8.2 10.7

7.2 2.9

5.6 11.8

105 50 0

2.4 0.4 2.0 2.4 0.4 2.0

3.5 1.4 2.1

4.3 0.8 3.5 4.3 2003 0.8 3.5

1.8 4.6 6.4 1.8 4.6

3.3 4.6

5.4 6.9 1.5

4.3 7.2 10.7 2.9

6.2 5.6

Follow-on investments New investments

2001 3.5 2002


1.4 2.1

2004 1.3 2005


3.3

2006
5.4

2007

2008

2009
4.3

2010
6.2

7 .7

2011

2012
5.6

Follow-on investments New investments

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

1000

Figure 22: Number of investments made during the year, analysed by new and follow-on investments (Rbn)
795 730 261 795 651 581 229 178 581 229 178 534 422 403 440 561 534 599 458 468 359 363 187 503 187 627 245 627 227 730 245 227 618 265 150 561 599 458 468 188 359 174 363 192 292 188 547 806 806 834 723 618 265 723 150 547 537 484 174 192 537 484

1000 800 800 600 600 400 400 200 200 0 0

235 834

235

261

651

503 422 403 440

Follow-on investments New investments


292

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2010 Follow-on investments New investments

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2010

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For the 2009 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 investment by Brait (as an investment holding company) in Pepkor and Premier Foods in 2011 for approximately R5 billion has also been excluded.

34

Investment activity

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

20
16.5 0.2 0.6

537 5 13

484 4 6

15

1.3 3.4 10.6

Cost of investments (Rbn)

10

4.1

0.3 0.5

379

338

3.0 7 .4 4.8

Number of investments

2.0

Investment Holding Company


93 47 79

Captives Government Captives Other Independents Captives Financial Services

57

2011

2012

2011

2012

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KPMG and SAVCA Private Equity Survey

35

Figure 24: Investments made during the year, analysed by sector 10


37 .3%

27 .5%

18.5%

13.3% 8.8% 5.1% 1.9% 2% 2.7% 6.1% 2.2% 0.4% 0.6% 3.2%3.2% 1.6% 0.4% 0.9% 0.1% 0.8% 5%

7 .4%

During 2011 During 2012

Banks, nancial services and insurance

Entertainment, leisure & tourism

Infrastructure

Manufacturing

Mining & natural resources

Information technology

Retail

Telecoms

Services

Media

10

14% (R1.5 billion) of investments made during 2012 were classified in the other sector category or not classified at all (2011: 37% / R6.0 billion). These have been excluded from the above analysis.

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Healthcare

36

Investment activity

Figure 25: Unrealised investment portfolio at year end, analysed by sector 11


24.3% 22.7%

16.7% 15.6% 13.7% 11.7% 14% 11.7%

7 .7% 6.2% 5.6% 2.3% 1.9% 3.1% 2.6% 3.5% 3.8% 2.1% 1.5% 1.3%

During 2011
0.6%

During 2012

-2%

Infrastructure

Mining & natural resources

Banks, nancial services and insurance

Retail

Services

Entertainment, leisure & tourism

Manufacturing

Media

Telecoms

Information technology

11

13% (R12.8 billion) of the unrealised investment portfolio at 31 December 2012 was classified in the other sector category or not classified at all (2011: 17% / R13.9 billion). These have been excluded from the analysis shown.

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Healthcare

KPMG and SAVCA Private Equity Survey

37

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

100 80 60 40
50.8% 45.7% 36.0% 31.4%

120 100 80
8.7% 16.6% 31.8% 36.2%

60 40

12.9%

9.5%

20 0
4.4% 0.0% 6.3% 0.0%% 15.2

49.1%

45.0%

Buyout Replacement capital Expansion and development Start up and early stage Seed Capital
14.3 13.9

20
14.3

Investments made during 2011

Investements made during 2012

13.9 4.9% 1.2%

7 .8% 1.5%

15.2

Unrealised investments at 31 Dec 2011

Unrealised investements at 31 Dec 2012

Figure 27: Analysis of investments by stage based on number of investments 12

120
16.5% 17 .7%

100
18.8% 19.6% 7 .6%

10.7%

10.1%

80 60 40 20

7 .6%

54.6% 57 .5% 60.1%

55.9%

Buyout Replacement capital


16.0% 15.2 17 .3% 1.0%

Expansion and development


15.4% 0.9% 15.2

12.6% 0.0%

Start up and early stage


14.3 13.9

0.0%

Seed Capital

Investments made during 2011

Investements made during 2012

Unrealised Investments at 31 Dec 2011

Unrealised Investments at 31 Dec 2012

12

Investments not classified by stage have been excluded.

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38

Investment activity

Figure 28: The figure below provides an analysis of the largest reported private equity transactions in 2012

Name of investment Waco Capitec Bank Trudon

Equity provider/s Ethos & RMB Ventures Public Investment Corporation Trinitas Private Equity Partnership, RMB Corvest & Nodus Capital Trinitas Private Equity Partnership Trinitas Private Equity Partnership Ethos/ Universal Industries Medu Capital

Debt provider/s Standard Bank Not disclosed Investec

Total funding raised (Rm) > R 1 500 R 825.0

Type of investment Replacement capital Replacement capital Replacement capital

PE Fund's Part of equity interest syndication Controlling Interest 5.3% Yes No

BEE ownership (post deal) Black Influenced Black empowered company Black empowered company

R 740.0

35%

Yes

Serica Investment Holdings Main Street Holdings Staycold

Investec

R 200.0

Replacement capital Replacement capital Replacement capital MBO

50%

No

Not empowered

FNB

R 140.5

61%

No

Not empowered

Nedbank

R 130.0

Controlling Interest Controlling Interest n/a

No

Not empowered

Wekaba Engineering Transaction Capital Cerebos

Standard Bank N/A

R 108.0

No

Black empowered company Not empowered

Ethos

R 95.2

Later stage expansion capital LBO

No

Investec

Not disclosed Not disclosed

R 54.9

Not disclosed

No

Black empowered company Black empowered company

Boxmore Plastics

Investec

R 52.8

Follow-on

Not disclosed

No

* Capitalworks acquired Rhodes Food Group for an undisclosed amount

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Figure 29: The figure below provides an analysis of the Top 10 largest reported private equity transactions in 2011

Name of investment Tracker

Equity provider/s Actis, MIC, RMB OMPE Ethos Ethos Standard Chartered Private Equity Standard Chartered Private Equity Investec Investec

Debt provider/s Nedbank, Standard Bank, RMB Not Discolosed Nedbank Nedbank Not Discolosed Not Discolosed Investec Not Discolosed DBSA

Total funding raised (Rm)

Type of investment

PE Fund's Part of equity interest syndication 40% Yes

BEE ownership (post deal) Black empowered company Black company Not empowered Not empowered Not Discolosed

R 3900 Replacement capital R 2065 Replacement capital R 1300 R 850 R 300 LBO LBO Later stage expansion capital Later stage expansion capital LBO LBO

Liberty Star Universal Industries Kevro Lodestone Brands Afrifresh Group

15% Controlling interest Controlling interest Not Discolosed

No No No No

R 232

30%

No

Not Discolosed

Ferro Industrial Products Vox Telecom

R 187 R 172

Not Discolosed Not Discolosed

No No

Not empowered Black empowered company Black empowered company Black influenced company

Teraco

Treacle

R 157

Early stage expansion capital

Not Discolosed

No

Alexander Forbes

Ethos

Not Discolosed

R 100 Replacement capital

Not Discolosed

No

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40 Analysis of BEE investments

Analysis of BEE investments


The cost of investment into entities that are at least black influenced companies in 2012 was R6.2 billion, a decrease of 22.7% from 2011 levels. The number of BEE investments increased from 183 during 2011 to 192 during 2012. These levels 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 2012 was R32.4 million compared to R43.0 million during 2011. These are investments into black owned, empowered or influenced companies.

15 12 9 6

Figure 30: Cost of BEE investments made during the year (Rbn) (excluding Captives - Government)
13.2 11.8 2.4

2.7

8.5 5.0 6.1 4.7 0.0 3.6 3.1 0.1 1.9 1.2 0.6 1.1 2.9 3.4 1.7 5.6 1.1 2.5 5.5 2.8 3.3

8.0 0.4 2.4 6.2 1.8 0.9 5.2

3
1.7% 1.4

1.7

1.8 0.5 0.6 0.3

2.7

3.5

Black inuenced companies Black empowered companies Black companies

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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

400 350 300 250 200 150 100 50 0


26 51 144 185 15 203 251 227 268 14 287 8 52 341 11 79

390 32

74

319 16 70 240 18 49 209 20

183 10 53

192 24 49

284 233 150 173

120 39

119

Black inuenced companies Black companies Black empowered companies

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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42

Exits

Exits
Funds returned to investors decreased by R18.8 billion from R25.7 billion during 2011 to R7.0 billion during 201213. The value of disposal proceeds14 decreased from R17.2 billion in 2011 to R3.2 billion during 2012. Disposals to trade sale was the most popular in value terms. Sale to another private equity firm or financial institution was the next most popular method of disposal. The average proceeds per disposal have decreased from R22.4 million in 2011 to R3.7 million in 2012. Figure 36 shows that the reported profit (proceeds less cost of investment) on disposals of R1.9 billion during 2012 was substantially lower than the R14.1 billion during 2011. The trade sale category was the main contributor in 2012 with R1.2 billion, however, for 2011 the sale to another private equity firm category with R10.3 billion was the largest contributor. The implied times money back multiple during 2012 was 2.9 times, significantly lower than the 6.9 times reported for 2011 disposals.

13

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

14

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Total funds returned to investors


30 25 20 15
16.0 20.4 18.1

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


25.7

8.8 10.5

25.7

10 5
28.2 1.0 4.5 29.0 1.5 1.5 2.4 2.4 4.5 4.0 4.0 4.4

6.2 10.5 6.2 9.3 2.0 2.0

7.0

Venn disposal
7 .0

Vodacom disposal Funds returned to investors

1.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Figure 33: Proceeds of funds returned to investors during the year (Rbn) (Excluding Venfin disposal)
11.3

4.9

3.1 1.9 0.6 0.9 0.1 2.2 1.9

1.5 0.8 0.3 0.7 0.2 0.5 0.9 0.3 0.4 0.0 0.1

During 2011 (R 25.7 billion) During 2012 (R 7.0 billion)

Repayment of preference shares / loans

Sale to another private equity rm or nancial institution

Sale of listed shares

Share buy-back by portfolio company

Dividends and interest payments

Trade sale

Listing or IPO

Sale to management with no equity involvment of another nancial institution

Other / Unspecied

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Write-offs including sales for a nominal fee

44

Exits

Disposals
20
Figure 34: Analysis of disposals made during the year based on proceeds (Rbn) (excludes the Vodacom disposal during 2006 and the Venfin disposal in 2010)
17.2 2.9 0.3 1.9

15

10

9.1 1.7 0.4 11.3 4.8 65.91 0.8 0.1 0.1 0.1 0.4 0.1 1.7 0.2 0.9 1.6 0.5 0.8 3.2 0.3 0.4 1.5 0.6 0.3

5
0.8 0.0 28.2 0.3 0.4 0.1 0 1.9 0.7 0.3 0.5 0.2 0.3

2.9 3.4 0.5 0.6 0.7 1.6 0.0 3.2 1.0 0.5 0.3 1.3 0.1 3.1 0.8 0.8 0.5 1.0 0.0 4.0 0.1

4.9 0.1 0.4 2.7 0.3 1.4

Sale of listed shares and IPOs Sale to management (buy-back) Trade sale Sale to another private equity rm/nancial institution Share buy-back by portfolio company

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

150 120

Figure 35: Analysis of number of disposals made during the year based on proceeds (excludes the Vodacom disposal during 2006 and the Venfin disposal in 2010)
133 19 105 2 18 28 129 4 4 108 7 1 6 8 24 90 2 2 2 4 62 3 4 5 6 80 44 35 44 50 135 8 2 11

90 60 30 0
72 0 6 3 28

16 4 7 16 16 8

86 10 9 12 11 77 10 4 12 11

86 8 7 5 16

78 62

85

86

90

Share buy-back by portfolio company Trade sale Sale of listed shares and IPOs Sale to another private equity rm/nancial institution 2012 Sale to management (buy-back)

40

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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Figure 36: Proceeds and cost of investments made during 2012 (Rbn)

2.9

1.5

1.0

0.6 0.3 0.1 0.3 0.3 0.1 0.4 0.1

0.2

Cost Proceeds

Sale to another private equity rm or nancial institution

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Sale to management (Buy-back)

Sale of listed shares

Trade sale

Share buy-back by portfolio

Total

46

Exits

Figure 37: Proceeds and cost of investments made during 2011 (Rbn)
16.5

11.3

2.4

2.2 0.4 1.1

1.9 0.7 0.8 0.1 0.3 0.1

Proceeds Cost

Share buy-back by portfolio company

Total

Sale of listed shares and IPOs

Write-offs
60 investments were written off during 2012, inclusive of sales for nominal amounts (2011: 32 investments). The net loss on these investments (cost less proceeds) was R175.6 million in 2012 (2011: R1.2 billion).

Cancelled/expired funds
R180,5 million (2011: R1.4 billion) of committed but undrawn funds at 1 January 2012 were cancelled and/or expired during 2012 and are thus no longer available for investment by the fund manager.

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Sale to another private equity rm or nancial institution

Sale to management (Buy-back)

Trade sale

Africas future

Financing

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47

ANOTHER AWARD WINNING INFRASTRUCTURE PROJECT PUT TOGETHER BY A TEAM THAT IS VERY PASSIONATE ABOUT AFRICA!
Harith General Partners congratulates SOCOPRIM for winning the Deal of the Year Award from the prestigious and authoritative Project Finance Magazine.

iww | 1979 | cp

Harith together with Bouygues Construction is proud to form part of a concession to build and operate the EUR 282 million Henri Konan Bdi Bridge in Abidjan, Cte dIvoire. This award winning Public Private Partnership will empower the residents of Abijan and stimulate their economy, bringing regional prosperity and development. Another proud moment in African infrastructure development nancing.

No. 1 Chislehurston, 33 Impala Road, Chislehurston, Sandton, 2196 South Africa | Pule Molebeledi +27 11 384 4000 Tunisia | Souleymane Keita +27 76 455 9197 Ghana | Ernest Nyarko +27 73 039 4361 | info@harith.co.za | www.harith.co.za
Harith is an Authorised Financial Services Provider | Registration no. 31473

Structuring Today Strengthening Tomorrow

48

Performance

Performance
Background
Measuring 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, produce a quarterly South African Private Equity report. The reported returns over different time periods the returns as compared to listed entities are as follows:

Investments at latest valuation


The disclosed 2012 valuation of unrealised investments was R107.6 billion, with a related cost of R99.9 billion.

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Figure 38: Returns over different time periods (ZAR) 15

Times Money Time period 10 Year 5 Year 3 Year Pooled IRR 20,6% 11,4% 17,6% Realised 0,96 0,62 0,59 Unrealised 0,71 0.80 0.80 Total 1,66 1,42 1,39

Figure 39: Listed equity comparison (ZAR) 15

CAGR Time period 10 Year 5 Year 3 Year Pooled IRR 20,6% 11,4% 17,6% ALSI TRI* 18,0% 8,8% 14,9% FINDI TRI* 21,7% 14,7% 24,1% SWIX TRI* 20,2% 10,7% 17,8%

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

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

120
107 .6

100
89.6 83.9 84.4

99.9

80 60 40
25.1 25.1 39.3 36.4 58.5 56.5

72.7

73.0

75.7

78.3

20 0

17 .0

Cost Latest valuation At 31 Dec At 31 Dec At 31 Dec At 31 Dec At 31 Dec At 31 Dec At 31 Dec At 31 Dec 2005 2006 2007 2008 2009 2010 2011 2012

15

SAVCA and RisCUra South African Private Equity Performance Report Quarter ended 31 December 2012

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Private equity investment professionals

Private equity investment professionals


The total number of investment professionals employed in the Private Equity industry decreased from 574 in 2011 to 500 in 2012. Private Equity funds in general did not replace their natural attrition leavers during 2012. The figure below illustrates that white males still make up just under half of all private equity investment professionals (2012: 45.8%; 2011: 49.3%). The second largest category is black males which contributes 14.6% of the total reported numbers at 31 December 2012 (2011: 13.1%). Indian, coloured and black professionals employed by the private equity industry decreased by 3 during 2012 to 180 (representing a decrease of 1.6%). By comparison, white professionals decreased by 49 during 2012 to 273 (representing a decrease of 15.2%).The proportion of these professionals to the total number of professionals increased from 31.9% at 31 December 2011 to 36.0% at 31 December 2012. At 31 December 2012 16.7% of all professionals were females (2011: 17.9%)

Number of professionals 2012 White Male Female Total Male Female 229 44 273 45.8% 8.8% Indian 48 13 61 9.6% 2.6% Coloured 14 4 18 2.8% 0.8% Black 73 28 101 14.6% 5.6% Not specified 40 7 47 8.0% 1.4% Total 404 96 500 80.8% 19.2%

% Breakdown (% of total)

Number of professionals 2011 White Male Female Total Male Female 283 39 322 49.3% 6.8% Indian 49 9 58 8.5% 1.6% Coloured 15 4 19 2.6% 0.7% Black 75 31 106 13.1% 5.4% Not specified 49 20 69 8.5% 3.5% Total 471 103 574 82.1% 17.9%

% Breakdown (% of total)

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52 Data Tables

Data Tables
Total funds under management at year end R billions Year ended 31 December 2012 Undrawn commitments at year end R billions Fund raising activity during the year R billions Investment activity during the year R billions Proceeds from disposals during the year R billions

Early stage funds Independents Investment Holding Companies Captives (Financial Services) Captives (Government) Captives (Other) Later stage funds Independents Investment Holding Companies Captives (Financial Services) Captives (Government) Captives (Other)
52,573 1,593 29,767 28,614 4,409 116,956 126,361 Year ended 31 December 2011 20.590 1.145 5.251 2.135 1.006 30.127 35.343 8,546 0,905 1,657 2,828 0,000 13,937 14,386 2,959 0,000 4,829 1,202 1,163 10,153 10,608 3.054 0.000 1.401 0.000 2.490 6.944 6.970 9.079 0.000 0.000 0.178 0.147 9.405 5,181 0,000 0,000 0,000 0,035 5,216 0,025 0,424 0,000 0,000 0,000 0,449 0,044 0,266 0,000 0,124 0,022 0,456 0,026 0,000 0,000 0,000 0,000 0,026

Early stage funds Independents Investment Holding Companies Captives (Financial Services) Captives (Government) Captives (Other) Later stage funds Independents Investment Holding Companies Captives (Financial Services) Captives (Government) Captives (Other)
48.658 0.938 21.427 23.948 10.031 105.003 114,490 21.331 0.341 9.871 0.132 1.992 33.666 34.112 5.866 0.000 1.584 2.410 0.000 9.860 10.672 3.299 0.195 6.821 3.600 1.456 15.372 15.532 8.396 0.486 13.896 1.320 0.717 24.816 25.662 9,141 0,000 0,000 0,055 0,291 9,487 5,363 0,000 0,000 0,000 0,057 0.446 0,034 0,778 0,000 0,000 0,000 0.812 0.021 0.000 0.000 0.111 0.029 0.161 0.001 0.000 0.000 0.000 0.845 0.846

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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 Absa Capital Private Equity Acorn Private Equity Actis Africa Limited African Infrastructure Investment Managers (South Africa)(pty)ltd Aureos South Africa Advisers (pty) Ltd, A Division Of Aureos Capital Batian Fund 1 Brait Private Equity Business Partners Limited Capitalworks Equity Partners (pty) Ltd Capricorn Capital Partners (pty) Ltd Collins Private Equity Holdings (pty) Ltd Convergence Partners Development Bank Of Southern Africa Development Partners International LLP Emerging Capital Partners Enablis Financial Corporation SA Edge Growth Eris Property Fund (pty) Ltd Ethos Private Equity 4Di Capital (Pty) Ltd Glenhove Fund Managers (pty) Ltd Grindrod Bank Limited R100m 10m US$30m R 25 000 R2m R30m R300m R100 000 0 R10m R700m 40m US$90m R2.5m R15m R250m R1bn R5m 0 R30m Min investment (Rm) R250m R5m US$50 R200m US$1m US$3m R5m R 150 000 R70m R10m Nil Max investment (Rm) R1 b R50m US$250 R700m Contact name Gareth Druce Pierre Malan John van Wyk Andrew Johnstone Contact no. 011 895 6896 021 852 2887 011 778 5900 021 670 1234 011 884 2066 011 550 6000 011 507 1000 011 713 6600 011 301 3000 011 666 0700 031 536 8004 011 550 5320 011 313 3126 044 207 349 5030 011 685 0830 021 422 0690 011 292 7974 011 775 1113 011 328 7400 021 659 2042 011 277 4060 011 459 1860

US$38m (10% of fund size) Ron den Besten US$10m R1 bn R20m R450m R 150m R25m Shaun Collyer Shaun Dougherty Nazeem Martin Garth Willis Gavin Chadwick Bruce Chelius Idan Segal Rashied Essop Eduaro Gutierrez Alex-Handrah Aime Darryl Rose Daniel Hatfield Warren Schultze Chelsea Wilkinson Anton van Vlaanderen Alun Frost Jannie Grobbelaar

Source: SAVCA Yearbook 2013

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Name Harith Fund Managers Horizon Equity Partners Industrial Development Corporation (IDC) Inspired Evolution Investment Management (pty) Ltd International Housing Solutions (pty) Ltd Invenfin (pty) Ltd Knife Capital Leaf Capital Lereko Metier Capital Growth Fund Managers Medu Capital (pty) Ltd Musa Capital National Empowerment Fund Nedbank Capital Private Equity Nodus Equity Old Mutual Investment Group Alternative Investments Phatisa Public Investment Corporation RMB Corvest (pty) Ltd Sanlam Private Equity Senatla Capital SP-aktif Investments (pty)ltd

Min investment (Rm) US$10m R20m R1m R 10 m R 25m None R10m R15m R 50m R 30m R5m R 250 000 R30m R5m R5m US$5m (10% of fund size) R50m R 10m R 100m R10m R20m

Max investment (Rm) US$100M R50m Dependent on nature of transaction R 100 m plus (with coinvestment rights) R 250 m None R30m R30m R 750m R 175m R100m R75m R120m R25m R 500m - R1bn

Contact name Emile du Toit Richard Flett Christo Fourie Christopher Clarke Pamela Lamoreaux Alexandra Fraser Keet van Zyl Paul Leaf-Wright Paul Botha Nhlanganiso Mkwanazi William Jimerson Setlakalane Molepo Clive Howell Erich Schulenburg Paul Boynton

Contact no. 011 384 4000 011 502 6940 011 269 3000 021 702 1290 011 215 8300 021 888 3355 021 554 1573 021 425 2295 011 268 4055 011 268 9140 011 771 6300 011 305 8105 011 294 3321 011 327 6907 021 509 3182/6869 011 463 1920 012 742 3400 011 380 8300 011 778 6613 011 784 5929 083 377 6234

US$20m (10% of fund size) Stuart Bradley R2bn R 500m R 250m R25m N/A Roy Rajdhar Kerry-Lee Hurst Alton Solomons Owen Maubane Herman Marais

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Participants

Name Sphere Private Equity (pty) Ltd Standard Chartered Principal Finance Tamela Holdings (pty) Ltd Treacle Private Equity (pty) Ltd Trinitas Private Equity Trium Investments (pty) Ltd Utho Capital Fund Managers Vantage Risk Capital Venture Partners Botswana (VPB) Zico Capital (pty) Ltd

Min investment (Rm) R 10m US$20m None R 10m R40m N/A R2m R 40m N$5m R15m

Max investment (Rm) R 50m US$150m None R 92m R150m R 20m R12m R 350m N$32m R500m

Contact name Aadil Carim Adrian Smith Sydney Mhlarhi Rudolf Pretorius Andrew Hall Andre Strmer Stephen Pearce Luc Albinski Anthony Siwawa Tshego Sefelo

Contact no. 011 944 7800 011 217 6885 011 783 5027 011 463 7476 011 809 7529 012 803 1039 011 234 1370 011 530 9100 00 267 318 1012 011 217 3300

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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. 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. 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. Development Bank of Southern Africa Developmental Finance Institutions Edgars Consolidated Stores Limited Emerging Markets Private Equity Association European Private Equity and Venture Capital Association Investments into companies where at least one round of funding has already been made. Gross Domestic Product IRR before the deduction of management fees and carried interest. Gross IRR on the total realised portfolio of investments.

Carried interest

DBSA DFIs Edcon EMPEA EVCA Follow on investments GDP Gross IRR Gross realised IRR

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Independent fund Investment Holding Company

Those private equity companies, managers or funds raising and disbursing capital which has been sourced mainly from third party investors. 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. When a companys equity is sold to investors via a listing on an exchange. Internal Rate of Return KPMG Services (Proprietary) Limited Leveraged buy-out Mergers and acquisitions Management buy-out 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 companys own balance sheet. It may provide for equity-like features such as attached share purchase warrants or participation in cash-flow. Old Mutual Investment Group of South Africa Public Investment Corporation The Southern African Venture Capital and Private Equity Association 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 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. 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. United Kingdom United States of America

IPO / Listing IRR KPMG LBO M&A MBO Mezzanine debt

OMIGSA PIC SAVCA Semi-captive fund managers

Total funding

Trade sale UK US

2013 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. MC10034

2013 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. MC10034

KPMG and SAVCA Private Equity Survey

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You know Africa is brimming with opportunity but do you know how to make the most of it?

2013 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 MC10339. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

For more information, please contact Warren Watkins on 011 647 7128 or email warren.watkins@kpmg.co.za

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