Different but still popular: private equity after sub prime

*          Still strong international interest
*          Financing structures to change
*          Deals likely to be smaller

The market for private equity has slowed since the sub-prime market meltdown caused credit markets to wobble the world over, but there is still a strong appetite for smaller to medium sized deals, according to the team that acted as legal advisors on the R25bn Edcon deal, SA's largest ever private equity deal.

John Bellew, head of Webber Wentzel Bowens' (WWB) private equity team that has formed private equity funds for many of the countrys leading private equity businesses, says that the rush to mega private equity deals has slowed compared to six months ago, but that he still foresees a lot of activity in the mid sized deal space.

"Large deals, especially club deals, are difficult to co-ordinate and execute. We see our clients looking for proprietary deals with lower execution risk and where it is easier to raise debt in the local as opposed to the international markets."

Sally Hutton, a partner in Webber Wentzel Bowens' private equity team adds:"The very large transactions entail complex funding structures and funding consortia.  Timing pressures arise in view of the Security Regulation Panels certain fund requirements which now require full signed debt documentation to be in place in advance of a firm intention announcement.

"Where there is an international funding component, exchange control issues also arise which can cause delays."

Bellew points out that the private equity asset class is more accepted now in the local market and there are a lot of new market entrants. The market is fragmenting and a number of niche funds are being promoted or contemplated. 

"We have also noticed growing numbers of Black Economic Empowerment (BEE) players looking to raise BEE funds.  Some existing BEE deals are now around 5 years old and there are also refinancing opportunities.

"There is still a lot of capital looking for a home and we remain confident about future deal flow.

"We expect their to be to focus on the R200m to R2bn companies that are typically mature businesses.  This sustained interest is good for the South African economy. Of course this is still scope for more of the large deals we've experienced in the past two years."

Bellew also notes that Johannesburg is becoming a base for offshore fund managers looking to establish an on the ground presence to assess and execute South African and African private equity deals.

"International interest in South Africa has not waned. The establishment of local operations by international private equity funds is good for our financial services industry and also bodes well for foreign direct investment in South Africa and the rest of Africa.

"We also expect that a number of international players which have invested substantial time and energy in evaluating our market will continue to look for investment opportunities in our market."