Speaking at the recent Southern African Venture Capital and Private Equity Association (Savca) annual conference, Christian Roelofse, investment officer for private equity at Dutch entrepreneurial development bank FMO, said a dual focus on commercial prospects and social impact is reflective of the more balanced investment approach taken by the private equity (PE) sector. 

“About 21 of our funds have exposure to South African markets – many of them being pan-African – within specific target sectors that promote job creation. But impact does not have to come at the expense of returns. There can be no impact without profits. Critical selection is key to achieving both,” he said.

Tangible results

A recent study commissioned by Savca and published in partnership with Intellidex highlighted that before 2021, companies owned by PE funds were able to receive assistance with liquidity and restructuring-related issues, while investee companies were able to grow employment by 4.4%, even though the wider economy experienced a 4.2% drop in employment.

A great example of this is Sanlam Investments’ Private Equity fund investment into Absolute Pets in April 2021. Fifteen new Absolute Pets stores have opened across the country and 165 new jobs have been filled by previously disadvantaged people, proving the business’ goal to empower South Africans

John Seymour, head of Private Equity at Sanlam Investments, says since buying a majority stake in Absolute Pets in May 2021, the national chain of specialist pet stores has grown jobs from 485 to 600, and the investment team believes there is significant scope for further job creation.

Currently, 70% of the company’s employees and 78% of its store managers are female. In South Africa, where youth unemployment is around 46%, Absolute Pets is working hard to offer employment opportunities to this group – 82% of its team are younger than 35.

“The brand continues to expand into new geographic regions and even in regions where there is an existing presence, there are opportunities to grow in order to offer customers a more convenient shopping experience,” he says.

Through its website and app, Absolute Pets also offers customers the benefit of an omnichannel shopping experience where they can shop online and collect in-store or order items in-store for home delivery.

Seymour reiterates the view that privately held companies often find it difficult to access capital for expansion, placing them at a disadvantage when it comes to growth opportunities. 

“Private equity, therefore, plays a vital role, putting capital at risk to support the development of these companies. By taking a long-term view (seven to nine years) on an investment, private equity investors are able to make strategic growth decisions that maximise long-term growth in spite of short-term market and industry fluctuations. 

“Investors also bring a wealth of experience, knowledge, expertise, networks, alliances and customers to the businesses they fund, working closely alongside management (who are generally co-investors) to drive sustainable growth and create a positive impact, including job creation,” he says.

Other investments  

To date, Sanlam Private Equity has completed four investments in the Mid-Market Investors’ Legacy Fund. Apart from Absolute Pets, these include:

• Cavalier Group: A vertically integrated supplier of packaged premium red meat products.
• Q Link: A fintech business providing payment collection solutions primarily to clients in the insurance sector.
• SkipWaste: An integrated waste and environmental management business with a strategic focus on waste reduction, recycling and recovery to minimise waste to landfill. The company offers clients innovative and environmentally conscious solutions to meet their waste management needs. DM