Increased investment into private equity in South Africa can drive economic growth and serve as a powerful catalyst for positive change. Globally, leveraged buyouts constitute the largest portion of private equity investment strategies by deal value. However, in a market like ours, where debt is expensive by global standards and valuation multiples have not expanded significantly in the last decade, the asset class has had to focus on deep value creation to generate returns. This is why private equity is uniquely positioned as a powerful transmission mechanism of capital from asset owners into privately-owned businesses, the very engine of economic growth.
Private Equity’s long-term investment horizon, typically five to seven years, results in patient capital. This, combined with the objective of partnering with strong management teams to actively drive earnings-led value creation through strategies such as expanding capacity, operational improvements, and opening new markets, means that firms can scale under PE ownership, creating a tangible and positive impact on the economy over time. Crucially, it is a practical solution to South Africa’s high levels of unemployment and high rates of inequality, which we need to see shift if we are to generate much needed inclusive and sustainable economic growth.
What does this look like in practice? At OMPE our model is anchored in partnership with strong management teams by providing perspective gained from our two decades of experience and ensuring strong alignment in a way that inculcates a growth mindset. For us, this is just as crucial to achieving strong returns and sustainable impact as selecting high-quality companies with growth tailwinds. The aim is simple: build better businesses that can compound in value and impact over time.
Consider a few of our recent investments. Through our investment and partnership with management, Chill & Inhle Beverages moved from a promising player in the beverages industry to one of the fastest growing, with increased market share. We achieved this mainly through driving the strategic integration of the two underlying businesses, which was key to unlocking synergies and innovation, and supported the development of a robust own brand portfolio in attractive fast-growing sub-segments of the beverages sector. This helped the company achieve a 73% growth in earnings in a short two-and-a-half-year period before we exited the business to a Pan-African PE consortium in October last year. Growth was matched with local impact, including the creation of sustainable jobs and the sponsorship of more than 1 200 grassroots soccer clubs in impoverished communities.
Under our stewardship, Holdsport Group, the owner of Sportsman’s Warehouse and Outdoor Warehouse, more than doubled in size in three years, which contributed to job growth. We worked with management to grow the e-commerce presence and supported a store rollout strategy via a smaller store format across various geographies, which proved to be very successful. The ultimate sale to UK-listed Frasers Group, a global retailer, earlier this year reflected the strength and sustainability of the platform that had been built and demonstrated that South African assets can attract global investment at scale.
Our recent investment in Much Asphalt, South Africa’s largest commercial asphalt manufacturer, with its products principally being used in the road surfacing industry, is another example of how patient capital supports the real economy. We believe that an investment in the country’s road infrastructure is a key enabler of economic growth and job creation, and that Much Asphalt is well-positioned to benefit from South Africa’s road infrastructure spend over the medium to long term.
For our investors, the proof is in long-term performance. Over the past two decade,s OMPE’s reported returns have averaged above 25% internal rate of return; a track record that has been driven by real business growth and disciplined execution. South Africa needs more local capital to be invested into private businesses, and private equity is uniquely positioned to be that conduit, providing strong returns and lasting impact far beyond the typical fund exit horizon.