PE Special Features
PE in emerging markets goes local   Emerging markets: Australia, its PE's Asia story   Emerging markets: South Africa's experience, diversity and access to debt   Emerging markets: Turkey, playing catch-up   Emerging markets: Brazil, domestic powerhouses

Of all the private equity in emerging markets, an unlikely country stands as the most mature: South Africa. Of South African firms, Johannesburg-based Ethos Private Equity Ltd. is the oldest. Chief executive André Roux is widely considered the country's private equity pioneer. Roux founded the firm in 1984. At the end of January, Ethos announced its 101st investment, a marketing firm called Kevro for 850 million rand ($111.5 million).

"It's a growing market," says Ngalaah Chuphi, one of nine Ethos partners. The South African scene "covers the spectrum of private equity players, whether you're talking about early stage or buyouts."

Unlike pretty much all other emerging markets, South African private equity has access to debt, Chuphi says. While ratios vary from deal to deal, it's possible to obtain debt equal to about 3 to 4 times a company's Ebitda, or roughly equal parts debt and equity.

"We have a very highly sophisticated financial system," Chuphi says. "Our banks escaped the global financial crisis and stayed open for business."

Research firm Preqin Ltd. identifies 34 local private equity management firms. The industry as a whole has almost R90 billion under management. Despite its long track record, the country has relatively few global firms on the prowl.

There's London-based Actis LLP, a longtime specialist in emerging markets, and Washington-based Emerging Capital Partners, which focuses on sub-Saharan Africa. Carlyle Group announced last year it wanted to raise a $750 million African fund.

"We are quite fortunate that the supply of private equity capital compared to the demand is in balance here," says Chuphi. "I think a lot of the investors have rushed into China, India and Brazil, where you'll see that the deals are done at much higher multiples. But here we're still in a situation where prices are very reasonable."

Ethos is now raising its sixth fund, with a target of $750 million, the same as its current fifth fund. Limited partners tend to be offshore pension funds, although South African public and corporate pension funds, along with high-net-worth individuals, are also considered targets.

The South African economy remains dominant in Africa; its gross domestic product accounts for almost 30% of all of sub-Saharan Africa. But growth outside of South Africa also holds widespread promise. And those South African companies with expansion capabilities throughout the region are a major attraction of private equity funds.

Chuphi cites as an example a public-to-private deal Ethos concluded last month. Ethos paid roughly R1.3 billion in a leveraged buyout for Johannesburg-based Universal Industries Corp. Ltd., which supplies refrigeration and baking equipment to supermarkets and kitchen equipment to restaurants.

"Because of the growing consumer base, there are a lot of grocery stores being opened not only here in South Africa but into the rest of the African continent," he says. "This company is the provider of choice of these products."

Ethos has exited almost 90 investments. According to Chuphi, more than half have been sales to strategics, both domestic and international, although initial public offerings are also common in the robust South African stock market, the Johannesburg Stock Exchange. "Exits are not an issue," says Chuphi.

"That's unique compared to Brazil and India, where a lot of the control is by the [founding] family and the only way to exit is by a hot IPO. South Africa is very corporatized, and it helps us."

South African private equity is unique in another way. In most emerging markets, global private equity provides the training ground for local players. Ethos partners, while they may have been investment bankers elsewhere, trained and gained private equity experience in-house. That has created a tightly knit esprit de corps, Chuphi says.

"If you would compare us to any management in the emerging-market universe, we would stand quite well against the very top tier."