As the new year unfolds, the private equity (PE) landscape in South Africa is marked by both opportunities and challenges shaped by economic conditions, geopolitical shifts, regulatory changes and other factors. Despite such complexities, PE, known for its resilience, remains a significant asset class and should continue to attract investment.
According to the 2024 Private Equity Industry Survey conducted by the South African Venture Capital and Private Equity Association (SAVCA), 62% of PE firms expect high deal flow in Southern Africa in 2025.1
Several trends are expected to drive growth and shape South African PE in 2025, with the deal value in the local PE market expected to increase by 6.51% to US$62,12m in 2025.2 This article considers some of the trends which are likely to influence the South African PE market this year.
There is notable optimism among local PE firms compared with their global counterparts in relation to exit activity. The African Venture Capital Association reported that the volume of exits in the first half of 2024 surpassed that of the same period in 2023.3 It appears that this will be a continuing trend in 2025. According to the abovementioned 2024 SAVCA survey, PE firms in Southern Africa are more optimistic about an increase in exit activity than their global peers.
Furthermore, as managers seek new capital sources and investors aim to reduce fees, co-investments are becoming increasingly prevalent. Offering co-investment opportunities to limited partners (LPs) has proven advantageous and is expected to remain a key strategy for improved fundraising, increased deal flow and risk mitigation.
Macroeconomic factors
The macroeconomic environment, including inflation and interest rate trends, will significantly influence PE activity in 2025. Several major economies, most notably the United States, have begun cutting interest rates and several African countries, including South Africa, have followed suit. Lower interest rates can stimulate investment activity by reducing the cost of borrowing, allowing PE firms to finance acquisitions and expand their portfolios.
Additionally, political stability will be crucial for investor confidence and market growth. Following the recent elections in South Africa and the subsequent transition to a Government of National Unity (GNU), there are promising signs of progress in addressing structural obstacles to economic growth. This has prompted both local and international investors to reassess their perspectives on South Africa as an investment destination.
However, much depends on the GNU’s ability to create and foster a more business and investor friendly environment.
LPs will seek managers capable of delivering strong performance at the microeconomic level despite macroeconomic challenges, which is essential for achieving successful exits and delivering distributions.
ESG | Impact investing
There is a growing shift towards sustainable and impact investing driven by increased awareness of environmental, social and governance (ESG) factors. As part of integrated ESG and impact investing, there is also a rise of impact orientated strategies such as gender-lens investing, which entails investing in women-owned or women-led businesses, climate action, and inclusive development. These trends are expected to continue gaining traction as investors increasingly seek to align their financial returns with positive and sustainable outcomes.
In addition, these trends are reshaping the competitive landscape, influencing capital allocation decisions across various sectors and prompting a re-evaluation of traditional investment strategies. As a result, ESG criteria and impact initiatives will be integrated into investment strategies, recognising the potential for long-term value creation.
South Africa’s historical context underscores the critical need for investments that address social disparities, driving PE firms to prioritise businesses that foster job creation and empowerment. This focus aligns with regulatory frameworks such as Broad-Based Black Economic Empowerment.
Sector specific opportunities
Attracting private capital to generalist funds is becoming increasingly challenging, compared to funds with specific strategies that align with the objectives of investors interested in particular sectors. Consequently, targeted investment and specialist funds which focus on specific industries are expected to continue receiving favourable attention.
Technology, Fintech and Innovation
Investment in the technology sector is anticipated to increase, driven by the imperative for digital transformation across various industries. This trend is bolstered by the growing need for internet services, mobile technology, and digital finance solutions, particularly in underserved populations across the country. The fintech sector provides significant opportunities to scale financial inclusion in South Africa.
PE firms are likely to pursue opportunities in innovative, AI and machine learning companies. South Africa’s tech industry is emerging as a significant growth driver, with the country being positioned as a hub for innovation and digital transformation on the African continent. The government has also expressed a commitment to foster a business environment that encourages entrepreneurship and innovation.
Infrastructure Development and Renewable Energy
South Africa’s logistics and industrial real estate sectors are notably robust, driven by increasing demand for warehousing and distribution centres to support e-commerce growth and telecommunication infrastructure development.
There is a growing demand for economic and social infrastructure projects in South Africa. The government has plans to improve its infrastructure, particularly in energy, healthcare, transportation, and water management. Furthermore, the government has opened up power generation to independent power producers, which have become key players in developing renewable energy projects. This presents collaboration opportunities through public-private partnerships and PE involvement in such projects.
The renewable energy sector in South Africa, particularly solar, wind and nuclear energy, presents one of the most promising investment opportunities. The country’s integration of renewable energy sources is not only a strategic response to climate change, but also a critical necessity due to the country’s ongoing energy crises, specifically in electricity generation.
According to the South African Institute of International Affairs, South Africa is one of the African countries with the highest share of renewables on the continent.4 This positions the nation as a key player in the continent’s transition to sustainable energy solutions, offering significant potential for PE investments.
Conclusion
The South African PE market in 2025 stands at a pivotal juncture, offering exciting opportunities despite the challenges. As one of Africa’s most developed economies, South Africa presents a diverse array of investment prospects across various sectors. By adeptly navigating the key trends within the PE market, investors can identify where growth opportunities lie and strategically position themselves to capitalise on such opportunities.
1 https://savca.co.za/wp-content/uploads/2024/08/SAVCA-PE-Survey-2024-Digital.pdf
2 https://www.statista.com/outlook/fmo/private-equity/south-africa
3 https://www.avca.africa/media/i1cjek11/avca24-06-apca-q2_5-new.pdf
4 https://saiia.org.za/research/renewable-energy-technologies-in-the-global-south-insights-from-africa/.
Thandiwe Nhlapho is a Corporate Financier | PSG Capital.
This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
