CLAIRE RENTZKE | Private equity and the rebirth of the JSE

The shrinking size of the JSE has become a well-worn narrative. The number of listed equities in South Africa has more than halved from its peak in the 1990s, leaving daily liquidity concentrated in a narrowing pool of megacap stocks.

There may be some comfort in knowing it is not a uniquely South African phenomenon. Across developed and emerging exchanges alike — with the notable exception of the US — there has been a marked decline in initial public offerings (IPOs).

However, on the JSE the problem is compounded: a dearth of new listings has been accompanied by a steady flow of delistings as public companies are taken private. High-profile exits in recent years like Barloworld, Distell and Curro highlight the trend.

There are many reasons why a public listing is no longer as attractive as it once was. Perhaps the most significant is that the global expansion of private equity and private credit has unlocked unprecedented pools of patient capital, enabling businesses to scale comfortably out of the public eye.

Yet the irony is that while private capital has contributed to the shrinking depth of public markets, it may also hold the key to their rebirth. If the JSE is to reverse its structural contraction, local private capital will almost certainly serve as the primary pipeline for high-quality, institutional-ready IPOs.

Listing challenge

To understand how private equity could bridge this gap, one must first appreciate why companies stay away from public markets in the first place.

Listing rules have grown increasingly demanding, and meeting them is expensive in terms of human and financial capital. While blue-chip enterprises possess whole departments to handle compliance and investor relations, smaller firms simply lack that bandwidth. These growing businesses also prize agility in decision-making, and this flexibility can be compromised under public market scrutiny.

Early- and mid-stage growth strategies rarely follow a linear quarterly trajectory. Companies undergoing capital-intensive expansions, structural restructurings or operational turnarounds cannot afford the share price volatility in public markets. It’s far easier to remain answerable to two or three aligned, long-term shareholders than to constantly manage public expectations.

Market disruptors face a unique risk when listing. Unless a business already holds dominant market share, publishing granular operational data exposes its playbook to established incumbents. Growth-stage businesses are understandably reluctant to make the disclosures public markets demand.

Private equity

What is notable about these challenges is that private equity is uniquely positioned to solve them. Private equity funds offer far more than balance-sheet liquidity. They provide strategic oversight, operational discipline and the patient horizon required to scale.

Consider a typical high-growth, family-owned South African enterprise. The business may have mastered product-market fit and generated impressive top-line revenue, but its underlying structure may lack institutional rigour. Governance is often informal, the balance sheet underoptimised, and legacy family members remain on the executive payroll. An institutional public fund manager cannot buy into that framework.

Private equity can solve for this by professionalising governance, clearing out operational inefficiencies, establishing independent board oversight and achieving scale through disciplined organic growth and add-on acquisitions.

Lessons learnt

Internationally, global exchanges rely heavily on private equity to bring institutional-quality assets to market. In 2024, private equity firm EQT listed Galderma, the former Nestlé skin health unit. EQT spent years transforming the asset into a standalone dermatology powerhouse before executing a $2.6bn exit on the SIX Swiss Exchange.

Similarly, the heritage German brand Birkenstock went through a private equity crucible, listing on the NYSE for nearly $1.5bn in 2023 after sponsor L Catterton modernised its direct-to-consumer digital infrastructure.

Local examples are less common, but the playbook works. In March 2023 investment holding company Brait listed Premier Group on the JSE, raising R3.6bn. Brait had used private market capital to restructure Premier’s debt and scale its fast moving consumer goods (FMCG) portfolio, eventually presenting public markets with a resilient, dividend-paying consumer staple that broke a multiyear industrial IPO drought.

Path ahead

Private equity has the potential to deliver much more activity of this kind to the JSE, though key factors remain to be navigated.

Building a company to the scale required for a viable listing takes time, particularly in a sluggish macroeconomic environment. However, as the South African growth story continues to gain momentum, scale becomes easier to achieve, making public listings a natural exit path.

Furthermore, South Africa’s most attractive private market assets frequently attract global trade buyers. When a multinational offers an immediate cash premium for 100% of a business, sponsors often favour the certainty of a trade sale over a public listing subject to market sentiment.

Yet, as the JSE implements streamlined listing rules and domestic interest rate cycles ease, the underlying economics are shifting. South Africa boasts a rich landscape of well-managed, mid-market businesses with strong fundamentals.

Private equity offers the proven framework to take these hidden gems, build their competitive moats, professionalise their operations, and bring them to market at a scale where the companies themselves and the broader market benefit.

• Rentzke is deputy chief investment officer at Ke Nako Capital.

Business Day