The arrival of ZAR X, 4 Africa Exchange (4AX), A2X Markets and Equity Express Securities Exchange (EESE) has not yet yielded the competitive listing environment in South Africa. The question should not be, why are companies listed on the Johannesburg Stock Exchange (JSE) not listing in these new exchanges? The question should be, why are these new exchanges competing for the same market in first place?
South African new entrants in various industries lack innovation, so, in so many cases that they end up competing for the same business that large corporates already have and protect. New competitors actually think the word “disruption” means copy and hopefully get some market share.
So, let’s get back to the new exchange houses in South Africa and start with product fit. South Africa has the most vibrant private equity sector in Africa that executes deals with medium to large companies mostly unlisted on the JSE. A survey done by the Southern African Venture Capital and Private Equity Association (SAVCA) indicated that there was R172 billion in funds under management in Southern Africa of which the bulk is in South Africa. How many of the new exchanges have targeted this sector for new listings? None! How many of the new exchanges have really pitched to the private equity sector to specifically to list this mid to large corporate sector already sitting in private equity funds? Maybe some tried! How many of these new exchanges have products that link the structured products (such as preference shares, special purpose vehicles) to this sector? Maybe ZAR X!
This situation is quite concerning for these new exchange houses because they are essentially telling us that they just want to compete with the JSE while there is another niche ‘winner takes all’ market that can create another large exchange that can rival the JSE. Would the private equity sector be willing to offload their assets in a listing? Why not? The idea of investing in private equity has always been to eventually exit at attractive returns. If that exit means an attractive return via an IPO, they will be more than willing to take it. It is unnecessary to have 4 new exchanges that are all trying to compete for business in the same sector. We are going to say it so that when it happens you know you were told. Some of them are going to close ship and cut their losses. The new exchanges need to go back to the drawing board and take a closer look at what makes up the NASDAQ in the USA. At PEafrinsights we provide insights and advisory on alternative market investments that have profitable opportunities for investors. For more info please contact us at firstname.lastname@example.org