Ideas & Debate

Bourse needs a fresh value pitch for family companies

NSE trading floor
Nairobi Securities Exchange (NSE) trading floor. The bourse has much to do in attracting more family owned businesses to list. FILE PHOTO | NMG 

Reading through the 2018 Family Business Survey 2018 by PWC, we find all the reasons why family businesses see the Nairobi Securities Exchange (NSE) as unappealing. And the key findings reveal everything wrong with NSEs main value proposition – visibility, access to financing and divestment platform.

For the 46 companies – with turnovers ranging from Sh500 million to more than Sh100 billion – interviewed, the NSE looks like an old maid. She sees her opportunities in the rear-view mirror. These are some of the reasons.

One, access to funding is no longer a big draw. In the survey, 85 percent of the respondents rely on internal resources and 83 percent on bank lending/credit lines. What’s critical to us: 59 percent said they would consider private equity – a mark considerably higher than the 39 percent of global respondents. What does this mean?

Simple. It means family businesses and private equity are reaching a moment of convergence of interest – on goals, and even values and purpose – at a time when there is an increasing focus on long-term value generation (ignoring the “short-term” infested pool called the NSE).

This should explain why on the hierarchy of challenges, only 26 percent of respondents cited access to financing as a challenge. This is to say, if family businesses already have a working funding alternative, why bother listing?


Two, divestment is now a long shot. Typical challenges that would make NSE attractive such as conflict between family members only got 13 percent respondents showing concern. Succession at 33 percent means it’s a non-issue for the vast majority.

In fact, just over half of Kenya’s family businesses reported having a succession plan in place (this is largely unchanged from the previous survey 2016).

Some 61 percent indicated that the next generation was already part of the business. Even assuming suppression of truth on these two findings, to add an additional 10 percentage points would still not make the numbers compelling enough.

Further, 61 percent expect to bring in experienced professionals from outside the family to run it. Similarly, on visibility, emergence of social media provides a cheaper alternative minus the prestige (which is at all-time low following myriad of scandals). All this means potentially fewer listing opportunities.

Three, for critical issues that bother family businesses, the NSE has no capacity to solve them. Listed top five challenges in the country were; corruption (72 percent), accessing the right skills and capabilities (52 percent), prices of energy and raw materials (52 percent), increasing international competition (52 percent) and the need to innovate to stay ahead (50 percent).

A different take. A global survey shows that first-generation family businesses outperform those run by subsequents in their ability to achieve a double-digit growth.

Is NSE capable of solving this generational growth problem? May be its future relevance could be found in solving some of these subtleties. I don’t know.

Anyway, all that said it’s time for NSE to find a compelling and in-the-future useful value proposition. The old storyline doesn’t sway anymore.