Family businesses prefer private equity funds to stock market
Anne Eriksson, the Regional Senior Partner for PwC East Region. FILE PHOTO
What you need to know:
Only eight per cent of family-owned businesses prefer to invite the public to own a portion of their enterprises through initial public offerings.
Despite opening a Growth Enterprise Market Segment (GEMS) to enable small firms raise funds in the capital market, stringent requirements such as scrutiny of financial records, have kept firms away from the Nairobi Securities Exchange.
Family-owned businesses that plan to sell their ownership stakes prefer private equity funds and other established firms to the stock market, a new PricewaterhouseCoopers (PwC) survey on Kenya shows.
The survey found that 24 per cent of family businesses prefer equity funds, 13 per cent favour sale to other companies while 10 per cent would pass on the baton to a management team.
By comparison, only eight per cent of family-owned businesses prefer to invite the public to own a portion of their enterprises through initial public offerings.
The findings mirror recent transactions that include last year’s acquisition of Interconsumer Products by London-listed cosmetics giant L’Oreal and acquisition of Access Kenya by South Africa-based Dimension Data.
Similarly, South Africa’s Massmart is currently negotiating to acquire Naivas Supermarket while Nakumatt has given conflicting signals about its plan to dispose of 25 per cent stake either to external investors or through an IPO in the next six months.
Despite opening a Growth Enterprise Market Segment (GEMS) to enable small firms raise funds in the capital market, stringent requirements such as scrutiny of financial records, have kept firms away from the Nairobi Securities Exchange.
The PwC survey found that 37 per cent of family businesses are lined up for sale, 47 per cent plan to pass the mantle on to the next generation while 13 per cent will hire professional managers to run their affairs.
PwC interviewed 62 family businesses in various segments of the economy, with turnovers ranging from Sh445 million ($5 million) to Sh44.5 billion between April 28 and July 24.
“Majority of these companies are in their first or second generation,” said Anne Eriksson, PwC East Africa senior partner.
The survey found that 55 per cent of the businesses have non-family members on their boards compared to a global average of 65 per cent.
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Note: The results are not exact but very close to the actual.
