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Pertinent Question: Private Equity vs Public Equity
Jon Jones
#1 Posted : Saturday, July 11, 2020 5:12:09 AM
Rank: Member


Joined: 9/11/2015
Posts: 142
Location: Thika
Why are companies in Kenya choosing private equity instead of raising capital through an IPO at the stock market?? I just read somewhere how Quickmart raised capital to expand via private equity last year. Why didn't they use the stock market which serves the same purpose?? Kindly shed some light to a novice investor.

Other examples that have gone the PE route...Naivas, Artcaffe etc. As the NSE dies, private equity is booming.


In 2019 alone, Kenya had PE deals worth over $1.2 billion. Why are local companies avoiding the NSE route?
Since men have learned to shoot without missing, I have learned to fly without perching
VituVingiSana
#2 Posted : Saturday, July 11, 2020 6:35:10 AM
Rank: Chief


Joined: 1/3/2007
Posts: 17,169
Location: Nairobi
I am going to distinguish between going public to list the shares e.g. FTG vs an IPO that sells shares to raise capital. I am referring to an IPO.

1) Cost of going public. Ads on TV, radio, newspapers. I think some of this may be to follow CMA regulations. These do not come cheap.

2) AGMs, EGMs, etc cost a lot of money. Perhaps cheaper now with virtual AGMs.

3) Maintaining a shareholder register. Paying Image/C&R. Some shareholders have shares worth 1,000/- but cost 1,000/year to maintain!

4) Slow pace of concluding deals given the need for EGMs, etc that create publicity and take time. Look at the Kantar sale by WPP Scangroup which almost got derailed since an EGM was needed.

5) Unless the capital raised is cheaper in a listing vs PE, why go that route?

6) Easier to exit when private vs listed. Less drama.
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
amorphous
#3 Posted : Saturday, July 11, 2020 7:54:34 AM
Rank: Member


Joined: 5/15/2019
Posts: 371
Location: planet earth
Jon Jones wrote:
Why are companies in Kenya choosing private equity instead of raising capital through an IPO at the stock market?? I just read somewhere how Quickmart raised capital to expand via private equity last year. Why didn't they use the stock market which serves the same purpose?? Kindly shed some light to a novice investor.

Other examples that have gone the PE route...Naivas, Artcaffe etc. As the NSE dies, private equity is booming.


In 2019 alone, Kenya had PE deals worth over $1.2 billion. Why are local companies avoiding the NSE route?


Simple:

1- Reporting requirements: to NSE, to CMA and to the thankless public
2- Privacy. You do not want every Tom Dick and Jane knowing how much ngwanyes you are minting
3. - Casino is for mostly corrupt companies to sell to gullible people. Remember how Home Afrika went public? How about Kurwitu and many others that do not trade even a single share?Laughing out loudly Laughing out loudly Laughing out loudly but amazingly, you will still find the same public buying even Mumias SCRAP METAL to this day!
4. More control. Who does not love more control over their affairs?

In short, anything private is like window tint or a tall fence. Less scrutiny, more comfort and complete control of your environment from pesky outsiders


Emotions and ego are twin enemies of strategy
sparkly
#4 Posted : Saturday, July 11, 2020 10:05:31 AM
Rank: Elder


Joined: 9/23/2009
Posts: 7,874
Location: Enk are Nyirobi
Jon Jones wrote:
Why are companies in Kenya choosing private equity instead of raising capital through an IPO at the stock market?? I just read somewhere how Quickmart raised capital to expand via private equity last year. Why didn't they use the stock market which serves the same purpose?? Kindly shed some light to a novice investor.

Other examples that have gone the PE route...Naivas, Artcaffe etc. As the NSE dies, private equity is booming.


In 2019 alone, Kenya had PE deals worth over $1.2 billion. Why are local companies avoiding the NSE route?


1. Less compliance requirements and costs when prospecting private investors as opposed to general public;
2. Private investors inject management expertise to help the company achieve growth targets;
3. Private Investors can access leverage to supplement their equity investment;
4. Private investors invest for a limited period typically 10 years. Founders are more comfortable with investors who will exit rather than stick around in perpetuity;
5. Market simply not optimal for public issue. Public issues perform well in bullish conditions
Life is short. Live passionately.
Jon Jones
#5 Posted : Sunday, August 02, 2020 9:56:45 PM
Rank: Member


Joined: 9/11/2015
Posts: 142
Location: Thika
Tuskys Shareholders Approve Acquisition of Majority Stake by Strategic Investor

https://kenyanwallstreet...pprove-the-acquisition/

Private Equity deals persist. This is a worrying trend because the common man will no longer have access to investing opportunities.
Since men have learned to shoot without missing, I have learned to fly without perching
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