Business
Africa: Private Equity – New Cash for Expanding Businesses
Few IPOs
One popular exit strategy elsewhere, especially in the US, is the initial public offering (IPO), in which an investor sells at least part of its stake when the company puts its shares up for sale on a stock market. But African stock markets tend to be thin and illiquid (see Harnessing African stock exchanges to promote growth), and so IPOs have been relatively rare, although not unheard-of.
Mr. Jeromin reaches back into US history for another strategy. “If you go back to the 1800s, before there were liquid markets, investors got their money through dividends. You can set up a preferred-share structure,” in which certain shareholders receive privileged pay-outs.
Private equity is not without its drawbacks. Company owners and entrepreneurs will not always be pleased by pressure they might get from their new partners. And investors may lose interest if their exit strategies prove elusive.
But private equity seems to be starting to fill a void that cannot be handled by banks alone. “For most companies in Africa, raising money means going to the bank,” says David Levin, senior managing partner of Nova Capital Global Markets in New York. “We bring in a different level of financing.”
Copyright 2012 Africa Renewal
