Comparative analysis of private equity (PE) structures in Sub Saharan Africa (SSA) frontier markets versus South Africa (SA)
Thesis (MDF)--Stellenbosch University, 2012.
This research paper analyses how asymmetry information impacts Private Equity (PE) investment deal structuring in Sub Saharan Africa excluding South Africa ((SSA (ex SA)) relative to SA. It asks the question: how are the risks faced by Africa frontier market private equity investors - reflected, mitigated and managed via contracting, monitoring and investment exiting activities? In so doing the research makes a number of hypotheses based on agency academic theory. A survey questionnaire was distributed to PE firms who invest in South Africa (SA) and in the Sub-Saharan Africa excluding SA (SSA ex SA). Under each segment of the survey (contracting, monitoring and exiting) a number of questions were posed for ranking according to likelihood or frequency of occurrence. Using the Wilcoxon Rank Sum test statistical methodology, to test for statistical differences between the two sub-samples of responses to the questionnaire provided by 32 PE firms. The results were interpreted in relation to existing financial agency theories related to contracting, monitoring and exiting investments. The results of the work achieved in this study largely suggest that PE investors use global best practices when investing in the sub Saharan Africa region. SSA (ex SA) PE investors employ the same sophisticated approaches and contracts provisions as investors in established markets. However given the levels of information asymmetries the use of instruments that do not give investors direct control rights are rare in SSA (ex SA) relative to SA. The results are consistent and support that view that there is a persistent scepticism regarding the many Africa jurisdiction legal systems’ ability to effectively protect debt investors and this is mainly reflected in choice of security, which also impacts the types contracting provisions in contracts.