Private equity has long been a driving force behind trans formative changes in businesses worldwide. The source of funding is made into privately-held companies or businesses that are not publicly traded on stock exchanges.
From injecting capital for expansion to providing strategic guidance, private equity firms have played a pivotal role in reshaping enterprises worldwide.
For instance, in the United States, private equity has become a cornerstone of the economy. In 2023, US private equity deals were valued at USD 645.3 billion. Within this developed sector, private equity investments have consistently outperformed public markets.
A study by Harvard Business Review found that private equity returns averaged 13.9% annually from 2000 to 2020, surpassing the S&P 500 returns of 8.7% during the same period.
Kenya, with its burgeoning entrepreneurial spirit and growing economy, stands to benefit from the infusion of private equity. While the Kenyan private equity market is still nascent compared to its U.S. counterpart, only valued at USD 1.3 billion in 2023, the sector can transform Kenyan enterprises by fuelling their growth aside from traditional funding sources like bank loans.
Further, private equity investment can address critical challenges faced by Kenyan businesses, including weak corporate governance structures, and inadequate managerial expertise.
Since private equity investments often involve active participation in the management of the companies in which they invest, this leads to the optimisation of the company’s operations, governance structure, or business strategy thereby driving growth, and ultimately maximising profitability.
In Kenya, where corporate governance standards vary across companies, private equity investors can also play a pivotal role in fostering transparency, accountability, and risk management practices.
By instituting robust governance frameworks and providing mentorship to management teams, private equity firms can mitigate risks and unlock value in Kenyan enterprises.
Previous private equity investments in Kenya enabled companies like Twiga Foods, a tech-enabled food distribution platform, to scale rapidly and revolutionist the agricultural supply chain.
With backing from investors such as Goldman Sachs and International Finance Corporation (IFC), Twiga Foods expanded its reach, connecting thousands of farmers with retailers across Kenya.
Another key aspect of private equity’s trans formative potential lies in its ability to instil best practices in corporate governance and operational management. In the United States, private equity firms often implement rigorous performance metrics, streamline operations, and recruit top talent to enhance efficiency and profitability.
The trans formative potential of private equity in Kenya is immense, drawing valuable lessons from the United States’ experience. By catalysing growth, enhancing corporate governance, and fostering sustainable development, private equity can play a pivotal role in unlocking value and driving inclusive economic growth in Kenya.
As the Kenyan private equity market continues to evolve, collaboration between investors, entrepreneurs, and policymakers will be crucial in harnessing the full potential of private equity to transform Kenyan enterprises and propel the country towards prosperity.
