Determinants of private equity exit strategies in South Africa
Date
2017
Authors
Agyapong, Ntiamoah
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Abstract
The objective of this paper is to study the exit behaviour of private equity investments held by independent private equity firms in South Africa. As this is an exploratory study we examine empirical hypotheses previously tested by other authors. Firstly, we test whether portfolio companies within high technology sectors are more likely to achieve an initial public offering (IPO) exit relative to other exits. Secondly, we test the effect of the lending rate on the likelihood of a secondary sale. Lastly, we consider the relative preference of IPO compared to acquisition (M&A) and other exit modes. As South Africa is considered to be a bank-centered financial system (Levine, 2002), private equity investments within the market would be expected to experience poor IPO activity as suggested by the literature (Black and Gilson, 1998).The research is quantitative in nature and involves the use of statistical modelling, multinomial logistic regression was applied, using panel data, which assumes that the effect of explanatory variables on the choice of exit varies across observations (private equity firms) and over time. From the multinomial logit model it was found that; 1) High technology firms were more likely to be exited by means of M&A rather than IPO; 2) An increase in the lending rate was found to increase the likelihood of a Secondary sale which is contrary to previous research (Sousa, 2010); and 3) M&A was found to be the most likely mode of exit assuming all explanatory variables were at their mean, while IPO was the least likely mode of exit.
Description
Thesis submitted in fulfilment of the requirements for the degree of
Master of Management in Finance & Investment
in the
Faculty of Commerce Law and Management
Wits Business School
at the
University of the Witwatersrand
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Citation
Agyapong, Ntiamoah (2017) Determinants of private equity exit strategies in South Africa, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/23080>