A Study on the Effect of Private Equity Funds on Investee Firms Performance in Kenya Focusing on Smes

Abstract

The purpose of this study was to study the effect of private equity funds on the performance of investee in Kenya with a special focus on SMEs. The study adopted a descriptive research design which involved a sample where both primary and secondary data was collected. The target population of this study composed of all SMEs funded through private equity. The population of this study was the 354 SMEs funded by private equity capital between the years 2010 to 2016 as divulged by portfolio managers. A sample of 133 SMEs was selected upon whom a questionnaire was administered, returning a response rate of 76%. Causal comparative research was used to explore relationships between variables. Descriptive statistical method was used to analyze data using the Statistical Package for Social Scientist (SPSS). The results are presented by use of tables, pie charts and bar graphs. The study revealed that where SMEs seek private equity (PE) capital, the investing PE will in most cases make adjustments in the management and board structure. This is oftentimes a condition after injection of capital. The PE firm also administers rigorous monitoring exercise inform of reporting requirements and frequent board meetings. These two illustrations are among many other things that PE firms do or require of the SME after injecting capital that are aimed at enhancing the performance of the SME post investment. The study revealed there is a positive correlation between Private Equity funding and the eventual firm performance. The regression analysis revealed positive betas in the PE activities namely Financing, Management Support, Technical Support and Portfolio Management, relative to the ROE of the investee firms.