Original Research

Analysing the criteria of private equity investment in South Africa

Albertus Hamman, Ines Nel, Merwe Oberholzer
Journal of Economic and Financial Sciences | Vol 14, No 1 | a608 | DOI: https://doi.org/10.4102/jef.v14i1.608 | © 2021 Albertus Hamman, Ines Nel, Merwe Oberholzer | This work is licensed under CC Attribution 4.0
Submitted: 27 July 2020 | Published: 26 April 2021

About the author(s)

Albertus Hamman, Business School, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa
Ines Nel, Business School, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa
Merwe Oberholzer, Management Cybernetics Research Unit, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa


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Abstract

Orientation: Within the conceptual paradigm that the institutional environment may influence investment criteria, this study argues that South Africa has a unique socio-economic environment and matters such as black economic empowerment, corruption, redistribution of land and other related matters pose unique challenges to private equity investors.

Research purpose: The purpose was to determine the critical criteria that present a challenge to private equity investment professionals when considering an investment in business ventures in South Africa.

Motivation for the study: As far as can be established, similar research to identify and prioritise the investment criteria used by private equity investors has not been done or published in South Africa.

Research approach/design and method: A literature review was conducted to develop qualitatively a 51-component questionnaire, which was quantitatively tested by a convenience sample of 44 registered private equity investment professionals in South Africa.

Main findings: Descriptive statistical analysis revealed that the most important individual criteria component is the intention of co-shareholders. From a factor analysis, the most important factors are the internal and the external abilities of the fund manager to identify investment opportunities.

Practical/managerial implications: The new prioritised investment decision-making criteria may aid potential target companies, wanting to attract funding from private equity investors, to organise themselves to become attractive investment opportunities.

Contribution/value-add: A new prioritised list was developed to better understand how South African private equity investment professionals make investment decisions.


Keywords

private equity investment; investment criteria; investment decision; institutional theory; South Africa

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