The Role of Private Equity in Enterprise Development and Its Challenges: A Case Study of Access Capital Services Share Company
Tsion, Taye Assefa
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Several studies have documented that private equity, leveraged buyouts in particular, can fill the financing gap that exists when it comes to risky firms, such as distressed firms. This is, basically, because private equity firms not only provide patient capital but also close nurturing of investments by the financiers-characteristics which other forms of financing such as public equity and debt do not have. However, the role that a private equity firm can play in solving the challenges of risky firms is unknown in Ethiopia. To provide ‗real-life‘ evidences of such role, the case of Access Company Service Share Company, the sole investment firm providing private equity services (to the researcher‘s knowledge) was used. Such role was examined from the point of view of corporate governance, management system, business networks, innovation and access to further finance. For that purpose, in-depth interviews with the general managers of each investee firm were made and few secondary documents reviewed as a supplement. The findings revealed that the main areas in which Access Capital has contributed are in improving the governance and management systems of investees. As it was deemed necessary to provide evidences on the general practises of private equity investments and the related challenges that these pose to investors as well, an assessment of such practises and challenges were also made. For that purpose, in-depth interviews with the vice president at Access Capital and a senior analyst were made, again supplemented by a review of few secondary documents. These have revealed that the most serious challenges faced by Access Capital are disorganized records of investees hindering the smooth undertaking of the deal sourcing and due diligence process, finding a skilled management team for investee firms and the potential challenge of making a fair exit. Even though the study is a quite useful one because of the insights it gives on Private Equity in Ethiopia, it is limited by the lack of financial data. Thus, further research should be done to objectively measure the impacts that Access Capital has in its investee firms.