Investigating challenges of private equity investment in agro-processing in South Africa

Abstract

The South African agro-processing sector receives substantial attention from government planning commissions and other stakeholders because of the crucial role it can play in growing the South African economy. To achieve its potential, the agro-processing sector has to grow and expand itself to such an extent that industrialisation and meaningful job creation can indeed take place. Funding is required to grow the sector, of which a substantial portion can come from private equity investors. If the critical criteria considered by private equity investment professionals are known and well understood, it is possible to identify the challenges that prevent more private equity funding from flowing into agro-processing in South Africa. International studies showed that aspects such as growth and profit prospects are essential considerations. Literature differs on aspects such as minimum shareholding and the extent to which investors want to control the boards of the companies they have invested in. Furthermore, due to South Africa’s unique socio-economic characteristics, it cannot be assumed that the results of international studies would apply to South Africa. Therefore, there is uncertainty about the relevance of aspects seen to be essential and posing challenges when private equity investment in agro-processing businesses is considered. Through literature research followed by qualitative and quantitative empirical studies, this study identified the most critical criteria that private equity investors in South Africa use when making agro-processing investment decisions. If these criteria are not achieved satisfactorily, investments will not be made. The investors’ ability to identify favourable investment opportunities and aspects associated with this aspect were identified as extremely important. Another important aspect was the intention of co-shareholders. It is proposed that agro-processing ventures wanting to attract private equity funding should consider the findings of this study and orientate themselves so that they become a more attractive investment opportunity.