Private Equity: What do they bring in beside capial?

Quantitative Value Addition Qualitative Value Addition

Corporate Governance
Change of Ownership / Capital Structure Efficiency in Management
Wider knowledge base and information system
Experience with broader base of board
Infusion of Fresh Capital Strategy shift in terms of international Markets
Enhanced technology
Manufacturing experience
Broad Image
Private equity not only gives quantitative value addition but also gives qualitative value addition to the
company. It provides fresh capital, efficiency in management, brand image, and good corporate
governance

Reasons For Growing Popularity of Private Equity

The popularity of PE investment in Nepal is growing. The reasons for the popularity of PE Investment are
summarized below:

1. PE firms often work in conjunction with other providers of finance and may be able to help to
put a ‘total funding package’ together for the business.
2. PE firms also in required expertise in multiple functions.
3. The placement with reputed investors will further enhance the brand image of the company.
4. PE-backed companies have known to grow faster than other companies
5. PE helps to achieve the ambition of a company and provides a stable base for strategic decision-
making.
6. The PE firms will seek to increase a company’s value to its owners, without taking day-to-day
management control.
7. PE firms usually provide higher valuations in normal stock market conditions and lower
valuations when the stock market is booming.
8. Investors can also help the company in improving and developing it's business and strategies.
Limitations of Private Equity Investment

Despite attractions, there are several constraints on private equity firms operating in Nepal. The
promoters will not prefer PE investment for the following reasons:

• The fear of losing control over the company

• Fear of losing the confidentiality of internal information of the company.
• Considered a high-cost option
• Outsiders' involvement in management is not acceptable.
• Investors will have more interest in day-to-day operations

Opportunities for Private Equity Players in Nepal

Opportunities for SMEs

Small and Medium Enterprises(SMEs) in Nepal is an emerging segments and look for various avenues for
raising funds. In such as scenario, PE investments are an alternative and viable source of financing the
SMEs not only because of the financial support that they can provide but also because of the global
exposure that can be provided to the SMEs sectors. This is in form of deploying members of their team
on the boards of directors of their investee companies and taking an active part in their governance and
activities. This would bring more accountability, transparency, and corporate governance. Further, the
portfolio companies would also get exposure to global standard practices in operation, human resource
management, financial planning, reporting, and investor relations.

Challenges

There were various problems associated with PE firms in Nepal. They lack a well-established domestic
network of entrepreneurs, financiers, firms, and research institutions; a poor operating environment
including poor corporate governance at the smaller firms, and an efficient legal system.