24 Aug GEPLAW FOCUS: PRIVATE EQUITY INVESTMENTS IN NIGERIA: CHALLENGES AND OPPORTUNITIES AMIDST COVID-19
Private Equity (PE) is a form of business financing. It is bankrolled by privatefinanciers/investment companies who donate capital not publicly listed, for an extended period of time to investments in target companies. The Investment and Securities Act 2007, defines PE as “…a type of collective investment scheme that invests primarily in private equity/unlisted companies, whether or not in an attempt to gain control of the company”. The investment usually takes the form of the acquisition of bulk shares in the target company; however, sometimes the private financier(s) buy(s) out the Company (Leveraged or Management Buyout), steers it through a period of rapid improvement and then sells it. PE investment can also take the form of mezzanine debt financing, venture capital or growth capital amongst others. In Nigeria, investment into PE firms mostly come from pension funds, insurance companies, financial institutions, and high net-worth individuals.
In recent years, Nigeria has witnessed a boom in PE investments and was in 2019 described by the African Private Equity and Venture Capital (AVCA) as one of the “most attractive destinations for PE investments”. In 2019, PE in Nigeria chalked up investments worth
N277.64 billion ($ 767 million) between January and February, 65% of which was recorded on the Cocacola – Chi Ltd deal. Other notable deals included the acquisition of Wakanow by the Carlyle Group and the $15 million investment made by the UK based CDC Group Plc to a Nigerian based firm,Cardinal Stone Capital Advisors Growth Fund (CCAGF), for the support of fast- growing SMEs in Nigeria. 2018 recorded N62.27 billion ($172 million) in PE investments, thus making it an almost 345% increase in 2019.
However, it appears this growth is set to be stunted by the raging effects of the COVID-19 pandemic. Needless to say, the COVID-19 pandemic has greatly affected various sectors of the economy and its aftermaths are bound to linger for years. Nevertheless, there are silver linings amidst this for PE stakeholders, as the pandemic presents promising investment opportunities in certain sectors for PE investors and firms, while also making PE a more attractive capital raising option for relevant companies…continue reading