Private equity deals in nigeria




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I have a PhD in finance from France. Then, I switched to finance. When I was an engineer, one of our frustrations used to be when we have projects and they say there is no funding. So, I said, let me go and learn about this finance and funding thing. I left engineering for banking. I managed their businesses with banks. Then I left there to set up a bank called Bond Bank back in the day as well.

Then I went into private equity because I had done debt for about seven to 10 years. So, I said to myself, I know debt enough; let me go and learn equity. So, I moved to Capital Alliance, where I was the in the affairs fund and I managed seven of their 10 companies. I then set up Synergy Capital 13 years ago; so, Synergy Capital is 13 years old. We are a private equity fund manager. We are an investment fund and advisory company and we were successful in raising money for Small and Medium Enterprises as our focus is on SMEs, which we believe are the bedrock of the economy.

We built our practice around identifying the good SMEs, mentoring and handholding them to make money. So, we did a few transactions; for example, Courteville Business Solutions Plc that is listed. We did it at Synergy. On the back of that, we now raised our own private equity fund. Then we raised the first year corporate bond in the history of Nigeria two years ago at a very low yield. It was a successful bond as there were a lot of researches on it and we won a lot of awards.

We did African Terminal, Ping Express. The first fund was between Nigeria and Ghana, but the second fund was last year. We invested in First Aluminium Plc, Bell Oil and Gas and we are hoping to invest in two or three more companies in Nigeria before the end of the year.

We also invest in Ghana, Liberia and Sierra Leone.

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Private Equity | Laws and Regulations | Nigeria | ICLG

We invest in SMEs with five to member sizes. How do you determine these companies you invest in? We have sectors that we like. We do all sectors except upstream oil and gas, real estate, gambling, alcohol, tobacco.

We are general but we have exemptions and after the exemptions, we introduce some approaches. We have three approaches: first is the top-down approach where we look at leading people in the market and we identify them and meet up in conferences or we research them. Who are they? How are they positioned? We also have a very strong network of bankers that look out for these companies and refer them to us. If they see that they are doing good business and they need equity, they refer them to us.

We like to focus on deals where we are adding value because we are more than just capital providers; we are value providers. We help people to hire the right people, how to look at the right market and how to adopt the right systems and processes. The voting threshold would therefore typically include an affirmative vote from a part of the minority. Such matters may include decisions as to the issuance of new shares, increase in share capital, acquisitions, disposals, mergers, borrowing and giving guarantees or security, related party transactions, approval of budgets, change of business plan and alteration of the constitution.

The agreement may also make provision for breaking deadlocks. There is also some statutory protection under CAMA that requires a special resolution a resolution passed by not less than three-quarters of the votes cast of shareholders to take the following decisions:. Are there any legal requirements that may impact the ability of a private equity firm to acquire control of a public or private company? A takeover bid is required where a person intends to acquire 30 per cent or more of the voting rights in a public company irrespective of whether it was acquired in a single transaction or a series of transactions over time.

A takeover bid can be made only if the SEC grants authority to proceed to that effect. In deciding whether or not to grant authority to make a takeover bid, the SEC would consider the likely effect of the proposed takeover bid on the economy of Nigeria and on any policy of the federal government with respect to manpower and development.

A takeover bid shall not be made to fewer than 20 shareholders representing 60 per cent of the members of the target company, but it can be made to such a number of shareholders holding in the aggregate a total of 51 per cent of the issued and paid up capital of the target company.

There is no need for a takeover bid where the shares to be acquired are shares in a private company. What are the key limitations on the ability of a private equity firm to sell its stake in a portfolio company or conduct an IPO of a portfolio company? In connection with a sale of a portfolio company, how do private equity firms typically address any post-closing recourse for the benefit of a strategic or private equity buyer?

Contractual limitations on the ability of a private equity firm to sell its stake in a portfolio company or conduct an IPO of a portfolio company may include provisions such as pre-emption rights, tag-along rights, restrictions on drag-along rights and put options. Also, listing requirements may limit the ability of a private equity firm to sell its stake in a portfolio company or conduct an IPO of a portfolio company. Listing on ASeM does not have these requirements.

With respect to listing on the Main Board, a minimum of 20 per cent of share capital must be offered to the public and held by at least shareholders. In listing on ASeM, a minimum of 15 per cent of share capital must be offered to the public and held by at least 51 shareholders. Contractual time limitations may be agreed with respect to representations or warranties, or both, given by a private equity firm to a buyer.


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A private equity firm investing in a portfolio company would usually require warranties from sellers and from the management team of the target company. The said warranties may relate to compliance with applicable laws, the power to contract, title to shares and to assets. What types of lock-up restrictions typically apply in connection with an IPO? What are common methods for private equity sponsors to dispose of their stock in a portfolio company following its IPO? The holdings of the existing shareholders may be restructured for purposes of the IPO and some of the governing rights of the shareholders will survive the IPO such as representation on the board and non-compete rights.

In respect of lock-up restrictions, the Listing Requirements provide that the issuer in respect of an IPO to the Main Board of the Exchange shall ensure that the promoters and directors will hold a minimum of 50 per cent of their shares in the company for a minimum period of 12 months from the date of listing and will not directly or indirectly sell or offer to sell such securities during that period.

Subject to the lock-up restrictions, private equity sponsors or investors may dispose of their stock through a buyout, which may be by another PE entity, institutional investor or the management. What types of companies or industries have typically been the targets of going-private transactions? Has there been any change in focus in recent years? Do industry-specific regulatory schemes limit the potential targets of private equity firms?

There are not many going-private transactions in Nigeria as there are few instances of public companies that have gone private, although foreign investors who want to strengthen their control of, and investments in, the companies tend to want to go private. Transactions involving companies in some sectors such as telecommunications, electricity, insurance, financial services and the petroleum industry will be subject to further industry-specific regulation.

It is yet to be verified that industry-specific regulations have limited the potential targets of private equity firms, even though such regulations make the process more elaborate. What are the issues unique to structuring and financing a cross-border going-private or private equity transaction? There are few financing concerns that are unique to cross-border private equity transactions.

These include tax considerations, importation of capital and repatriation at the point of exit. Where capital is to be imported in a PE transaction, the investors require a certificate of capital importation that is issued by a bank within 24 hours of the entry of the capital into the country. Obtaining the certificate of capital importation is a prerequisite for repatriation. There are no foreign investment restrictions on cross-border private equity transactions in Nigeria except for certain industries in which private participation, both local and foreign, is prohibited except with a licence from the federal government eg, defence.

What are some of the key considerations when more than one private equity firm, or one or more private equity firms and a strategic partner or other equity co-investor is participating in a deal?


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There are no restrictions preventing multiple private equity firms, or a private equity firm and its strategic partner, from participating in a club or group deal. The concerns, however, depend on the relative size and interests of the parties to the transaction.

African private equity deal value dipped in 2018, but more deals are being done

In a takeover context, a key consideration for parties to such transactions is that they will likely be scrutinised for the purposes of assessing whether the obligation to make a mandatory takeover offer is triggered. The threshold for triggering this obligation is an aggregate holding of 30 per cent of the voting shares. What are the key issues that arise between a seller and a private equity buyer related to certainty of closing? How are these issues typically resolved?

Several issues may arise during the closing of a PE transaction. Such issues may include failure to obtain mandatory clearances or regulatory approvals and failure to satisfy financing closing conditions such as the provision of a comfort letter issued to the buyer by its lender. Where these closing issues arise, the non-defaulting party can grant an extension of time, with or without a provision for costs, to enable the resolution of the issues, or it can terminate the agreement in accordance with its terms.

In the latter instance, the inclusion of a reverse termination fee clause in the agreement will be prudent. Have there been any recent developments or interesting trends relating to private equity transactions in your jurisdiction in the past year? The private equity sector also witnessed a series of transactions in diverse industries.

Earlier in the year, Sahel Capital, fund managers for the Fund for Agricultural Finance in Nigeria and Cardinal Stone Capital Advisers, a Nigerian private equity fund manager, entered agreements for an investment in Crest Agro Products Limited, an integrated cassava processor based in Kogi state. If you would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries lexology. Back Forward. Share Facebook Twitter Linked In. Follow Please login to follow content. Register now for your free, tailored, daily legal newsfeed service. Nigeria April 17 Transaction formalities, rules and practical considerations Types of private equity transactions What different types of private equity transactions occur in your jurisdiction?

Corporate governance rules What are the implications of corporate governance rules for private equity transactions? Issues facing public company boards What are some of the issues facing boards of directors of public companies considering entering into a going-private or private equity transaction? Disclosure issues Are there heightened disclosure issues in connection with going-private transactions or other private equity transactions? Timing considerations What are the timing considerations for a going-private or other private equity transaction? Such an application may be sustained only where it can be shown that proceeding with the transaction is: illegal, oppressive, unfairly prejudicial or in disregard of interests of a member or members in the case of an application by a shareholder, personal representative of a deceased shareholder and persons to whom shares have been transferred or transmitted by operation of law; oppressive, unfairly prejudicial or discriminatory to such director, officer, former director, former officer or creditor of the company; or oppressive, unfairly prejudicial or discriminatory against a member or members in a manner that is in disregard of public interest in the case of an application by the CAC.

Where the approval is granted, the offeror is required to make the approved bid within a period of three months following the date of approval. The offeror may thereafter apply for an extension of this period before the expiry of the three-month period. Where a takeover bid is made for all the shares of a class in an offeree company, the offeror is proscribed from taking up shares deposited pursuant to the bid until 10 days after the date of the takeover bid.

Where the bid is made for less than all the shares in a class of the offeree company, the offeror is proscribed from taking up shares deposited pursuant to the bid until 21 days after the date of the takeover bid. A takeover bid is required when the shares being acquired are not less than 30 per cent of the shares of the company. Further, delays caused by addressing issues such as the rights of dissenting shareholders may form part of the timing considerations in private equity transactions.

What rights do shareholders have to dissent or object to a going-private transaction? How do acquirers address the risks associated with shareholder dissent? Shareholders who do not accept the terms of a going-private transaction may vote against it at the general meeting of the company at which the issue is considered or may choose not to accept a takeover offer. Shareholders, personal representatives of deceased shareholders and persons to whom shares have been transferred or transmitted by operation of law who dissent or wish to object to a going-private transaction can make an application to court to restrain the company from going private on the ground that such an act would affect the individual right of the shareholder as a member of the company.

Further, shareholders, personal representatives of deceased shareholders, persons to whom shares have been transferred or transmitted by operation of law, directors, officers, former directors, former officers and creditors of the company, as well as the Corporate Affairs Commission CAC , are empowered to apply to court to object to a going-private transaction. Such an application may be sustained only where it can be shown that proceeding with the transaction is:.

What notable purchase agreement provisions are specific to private equity transactions? As with other transactions, the provisions of purchase agreements will depend on negotiations between the parties. How can management of the target company participate in a going-private transaction?

What are the principal executive compensation issues? Are there timing considerations for when a private equity buyer should discuss management participation following the completion of a going-private transaction? One of the concerns of private equity investors includes ensuring that the interests of management align with the interests of the investors with a view to the growth of the company. To this end, management of the offeree company may be required to execute employment agreements with non-compete and confidentiality provisions.

Further, the terms of employment of management may constitute part of the pre-closing covenants in a going-private transaction such that management participation and compensation issues are dealt with prior to the completion of the transaction. Timing considerations for the participation of management in a going-private transaction are often a product of the provisions of the purchase agreement entered in respect of the transaction.

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What are some of the basic tax issues involved in private equity transactions? Give details regarding the tax status of a target, deductibility of interest based on the form of financing and tax issues related to executive compensation. Can share acquisitions be classified as asset acquisitions for tax purposes?

The tax issues involved in a PE transaction depend on the structure of the transaction. Where a PE vehicle is registered as a partnership, the individual partners will be liable to pay tax on their personal income. Limited liability companies, on the other hand, bear the tax as an entity while the individual investors which could be corporate or individual are liable to tax on their investment income. Income such as dividends, interest and management fees are subject to withholding tax. For non-resident investors, such taxes withheld are treated as their final tax obligation.

The target and investors will also need to note that stamp duties may arise at a flat rate or ad valorem on the transaction documents. Other investor tax liabilities will depend on the exit model the PE transaction adopts. For instance, management fees will incur withholding tax while carried interest will incur capital gains tax. Note also that interest on foreign loans that have a repayment period including moratorium of two years and above enjoy certain tax exemptions.

The rate of the exemption ranges from 40 to per cent and is subject to the grace period allowed.

Private Equity (Transactions) in Nigeria

Targets incorporated as companies are taxed under the Companies Income Tax Act. Generally, company profits are taxed at the rate of 30 per cent. In Nigeria, interest payment on sums borrowed and employed as capital in acquiring profits is tax deductible. Consequently, some businesses prefer debt financing to equity financing to enable them benefit first from the loan and subsequently from the tax deductibility of interest payments.

Equity financing, whether in the form of preferred or ordinary stocks, will entitle the shareholders to dividends. Such dividends will be subject to a 10 per cent withholding tax. Upon deduction of the withholding tax, such dividend will be treated as franked investment income.

Capital gains tax payable on gains earned on the disposal of assets are not applicable to the disposal of shares. Consequently, with respect to this tax, share acquisitions are not asset acquisitions.

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In practice however, where it is a major transaction the revenue authorities might investigate to compare the proceeds from the sale of shares and the net book value of the assets to decide whether or not capital gains tax should arise. What types of debt are typically used to finance going-private or private equity transactions? What issues are raised by existing indebtedness of a potential target of a private equity transaction? Are there any financial assistance, margin loan or other restrictions in your jurisdiction on the use of debt financing or granting of security interests?

Depending on the structure of a private equity transaction, loans may be sought to finance a PE transaction and such loans may be senior or subordinated debts. In practice, such loans are often in the form of senior debt. Foreign loans are subject to the relevant foreign exchange regulations and may be brought in through approved channels to enable repatriation of repayments. Existing indebtedness of a potential target would play a role to the extent of the priority ranking of such debts and whether or not such debts are being serviced at the time of the proposed private equity transaction.

As part of the structure, it may be decided to either keep or repay the existing indebtedness depending on how such repayment may affect the cash flow of the target company. The consent of the provider of the existing indebtedness would usually be required before new financing would be taken by the company. There are restrictions under CAMA on the provision of financial assistance by a company whether by way of loan, guarantee, security, indemnity or any form or credit in relation to the acquisition of its own shares.

There are also restrictions on margin loans. What provisions relating to debt and equity financing are typically found in going-private transaction purchase agreements? What other documents typically set out the financing arrangements? The financing provisions will depend on whether the structure is pure equity, debt, quasi-debt, leveraged or a combination.

As such, it could range from fairly straightforward to very complex credit documentation. In practice, banks have traditional provisions that govern the various facilities they offer. However, it is not unusual to have debt and equity finance raised from institutional investors who are not banks.

It is also important that the financier or investor ensures that the target has complied with all CAC requirements and filings for a going-private approval.

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