Venture Capital firms are investing in start-ups and betting on them becoming billion dollar businesses in a couple of years as Nigerian private equity deals explode.
“The large markets in Nigeria make it possible to build a technology company worth $1 billion. We have one in our portfolio right now,” said Yemi Lalude, founder and Managing Partner at Adlevo Capital, a technology focused African venture capital firm, at a recent conference.
“The deal flow has surprised us to the upside, and is about twice what we expected as more investment activity happens on the lower end.”
Venture capital deals are happening in more sectors of the economy as the traditional sectors expand in size, creating new sectors and opportunities along the line.
Nigeria’s economy is expected to expand by 7.4 percent in 2014, according to the International Monetary Fund (IMF).
A rebased calculation of the country’s gross domestic product may boost the size of the economy by as much as 60 percent to $424 billion, lifting Nigeria ahead of South Africa in the World Bank’s global rankings, and showing the true potential for businesses in the country.
“There are opportunities to grow firms in the e-commerce and oil and gas space to become billion dollar businesses,” said Akintoye Akindele, Partner at Synergy Capital Managers.
One big exit expected in the next couple of days is the SEPLAT Petroleum Development Company Plc $500mn IPO whose book building began last week with an implied Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE) post listing market capitalisation of between $1.8 billion and $2.2 billion.
Private Equity investors in SEPLAT include Quantum Capital, Mercuria Capital, and the Blakeney Group.
The strong growth of Nigeria’s non-oil sector is also providing a lynchpin for PE and VC deals.
“Mobile data and payments are quite interesting. We have made a lot of bets in that area,” said Lalude.
The growing Nigerian deal activity is attracting quite a bit of attention from American PE/VC firms according to Lalude.
“We are seeing a lot of companies from the U.S investing in the e-commerce space,” said Lalude.
“The good thing is that people are finally recognizing the opportunity, the bad is that our view on valuation is often more conservative than what U.S VCs think.”
Nigeria’s new private sector led power sector is also seen as an area of opportunity to build billion dollar businesses.
“Nigeria’s power sector is attractive for investments by private equity,” said Andrew Johnstone, CEO Africa Infrastructure Investment Managers, which manages six unlisted infrastructure fund vehicles in Africa.
“As a theme power is here to stay for a long time,” Johnstone said.
PATRICK ATUANYA
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