• Thursday, March 28, 2024
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NASD moves to connect PE investors with growth enterprises

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NASD Over-The-Counter (OTC) Securities Exchange is making a bold move to connect Private Equity (PE) investors to growth-oriented enterprises in Nigeria.
NASD Plc, which is the promoter of a Trading Network that eases secondary market trading of all securities of unquoted public companies, has just developed an Enterprise Portal called “NASDeP” which it limits to only Private Equity (PE) investors to enable them access information on these enterprises.
Interestingly, BusinessDay is the first news medium to see the specimen of the Enterprise Portal preparatory to its official public launch on March 22, 2018.
Currently, there are many Nigerian early growth-enterprises looking for private equity, especially considering the high interest rate they would pay if they go borrowing from banks.
Bola Ajomale, Managing Director/CEO, NASD Plc who spoke to BusinessDay in his Lagos office said that NASDeP collates standardised information on growth-oriented enterprises and presents such information to pre-screened investors.
Enterprises in different markets with growth opportunities require long-term capital to finance their operations. Weak support from the formal capital market forces such companies to borrow from commercial banks at expensive rates.
Banks double digit interest rates on short-term loans are not sustainable, though the companies that are willing to give up the equity usually look for just an investment, not partners.
This remains one of the main challenges for businesses to attract needed Private Equity (PE) funds.
NASDeP bridges this gap by showcasing qualified enterprises to venture capital, private equity and other accredited investors who are seeking investment opportunities. It will be an information hub for enterprises, investors, business incubators and sponsors as well as analysts.
Nigeria recorded $7.8 billion worth of Private Equity (PE) deals in five year period of 2012 and 2017, outshining other African countries like South Africa and Kenya, according to data from Africa Private Equity and Venture Capital Association (AVCA).
“The greatest explosion in private equity, if it is going to occur anywhere around the world in the next couple of years, is going to be in Africa, particularly sub-Saharan Africa, where the penetration rate is about one-twelfth or so of what it is in the United States,” according to David Rubenstein, a billionaire co-CEO of a US based PE firm The Carlyle Group.
Private Equity investment in Nigeria takes place in both start-up and established businesses; but the common investment strategies include venture capital, buyouts and restructuring (provision of growth capital).
Bertrams Lukstins, Co-Founder, CEO at London-based market research firm, AfricaLinked.com noted that “deals and Private Equity is happening in Africa, the challenge is finding these deals.” “Even big funds have to do small deals. There have been instances where a $3billion-fund invested as little as $10million in a company,” he noted, adding that till 2020, there remains a great opportunity for small and mid-sized investments into companies that require $5million-$100million per transaction.
“While capital is highly demanded in Nigeria and there is a lot of capital available for deals, there is a lack of good deals available. The main reason for this is people’s attitudes to ownership, companies prefer to borrow than give up equity. Many entrepreneurs rather have the whole business than a small piece of a huge pie. There is also a level of emotional ties to the business – many companies are family run and owned”, Lukstins noted.
The NASDeP provides a platform where accredited investors can discover new investment opportunities; the platform also provides well-functioning enterprises with crucial access to patient capital and strategic partnerships.
Ajomale said “the platform makes information handy for private equity investors” and others to ameliorate the rigors or going to research on growth-enterprises.
It also aims to create a repository of information on viable growth-oriented enterprises as well as an efficient, accessible and transparent information exchange, he said.
“Such investors may range from casual, financial and strategic investors, to institutional firms who will provide operational enterprises with crucial access to capital and guidance from the best managers in the industry,” Ajomale told BusinessDay.
The private equity (PE) and venture capital industry in Africa continues to witness strong performance across diverse sectors. Returns to investors are expected to remain strong with considerable growth in robust asset classes such as infrastructure, which provides stable, long-term cash flows.
“Despite the prevalence of lucrative deals, investors in Africa face high transaction costs stemming from unique risk factors, such as exposure to market volatility, as well as political and credit risk,” said Lade Araba, Africa Region Representative, Convergence, a global network for blended finance that generates blended finance data, intelligence, and deal flow to increase private sector investment in developing countries.
While data on Africa’s macroeconomic performance has improved recently, there is still a large gap in reliable data relating to private companies.
Without solid data, it is tough for potential investors to complete valuations and peer comparison.
“This is why one tends to find many African companies being compared to international peers for a valuation, therefore leading to mispricing transactions and missing the nuances of the local market opportunities,” according to Orbitt, a digital deal origination and processing platform focused on Africa.
“Unlike the US and other advanced economies where PE deals mainly consist of leveraged buyouts, the predominant forms of PE deals in Nigeria are management buyouts and restructuring, including jumpstarting green or brown field investments,” according to a Nigerian law firm, Banwo & Ighodalo.

 

IHEANYI NWACHUKWU