• Monday, March 04, 2024
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Private equity firms set sight on SME-focused banks


As regulatory pressure is seen to be squeezing banks’ liquidity, SMEs-focused banks now stand the chance of attracting funds from private equity (PE) investors aimed at growing Nigeria’s Small and Medium Enterprises.

Private equity investment is generally made by private equity firms, venture capital firms or angel investors targeting asset class consisting of equity securities and debt in operating companies that are either listed on not listed. An angel investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

With reported investment figures increasing to about $3 billion in 2013, private capital in Africa supports hundreds of local businesses looking to build their potential.

From investors’ point of view, Nigeria is a major destination point for private equity investment driven by high return-on-investment (RoI) and the renewed interest in Nigeria’s small business with potentials for growth.

“Our target is to finance the SMEs and help to grow the economy. We are focusing on financing banks whose focus is to grow SMEs. We are looking at those commercially-viable businesses to finance. We try to identify companies whose potentials for growth is high,” Tokunboh Ishmael, co-founder and CEO, Alitheia Capital, said ahead of the 11th annual African Private Equity and Venture Capital Association (AVCA) conference holding in Abuja.

“What private equity does for businesses with potential for growth is to create an interesting story at the end of the day.”

Michelle Kathryn Essome, chief executive officer, AVCA, a trade association that promotes investment in Nigeria and West Africa, said that “private equity and venture capital play a crucial role in financing the SME sector, the engine of economic growth the world over”.

Speaking ahead of the conference with the theme ‘Private capital: a catalyst for change’, Essome said that private equity fund managers also played a key role in helping management to establish governance structures and growth plans, leading to more sustainable businesses.

“By nature, private capital in Africa is chiefly growth investment, unlike the typical perception of private equity in more developed markets. It is an essential provider of jobs and boosts local economies,” she added, observing that the mission of AVCA was to promote and catalyse the private equity and venture capital industry across Africa.

“Private equity invests in businesses that are either listed or not. In terms of size, Nigeria has been a major beneficiary of private equity in West Africa,” said Okey Enelamah, chief executive officer, Africa Capital Alliance.

According to him, the recent inflow of private equity into Nigeria is driven by reforms in the Nigerian economy like banking sector and recently the power sector, adding: “There is need for private capital to drive the investment. If you look at across the sectors of the economy, private equity has shown it is a catalyst for growth.”

Enelamah, however, acknowledged the risk facing private equity investment which he classified as liquidity risk, business risk, and environmental risk.

“Our role is to work with investors to prepare businesses to be listed. The first potential is the ability to create wealth in the country and empower people,” he added.

Expected at the conference include Olusegun Aganga, minister of industry, trade and investment; Christopher Florin, head of emerging market fund investments, Abu Dhabi Investment Authority; Francis Idehen, director of private markets, Exelon Corporation; and Hemal Naran, head of investment and actuarial, Government Employees Pension Fund.

Others are Lesedi Moakfofhi, acting chief executive officer, Botswana Public Officers Pension Fund; Stewart Paperin, president, Soros Economic Development Fund; and Michael Power, strategist, Investec Asset Management.