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Nigeria records successful PE investments despite ownership tussles

…Analysts say country still suited for big-ticket deals …Call for due diligence by founders, PE investors

Nigeria is replete with tens of rancour-free and successful private equity (PE) investments in spite of ongoing ownership tussles between some Nigerian founders and their investors.

BusinessDay reported last week how some local business founders went up in arms against their PE investors or venture capitalists (VCs) over issues around ownership and who controls what. The issue, according to analysts, belies the fact that Africa’s most populous nation is laden with several exemplary deals between PE investors and Nigerian founders that have stood the test of time.

“There have been good examples of successful partnerships between foreign investors and local businesses, which created mergers and improved corporate governance. Stanbic IBTC is an example of such,” Ngozi Edozien, CEO, InVivo Partners and former managing director of Actis West Africa, told BusinessDay.

In September 2007, IBTC Chartered Bank merged with Stanbic Bank Nigeria Limited, a then subsidiary of Stanbic Africa Holdings Limited (SAHL), a wholly owned subsidiary of Standard Bank Group Limited of South Africa. SAHL acquired a majority equity stake of 50.1 percent in the enlarged bank named Stanbic IBTC Bank.

Thirteen years after, key players in the deal have no cause for regrets as the merger has provided good returns for shareholders and positioned the bank as the best sub-custodian bank (providing top security services to global clients) in the country, according to the Global Finance Magazine, which assesses banks in seven regions and over 80 markets.

In 2016, Beloxxi Industries, an Agbara, Ogun State-based biscuit maker, closed an $80 million deal with a consortium of 8 Miles (London), African Capital Alliance (Nigeria) and KFW DEG Bank (Germany).

The deal has raised the firm’s capacity from 40,000 metric tons (MT) to 80,000MT and birthed two new biscuit lines as of February 2019, according to Obi Ezeude, managing director, Beloxxi Industries, who spoke during the commissioning of the second and third lines by Vice President Yemi Osinbajo, in early 2019. BusinessDay understands that the company is on the verge of closing another PE deal, due obviously to the success of the 2016 investment.

Similarly, Paystack deals have shown that PE or VC deals, if properly done, can shore up local businesses, boost operational efficiency and jobs. In 2016, the fintech company secured $1.3 million seed investment from Tencent, Comcast Ventures and Singularity Investments, with participation from Spark, M&S Partners, Tokyo Founders Fund, Blue Rinc Capital, among others.

As of 2018, Paystack was servicing more than 17,000 businesses, processing over 15 percent of all online payments in Nigeria. Its monthly processing volumes were 30 times bigger since it announced its first seed round in December 2016.

The success of the previous deal led to a new PE investment in 2018, with the firm closing an $8 million Series A funding in a round led by Stripe. The company founded by Shola Akinlade and Ezra Olubi is the first Nigerian tech company to be admitted into the Silicon Valley-based, Y Combinator accelerator.

“Customers are now paying over $27.5 million to Paystack merchants every month,” the firm said in 2018.

Similarly, Paga is an example to behold. In 2015, Adlevo Capital-led consortium of investors raised $13 million in a Series B financing round to strengthen the agent network of Paga, a Nigerian mobile payment company. This was after securing a deal from the investors three years earlier. As of August 2016, Tayo Oviosu-led Paga had five million users on its service.

Due to the success of the previous deal, the mobile payment firm raised another $10 million in a Series-B funding round led by London-based Global Innovation Fund. Also, impact investors Goodwell Investments, Unreasonable Capital and Omidyar Network and Mauritius-based PE fund Adlevo Capital were also part of the deal.

In January 2020, Paga acquired Apposit, a software development company based in Ethiopia, for an undisclosed amount, and plans a Mexico launch.

There have also been many recent PE and VC deals that highlight the opportunities in the Nigerian market and investor confidence in locally founded enterprises.

In 2019, Nigeria-based African genomics firm 54gene raised a $4.5-million seed fund from Y Combinator, Fifty Years, Better Ventures and KdT Ventures. In April 2020, it secured another $15 million in Series A capital in a round led by Adjuvant Capital, a life sciences fund backed by the International Finance Corporation, Novartis, and the Bill & Melinda Gates Foundation. This is considered the biggest round for a Nigerian healthtech startup.

Also, in May 2020, Tomato Jos, an agro-processing company, raised €3.9 million in PE funds led by Alitheia Capita, a partner of the Goodwell Umunthu Fund. In April 2020, TLcom Capital invested $1 million in Okra, a fintech Nigeria-based company that connects bank accounts to apps.

“Both Tomato Jos and Okra transactions demonstrate the willingness and ability of the PE asset class to step in when other capital sources don’t,” Tokunboh Ishmael, CEO of Alitheia Capital and chair of the Board of the African Private Equity and Venture Capital Association, told BusinessDay.

She explained that foreign capital had become a game changer in Nigeria and Africa as over 150 PE deals have taken place on the continent targeting diverse strategies across sectors, regions and investment sizes.

“Between 2014 and 2019, there were 1,046 PE deals across Africa investing $25.3 billion in businesses on the continent. The evolution of the industry has increased the awareness of entrepreneurs, business owners and governments to the benefits of PE investments in businesses, economies and communities,” she said.

Cash-strapped Nigeria is in dire need of foreign capital. In the second quarter of 2020, total FDI inflows into Nigeria, including portfolio, direct and equity investments, plunged to $1.29 billion, representing 77.88 percent slump, from the $5.85 billion inflows reported in the preceding quarter, according to the National Bureau of Statistics’ (NBS) capital importation report.

Local businesses are desperately scrambling for liquidity as financial institutions lend at 22 to 35 percent, according to analysts. Nigeria has one of the highest lending rates in sub-Saharan Africa. The country’s Monetary Policy Rate is 11.5 percent, while South Africa’s repo, equivalent to Nigeria’s MPR, is 3.5 percent. Kenya MPR is 7.25 percent, while Zambia’s is 8 percent.

Recent PE deals by many local firms have gone awry. The most notable is the HealthPlus saga, where founder Bukky George accused PE investor Alta Semper Capital LLC UK (AS) of announcing an $18 million investment but bringing far less two years after. The firm recently removed George as CEO, replacing her with Chidi Okoro as chief transformation officer.

Alter Semper with the majority 53.8 percent shareholding said it had been unable to reach an agreement with George, which had hindered the operations of the company and delayed the implementation of its growth plans.

It further said the difficult decision was made in full compliance with Nigerian law and following a long and drawn-out process of engagement with George.

The investor accused George of ‘breaches’ and mismanagement of the business, but she had publicly denied the allegations.

Several others such as Wakanow, PathCare-Synlab, Filmhouse Imax, among others, are also having some issues with their PE investors, according to BusinessDay findings.

But analysts have called for caution, saying unless all the details of the deals are laid bare, it would be unwise to apportion blame.

Toki Mabogunje, president, Lagos Chamber of Commerce (LCCI), said some of the cases were sub judice, stressing that it would not be wise to make public judgments when all the facts were yet to emerge.

On her part, Edozien, earlier quoted, who is also the founding CEO of Equity Vehicle for Health in Africa, said local founders must do their due diligence and engage professional advisers while going into PE or VC deals, urging PE investors to understand the markets they wish to enter and the visions of business founders before investing their money.

“Founders should focus on understanding the deal structure, the governance rights and the poor performance triggers that push them into a minority rights situation,” she said.

“A good PE firm understands that success is about ensuring that founder’s skills and contributions are optimised. It is a partnership for growth, not an effort for takeover unless that was the deal from the start. Actions of dominion to the detriment of the agreed partnership is surely a path to failure on both sides,” she further said.

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