Private equity has to do with private investments with institutions that are not listed publicly or share not traded publicly. The institutions here could be private companies, firms, and such type of investment is done in-house and usually involves individuals or firms with high net worth. In this article, we’ll be running an overview of private equity sales in Nigeria.
About the market
Nigeria is facing several financial irregularities due to the coronavirus pandemic and the decline in oil. Several decisions have been made such as the devaluation of the naira, national budget adjustment, and stimulus packages. This has also affected the private equity market in the country.
The Securities and Exchange Commission (SEC) regulates the market. The rule is that the general is not to partake in any private equity sale. Funds must be sourced privately and only from qualified investors which include high net worth individuals and institutions like pension funds and banks.
Requirements to partake in Private Equity Sales
As mentioned earlier, the market is open to only qualified investors – high net worth individuals and firms.
Pension fund administrators can only invest in private equity sales with assets registered with the SEC or licensed by an SEC-registered fund manager. It applies to private equity sales with a N1 Billion Naira minimal commitment. This is according to the National Pension Commission’s Regulation on the Investment of Pension Fund Assets 2019, otherwise known as Pencom Regulations.
For firms, you must have a minimum capital of N150,000,000 (One Hundred and Fifty Million Naira). Furthermore, you can only purchase sales below 30% of your total asset in a single investment. However, these are just limits set by the SEC.
The minimal limits may still vary depending on the investment fund as some PE firms may demand more.
The reason why such high amounts are required for private equity sales is due to the nature of the investment. Private equity shareholders have control over a company’s operations and they can massively influence the board’s decision.
Private equity sales procedure
A private equity sale in Nigeria is usually carried out by the purchasing of quasi-equity instruments and shares from an existing shareholder to another. This could be a total share acquisition or subscription.
As an investor, you’ll seek to protect your interest, follow up the activities of the company you’re investing with, and make sure you get returns from the investment.
However, with backing from the SEC, investors are less at risk than firms are. As a result, PE firms often partner with trusted sales advisory teams that will develop a strong sales strategy.
As an investor, it’s healthy to look into the sales advisory team working with your investee too.
If you haven’t got millions of naira in assets, private equity sales and investments are not something you can go into. It is strictly for high net worth individuals and firms with over N100 million worth of assets. Nevertheless, there are many individuals with such worth in Nigeria, hence, the private equity market is still a competitive one.