Private Equity 2021

March 5, 2021

TRANSACTION FORMALITIES, RULES AND PRACTICAL  CONSIDERATIONS 

Types of private equity transactions 

1 What different types of private equity transactions occur in  your jurisdiction? What structures are commonly used in  private equity investments and acquisitions? 

Private equity (PE) transactions in Nigeria can generally be classified  into angel investing, venture capital, growth capital, buyouts (including  management buyouts) and mezzanine financing. Available structures  commonly used for private equity investments are equity investments  and quasi-equity investments, which would include taking preferred  stock or convertible notes by the private equity fund entity. Limited  liability companies and limited partnerships are most typically used as  investment vehicles for PE investments. 

Corporate governance rules 

2 What are the implications of corporate governance rules for  private equity transactions? Are there any advantages to  going private in leveraged buyout or similar transactions?  What are the effects of corporate governance rules on  companies that, following a private equity transaction, remain  or later become public companies? 

There are no special corporate governance rules applicable to private  equity transactions other than those imposed by sector-specific regulators  such as the Code of Corporate Governance for the Telecommunications  Industry 2016 issued by the Nigerian Communications Commission.  Corporate governance issues relating to private companies in Nigeria,  including companies with private equity participation, are generally  addressed by contractual agreements, memorandum and articles of  association subject to the Companies and Allied Matters Act (CAMA) and  any code of corporate governance adopted by the company. 

The Securities and Exchange Commission (SEC) Code on Corporate  Governance (SEC Code) is applicable to public companies whose securi ties are listed on a recognised exchange in Nigeria, companies looking  to raise funds through the issuance of securities and other public  companies. The SEC Code gives guidelines for disclosure and reporting  requirements. Where the SEC considers a company non-compliant, it  is empowered to notify the company of its non-compliance, albeit with  no direct penalty for non-compliance with the SEC Code. In addition,  there are regulatory and disclosure requirements if a public company  is listed, as such companies are also subject to the Rulebook of the  Nigerian Stock Exchange (NSE). 

The Financial Reporting Council’s (FRC’s) Nigerian Code of Corporate  Governance, which applies to public companies, private companies that  are holding companies of public companies or other regulated entities,  as well as private companies that are termed ‘public interest entities’  

(private companies that file returns to regulatory authorities other than  the Federal Inland Revenue Service (FIRS) and the Corporate Affairs  Commission (CAC)), may apply in the event that the private equity trans action involves a company that is a public interest entity. 

There are obvious advantages when a public or listed company  goes private as this will mean less regulation and disclosure obligations. Where a target company with private equity participation remains  a public company, nothing changes. However, where a private company  becomes a public company, such company would become subject to  the application of the SEC Rules and Regulations (SEC Rules) and the  Rulebook of the NSE (NSE Rulebook). 

Issues facing public company boards 

3 What are some of the issues facing boards of directors of  public companies considering entering into a going-private  or other private equity transaction? What procedural  

safeguards, if any, may boards of directors of public  

companies use when considering such a transaction?

What is the role of a special committee in such a transaction where  senior management, members of the board or significant  shareholders are participating or have an interest in the  transaction? 

Some of the issues facing the board of a public company considering  going-private relate to reducing the risk of litigation by dissenting or  minority shareholders, choosing the structure to adopt in the transac tion, disclosures, and conflicts of interest. The issues of disclosure and  conflict of interest are at the core of the board’s considerations because  they relate to the fiduciary duties of the directors. The fiduciary duties  of the directors under CAMA include a duty to act in good faith, exer cise independent judgment, act in the best interest of the company as  Ta whole – so as to protect its assets and promote its business – and  avoid conflict of interest, thus mandating that directors declare any  interest in any proposed transaction or arrangement. In addition to the requirements of CAMA on disclosure of conflicts of interest by directors, companies generally have rules or policies on conflict of interests and  duties of the board, management, and other personnel of the company. In addition to the use of a special committee as a procedural safe guard, the company may also adopt a ‘majority of minority approval’  approach to certain types of transactions, ensuring that a majority  of all of the minority shares that are entitled to vote, not merely a  majority of the shares that are actually voted, approve the transaction.  This works particularly in a situation where the transaction is one of  significant shareholders looking to buy up minority shares and take the  company private. 

A special committee of the board, which may consist of inde pendent non-conflicted directors, may be constituted for this purpose.  The special committee may be charged to objectively evaluate, review  and approve the private equity transaction on behalf of the company.

The role of the special committee is to ensure fairness by determining  that the transaction is in the best interest of the company and delivers  value to all shareholders. 

There may also be the question of whether the transaction will be  considered as a merger in accordance with the provisions of the Federal  Competition and Consumer Protection Act (FCCPA) and its attendant  regulations. The answer to this question and the size of the transac 

tion will determine whether the approval of the Federal Competition  and Consumer Protection Commission (FCCPC) ought to be sought for  the transaction. 

Disclosure issues 

4 Are there heightened disclosure issues in connection  with going-private transactions or other private equity  

transactions? 

The provisions of the CAMA 2020 require a person with signifi cant control of a company or is a substantial shareholder in a public  company to disclose his or her interest to the company within a stated  period of becoming aware that he or she has significant control or is a  substantial shareholder. The company in turn is required to notify the  CAC within one month (in the case of significant control) and 14 days (in  the case of substantial shareholding) of receipt of the notice. A substan tial shareholder is defined as a person who holds at least 5 per cent of  the unrestricted voting rights at any general meeting of the company. A  person who ceases to be a substantial shareholder is also required to  

notify the company and the latter is required to notify the commission. Under the SEC Rules, the provisions guiding the operation of  private equity funds in Nigeria provide for submission of quarterly  returns, annual report of the fund to the SEC and semi-annual reports  to its investors. 

A company for which a takeover bid has been made is required to  provide sufficient time and information to all its shareholders to enable  them to reach a properly informed decision in respect of the bid. Such  disclosures are required to be prepared with the highest standard of  care and accuracy and must contain all information relevant to the  transaction. Further, listed companies are required to ensure that inves 

tors and the public are kept fully informed of all factors that may affect  their interest and to make immediate disclosures of any information that  may have material effect on market activity in, and the prices or value of,  listed securities as well as details of any major changes in the business  or other circumstances of the company to shareholders and the NSE.  The NSE requires all listed companies to maintain publicly accessible  websites whereon companies are required to display conspicuously,  information submitted to the NSE. 

The NSE Rulebook stipulates, among other things, that in order for  N

O

a public company to voluntarily delist its securities from the NSE, the  

I

T

C

prior approval of the shareholders must have been obtained by way  

A

S

of a special resolution passed at a duly convened general meeting of  

N

A

R

the company. The company must have given its shareholders at least  T

three months’ notice of the proposed withdrawal of the listing including  the details of how to transfer the securities. The public company going  private must also give the shareholders who so elect, an exit opportu nity before the shares are delisted. 

SEC Rules mandate a public company seeking to delist to notify  the SEC of its intention to delist. The NSE is also required to consider  and dispose of the application within 10 days and notify the SEC when  it is approved. 

Timing considerations 

5 What are the timing considerations for negotiating and  completing a going-private or other private equity transaction? 

Timing considerations for private equity transactions include the time  within which the board of the target company will consider or delay  its response to an offer or make a counter-offer, the time within which  proper due diligence can be concluded, the length of time required for the  formation or structuring of the vehicle to be used for the execution of the  transaction, length of time required for SEC approval (where required)  and the exit time projections. Sector-specific regulations and approvals  also form part of key timing considerations of such transactions. 

With respect to going-private transactions, a company seeking to  voluntarily delist from the NSE is required by the NSE Rulebook to have  been listed on the NSE for a minimum of three years prior to when it  seeks to delist. Consequently, private equity investors seeking to go into  a private equity transaction with a public

company that has been listed  on the NSE for less than three years will have to factor in this timing  requirement with respect to voluntary delisting. The SEC Rules require  the NSE to consider and dispose of applications to delist within 10 days. 

Where a private equity transaction involves a takeover, the offeror  is required by the Investments and Securities Act and the SEC Rules to  seek the approval of the SEC as well as register the proposed bid with  the SEC prior to making a takeover bid. Where the approval is granted,  the offeror is required to make the approved bid within a period of three  months following the date of approval. The offeror may thereafter apply  for an extension of this period before the expiry of the three-month  period. Where a takeover bid is made for all the shares of a class in  an offeree company, the offeror is proscribed from taking up shares  deposited pursuant to the bid until 10 days after the date of the takeover  bid. Where the bid is made for less than all the shares in a class of the  offeree company, the offeror is proscribed from taking up shares depos ited pursuant to the bid until 21 days after the date of the takeover bid.  A takeover bid is required when the shares being acquired are not less  than 30 per cent of the shares of the company. 

Further, the period between which notification is made to the FCCPC  (if applicable) and when it responds (a maximum of 40 days), and delays  caused by addressing issues such as the rights of dissenting shareholders,  may form part of the timing considerations in private equity transactions. 

Dissenting shareholders’ rights 

6 What rights do shareholders of a target have to dissent or  object to a going-private transaction? How do acquirers  address the risks associated with shareholder dissent? 

Shareholders who do not accept the terms of a going-private transac tion may vote against it at the general meeting of the company at which  the issue is considered or may choose not to accept a takeover offer.  However, where a takeover offer is accepted by the shareholders of a  company holding not less than 90 per cent of the shares of the company  or the class of shares in respect of which the bid is made, the dissenting  minority shareholders’ shares may be bought by the offeror at the  same price as the other shares or at fair market value after notifying  the dissenting shareholders of its intention to do so. The fair market  value will be determined by a court at the instance of the acquirer or the  dissenting shareholder, respectively. Reference should also be made to  the company’s articles or other constitutional documents as they may  contain provisions that deal with such a situation. 

Further, such shareholders, are empowered to apply to court  to object to a going-private transaction. Such an application may be  sustained only where it can be shown that proceeding with the transac tion is illegal, oppressive, unfairly prejudicial, or discriminatory against  such shareholders’ interests. 

To deal with any issues that may arise from shareholders’ dissent  to going-private transactions, acquirers should be careful to comply  with the relevant provisions of the law and regulations, particularly  as they relate to the procedures and the duties of notification, to avoid  creating possible grounds upon which the dissent may subsist. 

Purchase agreements 

7 What notable purchase agreement provisions are specific to  private equity transactions? 

Notable purchase agreement provisions include provisions on issues  such as warranties, default, anti-dilution, lock-up period, redemption or  conversion of preferred equity, composition and powers of the board  and management of the company, matters exclusively reserved for  shareholders’ decision, finance and accounting regime, non-compete,  confidentiality and disclosures, tag-along and drag-along rights, exit  options and corporate governance. Arbitration is often favoured as the  dispute resolution mechanism in the purchase agreements. 

However, the specific terms of these provisions would largely  depend on whether the target company is a private or public company  or a listed company that seeks to delist following the transaction. 

Participation of target company management 

8 How can management of the target company participate in a  going-private transaction? What are the principal executive  compensation issues? Are there timing considerations for  when a private equity acquirer should discuss management  participation following the completion of a going-private  transaction? 

The management of target companies undergoing a going-private trans action plays a major role to ensure a smooth transition. While bargaining  power may determine compensation, it is not unusual to seek to retain  key officers after the transaction is completed. These could be in form of  employment agreements or equity-based incentives. 

Among the concerns of private equity investors is the need to  ensure that the interests of management align with the interests of  the investors with a view to the growth of the company. To this end,  management of the offeree company may also be required to execute  employment agreements with non-compete and confidentiality provi 

sions. The terms of employment of management may constitute part  of the pre-closing covenants in a going-private transaction such that  management participation and compensation issues are dealt with prior  to the completion of the transaction. 

Timing considerations for the participation of management in a  going-private transaction are often a product of the provisions of the  purchase agreement entered in respect of the transaction. 

Tax issues 

9 What are some of the basic tax issues involved in private  equity transactions? Give details regarding the tax status of a  target, deductibility of interest based on the form of financing  and tax issues related to executive compensation. Can  share acquisitions be classified as asset acquisitions for tax  purposes? 

The tax issues involved in a PE transaction are determined by the struc ture of the transaction, the legal vehicle the target operates and the exit  model adopted. Limited liability companies bear the tax as an entity,  while the individual investors (which could be corporate or individual)  are liable to tax on their investment income. Income such as dividends,  interest and management fees are subject to withholding tax. Prior to  2019, for non-resident investors, such taxes withheld were treated as  

their final tax obligation. With the passage of the Finance Act 2020, trans actions whose structure involves the non-resident investor company  providing digital services in Nigeria and deriving a gross income in  excess of 25 million naira, using a Nigerian domain name or custom ising its platform to target persons in Nigeria could be deemed to have

a significant economic presence and thus be exposed to income tax. The target and investors will also need to note that stamp duties  may arise on the transaction documents. Transaction documents are  stamped at flat rate or ad valorem, depending on the nature of the docu ments. Investors also need to pay attention to transfer pricing rules  when investing in connected entities. 

When foreign loans are used to finance a PE transaction, interest on  such loans that have a repayment period (including moratorium) of two  years and above will enjoy certain tax exemptions. Prior to the Finance  Act 2020, the rate of the withholding tax exemption on the interest could,  depending on the tenor of the loan, be 100 per cent. The new Act has  now capped the withholding tax exemption at a maximum of 70 per  cent. Another tax issue on debt finance is that interest payment on sums  borrowed and employed as capital in acquiring profits is tax deductible.  Consequently, some businesses prefer debt financing to equity financing  to enable them to benefit first from the loan and subsequently from the  tax deductibility of interest payments. Notably, the Finance Act caps tax  deductions in respect of interest on loans from a foreign related party at  30 per cent of earnings before interest, tax, depreciation and amortisa tion (EBITDA). The revenue authorities have, however, clarified that the  thin capitalisation rule will not apply to Nigerian banks and insurance  companies that are subsidiaries of foreign entities. 

Equity financing, whether in the form of preferred or ordinary  stocks, will entitle the shareholders to dividends. Such dividends will  be subject to a 10 per cent withholding tax. Management fees also incur  withholding tax, while carried interest incurs capital gains tax. Capital  gains tax payable on gains earned on the disposal of assets is not appli 

cable to the disposal of shares. Accordingly, with respect to this tax,  share acquisitions are not asset acquisitions. 

DEBT FINANCING 

Debt financing structures 

10 What types of debt financing are typically used to fund going private or other private equity transactions? What issues  are raised by existing indebtedness of a potential target of a  private equity transaction? Are there any financial assistance,  margin loan or other restrictions in your jurisdiction on the  use of debt financing or granting of security interests? 

Depending on the structure of a private equity transaction, loans may be sought to finance a PE transaction and such loans may be senior or subordinated debts. In practice, such loans are often in the form of senior debt. Foreign loans are subject to the relevant foreign exchange regulations and should be brought in through approved channels to enable repatriation of repayments. 

Existing indebtedness of a potential target would play a role to the  extent of the priority ranking of such debts and whether such debts are  being serviced at the time of the proposed private equity transaction.  As part of the structure, it may be decided to either keep or repay the  existing indebtedness depending on how such repayment may affect the  cash flow of the target company. The consent of the provider of the  existing indebtedness would usually be required before new financing  would be taken by the company. 

There are restrictions under the Companies and Allied Matters Act  on the provision of financial assistance by a company whether by way of  loan, guarantee, security, indemnity or any form or credit in relation to the  acquisition of its own shares. There are also restrictions on margin loans.

Debt and equity financing provisions 

11 What provisions relating to debt and equity financing  are typically found in going-private transaction purchase  agreements for private equity transactions? What other  

documents typically set out the financing arrangements? 

The financing provisions will depend on whether the structure is pure  equity, debt, quasi-debt, leveraged or a combination. As such, it could  range from straightforward to very complex credit documentation. 

In a debt and equity financing arrangement, provisions creating  conditions precedent to the investment are very usual, following the  outcome of due diligence on the target entity. Further, provisions on  redemption of shares, pre-emptive rights, restrictions on indebted 

ness, tenor, interest rate, reporting requirements, obligation of parties,  tag-along rights, drag-along clauses, share transfers, anti-dilution  and closing or exit, among others, are typical. The documentation  may include investment or loan agreement, share sale and subscrip 

tion agreement, sale and purchase agreement and shareholders’  agreement. 

Fraudulent conveyance and other bankruptcy issues 

12 Do private equity transactions involving debt financing raise  ‘fraudulent conveyance’ or other bankruptcy issues? How are  these issues typically handled in a going-private transaction? 

Some transactions made prior to an insolvency may be avoided under  certain circumstances, for example conveyances, mortgages, payments  or other acts relating to property that amount to a fraudulent preference  of creditors. Also, any conveyance or assignment of a company’s prop 

erty to trustees for the benefit of all its creditors shall be void. These concerns are often mitigated with representations and  warranties by the target company that there are no ongoing, threatened  or imminent winding-up or liquidation proceedings and that a receiver  or manager has not been appointed and with a provision for indemnity  upon breach. The scope of the warranties would further be determined  by the outcome of the due diligence on the target company. 

SHAREHOLDERS’ AGREEMENTS 

Shareholders’ agreements and shareholder rights 

13 What are the key provisions in shareholders’ agreements  entered into in connection with minority investments or  

investments made by two or more private equity firms or  other equity co-investors? Are there any statutory or other  legal protections for minority shareholders? 

To protect the interest of minorities, a shareholders’ agreement may

provide that certain decisions may be taken only if approved by a super majority or qualified majority of the body or organ of the company making the decision. The voting threshold would therefore typically include an affirmative vote from a part of the minority. Such matters  may include decisions as to the issuance of new shares, increase in  share capital, acquisitions, disposals, mergers, borrowing and giving  guarantees or security, related party transactions, approval of budgets,  change of business plan and alteration of the constitution. The agree 

ment may also make provision for breaking deadlocks. 

There is also some statutory protection under the Companies and  Allied Matters Act (CAMA) that requires a special resolution (a reso lution passed by not less than three-quarters of the votes cast) of  shareholders to take the following decisions: 

  • a change of name of the company; 
  • an alteration of the articles of association; 
  • a change of the objects of the company; 
  • variation of class rights; 
  • rendering the liability of the directors unlimited; and • an arrangement or reconstruction on sale of the assets of  a company. 

CAMA also has provisions that stipulate how the company is to go about  handling a ‘major asset transaction’. Among other notification require ments, it requires that such a transaction must be approved via a special  resolution. This requirement will be applicable where the transaction  involves the assets of the company. 

ACQUISITION AND EXIT 

Acquisitions of controlling stakes 

14 Are there any legal requirements that may impact the ability  of a private equity firm to acquire control of a public or  private company? 

A takeover bid is required where a person intends to acquire 30 per  cent or more of the voting rights in a public company irrespective of  whether it was acquired in a single transaction or a series of transac tions over time. A takeover bid can be made only if the Securities and  Exchange Commission (SEC) grants authority to proceed to that effect.  In deciding whether or not to grant authority to make a takeover bid,  the SEC would consider the likely effect of the proposed takeover bid  on the economy of Nigeria and on any policy of the federal government  with respect to manpower and development. A takeover bid shall not  be made to fewer than 20 shareholders representing 60 per cent of the  members of the target company, but it can be made to such a number  of shareholders holding in the aggregate a total of 51 per cent of the  issued and paid up capital of the target company. There is no need  for a takeover bid where the shares to be acquired are shares in a  private company. 

The obligation to notify the Federal Competition and Consumer  Protection Commission (FCCPC) and obtain its approval will have an  impact on such a transaction if the transaction is covered by the Federal  Competition and Consumer Protection Act (FCCPA). For instance, a  company may be considered to be in a merger if it establishes direct  or indirect control over the whole or part of any company through an  acquisition of shares or assets. It is therefore necessary to note that in  certain instances, it is required that a pre-notification enquiry be made  to the FCCPC for the parties to obtain clearance from the FCCPC before  they proceed with the transaction. 

For a private company, save for companies in certain sectors that  are subject to industry specific regulations, any requirements for the  acquisition of control will primarily be governed by the provisions of  the articles of association of the company, any shareholders’ agreement  entered into by the shareholders or investment agreement entered with  prior investors in the company. 

Exit strategies 

15 What are the key limitations on the ability of a private equity  firm to sell its stake in a portfolio company or conduct an IPO  of a portfolio company? In connection with a sale of a portfolio  company, how do private equity firms typically address any  post-closing recourse for the benefit of a strategic or private  equity acquirer? 

Contractual limitations on the ability of a private equity firm to sell its  stake in a portfolio company or conduct an IPO of a portfolio company  may include provisions such as pre-emption rights, tag-along rights,  restrictions on drag-along rights and put options. These rights are  usually embedded in shareholders’ agreements.

Also, listing requirements may limit the ability of a private equity  firm to sell its stake in a portfolio company or conduct an IPO of a port folio company. To list on the Main Board, on the Alternative Securities  Market or the Growth Board of the Nigerian Stock Exchange (NSE),  promoters are required to retain 50 per cent of shares held at IPO for  the first 12 months from the date of listing. 

Further, the company must meet at least one of the Initial Listing  Standards in the NSE Rulebook. 

Contractual time limitations may be agreed with respect to repre sentations or warranties, or both, given by a private equity firm to a  buyer. A private equity firm investing in a portfolio company would  usually require warranties from sellers and from the management team  of the target company. The said warranties may relate to compliance  with applicable laws, the power to contract, title to shares and to assets. 

In the context of competition and the implications of such trans actions (ie, selling its stake), it is necessary for the firm to determine  whether the sale will be considered a merger by virtue of the provisions  of the FCCPA and the regulations made thereunder. As such, it may have  to confer with the FCCPC to make such a determination before taking  major steps in such a transaction. 

Portfolio company IPOs 

16 What governance rights and other shareholders’ rights and  restrictions typically survive an IPO? What types of lock-up  restrictions typically apply in connection with an IPO? What  are common methods for private equity sponsors to dispose  

of their stock in a portfolio company following its IPO? 

The holdings of the existing shareholders may be restructured for  purposes of the IPO and some of the governing rights of the share holders will survive the IPO such as representation on the board and  non-compete rights. However, the company will be subject to

more regulations including the Investments and Securities Act, Securities and  Exchange Commission Rules and Regulations, the Financial Reporting  Council and the NSE Rulebook. 

In respect of lock-up restrictions, the Listing Requirements provide  that the issuer in respect of an IPO shall ensure that the promoters  and directors will hold a minimum of 50 per cent of their shares in the  company for a minimum period of 12 months from the date of listing and  will not directly or indirectly sell or offer to sell such securities during  that period. 

Subject to the lock-up restrictions, private equity sponsors or  investors may dispose of their stock through a buyout, which may be by  another PE entity, institutional investor or the management. 

Target companies and industries 

17 What types of companies or industries have typically been  the targets of going-private transactions? Has there been any  change in industry focus in recent years? Do industry-specific  regulatory schemes limit the potential targets of private  equity firms? 

There are not many going-private transactions in Nigeria as there are  few instances of public companies that have gone private, although  some investors who want to strengthen their control of, and invest ments in, the companies tend to want to go private. 

Transactions involving companies in some sectors such as telecom munications, electricity, insurance, financial services and the petroleum  industry will be subject to further industry-specific regulation. It is yet to  be verified that industry-specific regulations have limited the potential  targets of private equity firms, even though such regulations make the  process more elaborate. 

SPECIAL ISSUES 

Cross-border transactions 

18 What are the issues unique to structuring and financing  a cross-border going-private or other private equity  

transaction? 

There are few financing concerns that are unique to cross-border  private equity transactions. These include tax considerations, importa tion of capital and repatriation at the point of exit. Where capital is to  be imported in a PE transaction, the investors require a certificate of  capital importation that is issued by a bank within 24 hours of the entry  of the capital into the country. Obtaining the certificate of capital impor tation is a prerequisite for repatriation. There are no foreign investment  restrictions on cross-border private equity transactions in Nigeria  except for certain industries in which private participation, both local  and foreign, is prohibited except with a licence from the federal govern ment (eg, defence). 

Club and group deals 

19 What are some of the key considerations when more than one  private equity firm, or one or more private equity firms and a  strategic partner or other equity co-investor is participating  in a deal? 

There are no restrictions preventing multiple private equity firms, or a  private equity firm and its strategic partner, from participating in a club  or group deal. 

The concerns, however, depend on the relative size and interests of  the parties to the transaction. In a takeover context, a key consideration  for parties to such transactions is that they will likely be scrutinised for  the purposes of assessing whether the obligation to make a mandatory  takeover offer is triggered. The threshold for triggering this obligation is  an aggregate holding of 30 per cent of the voting shares. 

Similar considerations should be made in the context of competi tion, particularly as it relates to the structure of control in the target  company or the resulting entity. These factors would inform whether or  not the transaction is a covered transaction in the context of the Federal  Competition and Consumer Protection Act and thus within the remit of  the Federal Competition and Consumer Protection Commission. 

Issues related to certainty of closing 

20 What are the key issues that arise between a seller and a  private equity acquirer related to certainty of closing? How  are these issues typically resolved? 

Several issues may arise during the closing of a PE transaction. Such  issues may include failure to obtain mandatory clearances or regulatory approvals and failure to satisfy financing closing. Where these closing issues arise, the non-defaulting party can grant an extension of time,  with or without a provision for costs, to enable the resolution of the  issues, or it can terminate the agreement in accordance with its terms.  In the latter instance, the inclusion of a reverse termination fee clause  in the agreement will be prudent. 

UPDATE AND TRENDS 

Key developments of the past year 

21 Have there been any recent developments or interesting trends relating to private equity transactions in your jurisdiction in the past year?

On the regulatory front, there have been a few consequential changes.  There is a new law regulating the formation and operation of compa nies known as the Companies and Allied Matters Act 2020. Among other  things, it requires that where a person obtains significant control of  a company or becomes a substantial shareholder of a company, the  person must within the stated time notify the company of its stake in  the company and the company must in turn inform the Corporate Affairs  Commission. 

The Federal Competition and Consumer Protection Act (FCCPA)  was also passed into law. It creates the Federal Competition and  Consumer Protection Commission (FCCPC), which has jurisdiction over  the occurrence of mergers in Nigeria. The definition of mergers under  the FCCPA and attendant regulations is quite generous, with the effect  that the acquisition of shares (even where the said acquisition does not  result in a new entity or change of control) may be considered a merger.  As such, transactions that will give the acquirer of the shares ‘mate rial interest’ in the target company ought to be considered carefully to  ascertain whether the approval of the FCCPC will be required. 

There have been several transactions through which private equity  firms have, individually or as part of groups, acquired substantial inter ests in Nigerian companies. There has been a preponderance of these  transactions in technology-enabled companies (especially fintech). 

The Nigerian Stock Exchange launched a new board known as the  Growth Board. The threshold for listing on the Growth Board is less  than that of the Main Board and the Alternative Securities Market. The  disclosure requirements are less stringent and less frequent. Since its  inception, the market has seen a few companies that were previously  listed on the Main Board migrate to the Growth Board. 

Coronavirus 

22 What are some of the significant developments and initiatives  relating to the covid-19 pandemic that have impacted private  equity transactions in your jurisdiction? 

Other than measures relating to restrictions on movement of persons  into and out of Nigeria and interventions for the benefit of small and  medium enterprises and the resultant economic slowdown, there is no  initiative or development that impacts on private equity. 

Tamuno Atekebo 

tamuno@sskohn.com 

Eberechi May Okoh 

eberechi@sskohn.com 

Oyeniyi Immanuel 

niyi@sskohn.com 

Oluwafeyikemi Fatunmbi feyikemi@sskohn.com

16D Akin Olugbade Street, Victoria Island Lagos
Block C Terrace 3, CT3, Lobito Crescent, Stallion Estate, Wuse II, Abuja
77B Woji Road, GRA Phase II, Port Harcourt
info@sskohn.com

GET IN TOUCH WITH US

JOIN OUR MAILING LIST

    Follow us: