Nigeria has witnessed a steady decline in Foreign Direct Investment, FDI, in recent time. According to data from the National Bureau of Statistics, FDI was $1.19 billion in 2018, while only $934.34 million was received in 2019.
Several reasons account for this trend, including drop in global oil and commodity prices, poor macroeconomic policies, insecurity and currency volatility.
One recent concern is management conflict that has been witnessed between Nigerian companies and their Foreign Private Equity Investors. A recent example of such conflict is that of Health Plus and Car45. These conflicts have become matters of litigation and arbitration.
When conflicts like this occur, it sends a wrong signal to other prospective investors who may tag Nigeria as an unsafe investment destination and avoid any investment in our economy.
Foreign private equity funds normally have an average span of between five and ten years. The legal structures most commonly used as a vehicle for private equity funds are: limited companies under the Companies and Allied Matters Act chapter C20 Laws of the Federation of Nigeria 2004 and general or limited partnerships, or the newer limited liability partnerships under the Partnership Law of Lagos State 2009 (as amended). Offshore registered funds can only solicit investments from investors in Nigeria with SEC approval.
There are transaction documentations which must be in place, including non-disclosure agreements and term sheets; offer documentation; due diligence reports (legal, financial, tax, and technical); share purchase or subscription agreements; shareholders agreements; and disclosure letters. Each of these documents lay the foundation for a proper transaction.
If all the processes stated above are in place, there should normally be a seamless transaction. The issue we have with conflict arising thereafter are actually two sided. One, on the part of the Nigerian company which receive the foreign private equity and the foreign private equity company.