The Evolving Nigerian Private Equity Landscape: Finally Coming of Age?

INTRODUCTION

The fact that there has, over the last five years, been a shift in the balance of power from south to west as regards private equity in Africa is somewhat ubiquitous as it is underscored in virtually every recent study or report on private equity on the continent. Over the last five years West Africa’s share of private equity transactions has risen to 25% whilst South Africa’s share of transactions has decreased from 28% to 22%. Much of this shift is due to the increasing levels of activity in Nigeria and it has recently been reported that Nigeria alone may currently be receiving up to 31.4% of the total private equity investment into Africa. Private equity in Nigeria is exploding. From roughly about three general partners managing around US$75 million in 2003, the industry has grown to upwards of ten “indigenous” fund managers with more than US$2 billion under management.

With numbers like these it may be tempting to assume that perhaps the Nigerian private equity industry has come of age but looking at the numbers in a broader context reveals the truth. Granted Nigerian private equity is on the rise relative to South Africa. However, as far back as 2013, there were more than 86 fund managers in South Africa with assets under management in excess of US$11.6 billion. In 2011, private equity investments as a percentage of GDP in South Africa stood at about 0.24% compared to 0.06% in sub-Saharan Africa (prior to the rebasing in Nigeria).

In context what the numbers actually show is that Nigeria has a long way to go but it is making progress, and good progress we are bold to add!

The Nigerian private equity landscape boasts a good mix of international managers such as The Carlyle Group, which in 2014 closed a US$698 million fund targeted at sub-Saharan Africa and The Blackstone Group; as well as regional firms like Actis, The Abraaj Group, which closed its third sub-Saharan fund at US$990 million in 2015, and Helios Investment Partners, which raised the first African billion dollars fund in 2015.

There is also a growing brood of indigenous firms including established fund managers like the 17 years old Africa Capital Alliance with more than US$532 million under management and smaller budding firms like Sahel, Synergy and Verod, all with funds of around a US$100 million each. The main investors in this latter category of private equity funds tend to include developmental financial institutions and other impact investors as well as various fund of funds and foreign institutional investors looking for some exposure to the continent.

More recently however, the Nigerian Sovereign Investment Authority (“NSIA”) has started to show some interest in supporting indigenous private equity firms and, although it tends to come with its own complications as discussed below, indigenous firms are increasingly courting investment from Nigerian pension funds.