Economy
Understanding Private Equity and Alternative Investments
By FBNQuest
Although there are a variety of options for raising capital and attracting investors, equity is one of the two most sought-after options.
It allows a company to give a share of ownership of its business to an investor in expectation of a return as the business grows. Unlike public equity (stock market) with ownership of shares in a public company, private equity (PE) simply means ownership of shares in a private company.
Private equity is a type of capital investment (asset or security) made to (target) companies that are not publicly traded on a stock exchange.
As an alternative form of private financing, private equity allows investors directly invest in companies through which such investors gain an ownership stake in the companies. Investors seek PE funds to earn returns that are considered to be better than those from the public equity markets.
To avoid debt, companies can sell their stocks to raise money that can be used to fund new technology, make acquisitions, expand working capital, and fund projects geared towards business growth.
Usually, the financial information on stocks of such a company is not disclosed to the public, rather, an investor can only speculate on the asset worth of the intending company.
Private equity involves three parties: the investors who supply the capital, the private equity firm that manages and invests the money on behalf of the investor via a private equity fund, and the company (known as Portfolio Company) that the private equity firm invests in.
A private equity firm’s ultimate goal is to sell or exit portfolio companies to deliver superior returns (above the benchmark return also referred to as Internal Rate of Return (IRR) to earn carried interests).
The most widely adopted investment strategies by PE investments are leveraged buyouts (LBOs) and venture capital (VC) investments.
In LBOs, a PE firm will raise debt from institutional investors on the back of a target company and assume control of the target company, while using the cash flows of the target company to pay the acquisition capital. Whereas, the VC makes investment in young and fast-growing companies in an industry that has the potential for exponential growth while adding value to the firm being taken up. In some cases, PE firms grow and improve a middle-market company with the aim to sell or exit to a mature company within a specified period.
Generally, private equity firms are active investors who are involved in the board level and monitor the financial and operating performance of portfolio companies.
However, some private equity firms are involved in the day-to-day operations of portfolio companies and may take C-level positions such as CEO, CFO, CIO and COO to ensure that value creation initiatives are implemented in the portfolio companies to ensure that increase in revenue, improvement of operational efficiency and corporate governance.
A private equity fund is typically opened to institutional and accredited (individual or business entity) investors who invest large sums of money for a long period.
Institutional investors are companies or organisations like endowment funds, commercial banks, hedge funds, mutual fund managers, and insurance companies that invest money on behalf of other people.
Accredited investors on the other hand are individuals or a business entity that invest based on their income, net worth, asset size, governance status, or professional experience. The reason is that private equity as an asset class is generally illiquid and has a long lock-up period and only ideal for investors with a large asset size (or AuM).
Other alternative investments include infrastructure assets, art, antique furniture, automobiles, real estate, commodities, exchange-traded funds, and hedge funds.
The market performance of traditional investments and alternative investments are independent of each other, hence, the inclusion of alternative investments in a portfolio can reduce its risk through diversification.
Before the coronavirus outbreak, PE investments in Nigeria have been flourishing and as a result, in 2019, Nigeria was described by the African Private Equity and Venture Capital Association (AVCA) as one of the most attractive destinations for PE investments. Between January and February 2019, PE in Nigeria recorded investments worth N277.64 billion ($767 million), an improvement of 345 per cent compared to N62.37 billion ($172 million) worth of deals closed during the corresponding period in 2018.
The deals within the first two months of 2019 included the 100 per cent acquisition of Chi Ltd by Coca-Cola Company for the sum of $500 million, which accounted for 65 per cent of the total private equity investments within that period.
Other notable deals included Access Bank Plc’s acquisition of Diamond Bank Plc, the Partech- led Series A funding of Kudi, a financial services provider, and the acquisition of Wakanow, a travel agency, by the Carlyle Group valued at $40 million, to mention a few.
Why invest in private equity?
Private equity firms have grown over the years to become attractive investment vehicles for wealthy individuals and institutions who manage large pools of capital.
PE often guarantees better returns compared to other investments, with some private equity managers outperforming the public markets.
To diversify holdings, investors turn to private equity for higher returns than do public market. Specifically, such investments are for investors who can afford to have capital locked up for long periods.
Investors in private equity funds are called limited partners. As a limited partner, you get a return on your investment when the private equity firm sells the company it purchases while the private equity firm (also called general partners) takes some percentage as profit.
In Nigeria, different PE firms like FBNQuest Funds have their specific deal sizes, investment horizons, sector focus, fundraising timelines, and exit strategies.
As one of the leading alternative investments managers in Nigeria, FBNQuest Funds has been in operations for over 17 years and has invested in over 70 private companies through direct investing and their expertise and exposure to PE and VC Funds. Domiciled in Nigeria, the firm has investments in companies in Nigeria and other countries within the Sub-Saharan Africa region.
By Modupe Gbadeyanka
The federal government, the 36 states of the federation and the 774 local government areas have received N1.727 trillion from the Federal Accounts Allocation Committee (FAAC) for December 2024.
The funds were disbursed to the three tiers of government from the revenue generated by the nation in November 2024.
At the December meeting of FAAC held in Abuja, it was stated that the amount distributed comprised distributable statutory revenue of N455.354 billion, distributable Value Added Tax (VAT) revenue of N585.700 billion, Electronic Money Transfer Levy (EMTL) revenue of N15.046 billion and Exchange Difference revenue of N671.392 billion.
According to a statement signed on Friday by the Director of Press and Public Relations for FAAC, Mr Bawa Mokwa, the money generated last month was about N3.143 trillion, with N103.307 billion used for cost of collection and N1.312 trillion for transfers, interventions and refunds.
It was disclosed that gross statutory revenue of N1.827 trillion was received compared with the N1.336 trillion recorded a month earlier.
The statement said gross revenue of N628.972 billion was available from VAT versus N668.291 billion in the preceding month.
The organisation stated that last month, oil and gas royalty and CET levies recorded significant increases, while excise duty, VAT, import duty, Petroleum Profit Tax (PPT), Companies Income Tax (CIT) and EMTL decreased considerably.
As for the sharing, FAAC disclosed that from the N1.727 trillion, the central government got N581.856 billion, the states received N549.792 billion, the councils took N402.553 billion, while the benefiting states got N193.291 billion as 13 per cent derivation revenue.
From the N585.700 billion VAT earnings, the national government got N87.855 billion, the states received N292.850 billion and the local councils were given N204.995 billion.
Also, from the N455.354 billion distributable statutory revenue, the federal government was given N175.690 billion, the states got N89.113 billion, the local governments had N68.702 billion, and the benefiting states received N121.849 billion as 13 per cent derivation revenue.
In addition, from the N15.046 billion EMTL revenue, FAAC shared N2.257 billion to the federal government, disbursed N7.523 billion to the states and transferred N5.266 billion to the local councils.
Further, from the N671.392 billion Exchange Difference earnings, it gave central government N316.054 billion, the states N160.306 billion, the local government areas N123.590 billion, and the oil-producing states N71.442 billion as 13 per cent derivation revenue.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.65 per cent gain on Friday, December 13, boosted by three equities admitted on the trading platform.
On the last trading session of the week, Okitipupa Plc appreciated by N2.70 to settle at N29.74 per share versus Thursday’s closing price of N27.04 per share, FrieslandCampina Wamco Nigeria Plc added N2.49 to end the session at N42.85 per unit compared with the previous day’s N40.36 per unit, and Afriland Properties Plc gained 50 Kobo to close at N16.30 per share, in contrast to the preceding session’s N15.80 per share.
Consequently, the market capitalisation added N6.89 billion to settle at N1.062 trillion compared with the preceding day’s N1.055 trillion and the NASD Unlisted Security Index (NSI) gained 19.66 points to wrap the session at 3,032.16 points compared with 3,012.50 points recorded in the previous session.
Yesterday, the volume of securities traded by investors increased by 171.6 per cent to 1.2 million units from the 447,905 units recorded a day earlier, but the value of shares traded by the market participants declined by 19.3 per cent to N2.4 million from the N3.02 million achieved a day earlier, and the number of deals went down by 14.3 per cent to 18 deals from 21 deals.
At the close of business, Geo-Fluids Plc was the most active stock by volume on a year-to-date basis with a turnover of 1.7 billion units worth N3.9 billion, followed by Okitipupa Plc with the sale of 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.3 million units sold for N5.3 million.
In the same vein, Aradel Holdings Plc remained the most active stock by value on a year-to-date basis with the sale of 108.7 million units for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with a turnover of 297.3 million units worth N5.3 billion.
By Adedapo Adesanya
The Naira appreciated further against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N1.50 or 0.09 per cent to close at N1,533.00/$1 on Friday, December 13 versus the N1,534.50/$1 it was transacted on Thursday.
The local currency has continued to benefit from the Electronic Foreign Exchange Matching System (EFEMS) introduced by the Central Bank of Nigeria (CBN) this month.
The implementation of the forex system comes with diverse implications for all segments of the financial markets that deal with FX, including the rebound in the value of the Naira across markets.
The system instantly reflects data on all FX transactions conducted in the interbank market and approved by the CBN.
Market analysts say the publication of real-time prices and buy-sell orders data from this system has lent support to the Naira in the official market and tackled speculation.
In the official market yesterday, the domestic currency improved its value against the Pound Sterling by N12.58 to wrap the session at N1,942.19/£1 compared with the previous day’s N1,954.77/£1 and against the Euro, it gained N2.44 to close at N1,612.85/€1 versus Thursday’s closing price of N1,610.41/€1.
At the black market, the Nigerian Naira appreciated against the greenback on Friday by N30 to sell for N1,650/$1 compared with the preceding session’s value of N1,680/$1.
Meanwhile, the cryptocurrency market was largely positive as investors banked on recent signals, including fresh support from US President-elect, Mr Donald Trump, as well as interest rate cuts by the European Central Bank (ECB).
Ripple (XRP) added 7.3 per cent to sell at $2.49, Binance Coin (BNB) rose by 3.5 per cent to $728.28, Cardano (ADA) expanded by 2.4 per cent to trade at $1.11, Litecoin (LTC) increased by 2.3 per cent to $122.56, Bitcoin (BTC) gained 1.9 per cent to settle at $101,766.17, Dogecoin (DOGE) jumped by 1.2 per cent to $0.4064, Solana (SOL) soared by 0.7 per cent to $226.15 and Ethereum (ETH) advanced by 0.6 per cent to $3,925.35, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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