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.
Nigeria Loses 200,000 Barrels of Crude Oil Daily
By Adedapo Adesanya
The Nigerian National Petroleum Corporation (NNPC) has disclosed that the country loses an equivalent of 200,000 barrels of crude oil per day to theft and vandalism despite support from security agencies.
To address this issue, the Group Managing Director of the agency, Mr Mele Kyari, has called for more support of the security agencies across the country.
At a meeting with the Chief of Defence Staff, Major General Lucky Irabor, in Abuja on Wednesday, Mr Kyari expressed optimism that this menace can be defeated with the full support of the military.
“We have two sets of losses, one coming from our products and the other coming from crude oil. In terms of crude losses, it is still going on.
“On the average, we are losing 200,000 barrels of crude every day,” Mr Kyari stated when he led the NNPC management team to the Defence headquarters.
He, however, acknowledged that petroleum products theft on the crucial System 2B Pipeline has reduced considerably.
On his part, Mr Irabor promised to galvanize the military to provide maximum security for the nation’s oil and gas assets.
General Irabor commended his guest for initiating the engagement, saying: “I am delighted that you made this effort, and I tell you that the Armed Forces of Nigeria will collaborate with you to protect NNPC’s assets”.
General Irabor, who acknowledged the significant role of the oil and gas sector to the economy, said there was the need for collaboration between the NNPC and the Armed Forces to protect oil and gas facilities which he described as critical national assets.
“It is my intention to cooperate maximally with you and to give necessary instructions to all officers in the Armed Forces given that our existence, economically, rests almost solely on the NNPC, and to that extent, we must do everything possible to give you everything that you require,” the Chief of Defence Staff stated.
Nigeria’s 12-Month Treasury Bills Stop Rate Clears at 5.5%
By Dipo Olowookere
The stop rates of treasury bills were further increased by the Central Bank of Nigeria (CBN) at the primary market on Wednesday.
The apex bank had in recent time been raising the annual interest rate of the financial asset, resulting in renewed interest from investors, who waste no time to pounce on any available risk-free investment tool with high yields.
Yesterday, the bank offered N128.3 billion worth of T-bills to investors via the PMA across three tenors, with N20.4 billion auctioned for the 91-day bill, N55.9 billion for the 182-day bill and N52.0 billion for the 364-day bill.
Business Post reports that much of the bids were tilted towards the longer-tenor, with lower interest in the short-term and mid-term maturities. In fact, the mid-term bill was undersubscribed.
The results of the exercise showed that N27.6 billion was staked on the 91-day tenor, N40.1 billion was staked on the 182-day tenor, while N124.4 billion was staked on the 364-day tenor, amounting to N192.1 billion.
However, the central bank allotted N24.2 billion for the 3-month bill, N32.7 billion for the 6-month bill and N90.4 billion for the 12-month bill, totalling N147.3 billion, N19 billion more than it brought to the market.
For the stop rates, the CBN sold the 91-day bill at 2.00 per cent, higher than the previous 1.00 per cent. The 182-day bill cleared at 3.5 per cent, higher than the previous 2.00 per cent, while the 364-day instrument cleared at 5.50 per cent, higher than the previous 4.00 per cent.
Stocks Gain 0.14% as Zenith Bank Dividend News Buoys Interest
By Dipo Olowookere
The renewed interest in Nigerian stocks continued on Wednesday, contributing to the 0.14 per cent growth seen at the market during the session.
The news that Zenith Bank has proposed the payment of N2.70 final dividend on Tuesday has continued to make investors take a good look at Nigerian Stock Exchange (NSE).
Business Post reports that at the close of transactions yesterday, Zenith Bank was the most traded stock, transacting 154.6 million units worth N4.1 billion.
GTBank exchanged 48.8 million shares for N1.5 billion, FBN Holdings transacted 25.3 million equities worth N185.6 million, Transcorp traded 25.1 million stocks for N23.4 million, while United Capital sold 22.0 million shares for N136.8 million.
At the close of business, a total of 469.6 million shares worth N7.1 billion were traded in 5,470 deals compared with the 338.0 million stocks worth N3.9 billion transacted in 5,232 deals the preceding session, indicating a rise in the trading volume, value and number of deals by 38.94 per cent, 84.15 per cent and 4.55 per cent respectively.
The energy sector was the biggest riser by sector, gaining 0.79 per cent, followed by the banking space, which rose by 0.77 per cent and the industrial goods sector, which appreciated by 0.22 per cent.
However, the insurance counter depreciated by 1.87 per cent, while the consumer goods index declined by 0.32 per cent.
When trading activities were wrapped up for the day, the All-Share Index (ASI) increased by 56.44 points to settle at 40,221.30 points in contrast to 40,164.86 points of the previous day, while the market capitalisation gained N29 billion to close at N21.044 trillion versus Tuesday’s N21.015 trillion.
On the price movement chart, news that a shareholder obtained a court order to free Oando Plc from the claws of the Securities and Exchange Commission (SEC) buoyed its share price by 10.00 per cent to N3.41 per share.
ABC Transport gained 9.38 per cent to settle at 35 kobo per unit, Japaul rose by 9.23 per cent to 71 kobo per share, Royal Exchange grew by 8.70 per cent to 25 kobo per unit, while Academy Press appreciated by 7.89 per cent to 41 kobo per share.
On the flip side, Lasaco Assurance continued its downward trend with a 9.49 per cent loss to finish at N1.24 per share and was followed by Consolidated Hallmark Insurance, which fell by 8.33 per cent to trade at 33 kobo per unit.
Cornerstone Insurance went down by 7.81 per cent to 59 kobo per share, Flour Mills lost 6.94 per cent to finish at N28.85 per unit, while Wapic Insurance fell by 6.90 per cent to 54 kobo per share.
Naira Loses 0.05% to Trade N408.80/$1 at I&E FX Window
By Adedapo Adesanya
The Naira gave up some gains made on the US Dollar at the previous session on Wednesday, February 24 at the Investors and Exporters (I&E) window of the foreign exchange market.
At the previous session, after a constant plunge, the domestic currency rose to N408.60/$1 but gave up 0.05 per cent or 20 kobo of this yesterday to quote at N408.80/$1.
This happened as the demand for FX overpowered the local currency as transactions worth $212.43 million were recorded, $89.06 million or 72.2 per cent higher than the $123.37 million recorded at the preceding session.
However, at the parallel market, the domestic currency maintained its stability against the greenback on Wednesday to trade at N480/$1.
But at the same unregulated segment of the market, the Nigerian currency depreciated by N5 against the Pound Sterling to close at N670/£1 in contrast to N665/£1 it was sold on Tuesday and gained N2 against the Euro to close at N580/€1 compared to the previous trading rate of N582/€1.
At the interbank segment of the market, the value of the Naira against the Dollar still remained unchanged on Wednesday at N379/$1. It also traded flat against the American currency at the Bureaux De Change (BDC) window at N395/$.
Meanwhile, in the cryptocurrency market, which had some recorded losses recently, things are beginning to look again as all the seven digital coins tracked by Business Post closed positive.
The largest surge was recorded by Dash (DASH), which gained 30.6 per cent to sell at N169,800. It was followed by Ethereum (ETH), which made a 16.4 per cent jump to sell at N1,088,988.00, while Tron (TRX) recorded a 13.7 per cent strengthening to sell at N31.90.
Bitcoin (BTC) saw its value rise by 9.8 per cent to trade at N31,900,699, Litecoin (LTC) appreciated by 5.5 per cent to trade at N116,000, the US Dollar Tether (USDT) rose by 7.9 per cent to trade at N650.55, while Ripple (XRP) recorded a 3.4 per cent growth to trade at N301.02.
CSCS Buoys Bulls’ Return to NASD by 0.94%
By Adedapo Adesanya
After closing in the negative territory for four consecutive trading days, the NASD Over-the-Counter (OTC) Securities Exchange finished bullish on Wednesday.
Business Post reports that the unlisted securities market closed higher by 0.94 per cent at the midweek session on the back of the gains recorded by Central Securities Clearing Systems (CSCS).
The share price of the company appreciated by N1 or 6.5 per cent to settle at N16.50 per unit compared to N15.50 per unit it finished at the previous session.
This positive price movement boosted the market capitalisation of the exchange by N4.79 billion to N512.24 billion from the previous N507.45 billion.
Also, it increased the NASD Unlisted Security Index (NSI) by 6.67 points to 713.91 points from 707.24 points it finished on Tuesday.
It was not all rosy at the market yesterday as the share price of FrieslandCampina WAMCO Nigeria Plc depreciated by 22 kobo or 0.2 per cent to trade at N119.43 per share in contrast to N119.65 per share of the preceding session.
Yesterday, the volume of trades dipped by 82.5 per cent as 41,100 units of securities were transacted by investors as against 234,152 units of securities traded on Tuesday.
Equally, the value of transactions went down by 46.9 per cent to N4.29 million from N8.1 million, while the total number of deals went up by 33.3 per cent to four deals from three deals.
These deals were performed on FrieslandCampina WAMCO Nigeria Plc, which accounted for three, and CSCS, which accounted for one.
Again, UBN Property Plc remained as the most active stock by volume (year to date) for trading 15.5 million units valued at N16.8 billion. CSCS Plc has exchanged 4.7 million units worth N73.2 million, while FrieslandCampina has transacted 2.3 million units worth N284.2 million.
Also, FrieslandCampina was the most traded stock by value (year-to-date) for transacting 2.3 million units valued at N284.2 million. Niger Delta Exploration and Production (NDEP) Plc has traded 603,911 units worth N195.9 million, while CSCS has traded 4.7 million units worth N73.2 million.
Brent Trades $67/Barrel Despite High Crude Inventories
By Adedapo Adesanya
The Brent crude jumped to $67 per barrel on Wednesday despite a surprising report that showed a build in crude inventories in the United States, the largest oil-producing country in the world.
During the trading session, the global benchmark, which many country use to price their crude, appreciated by 2.8 per cent or $1.85 to trade at $67.22 per barrel, while the US benchmark, West Texas Intermediate (WTI) crude, gained $1.78 or 2.9 per cent to sell at $63.45 per barrel.
Crude oil prices went on steroids after the Energy Information Administration (EIA) reported a crude oil inventory build of 1.3 million barrels for the week to February 19. The build was much lower than the one the American Petroleum Institute (API) had estimated a day earlier.
The report came a day after the API estimated an oil stock build of over 1 million barrels. It also compared with analyst expectations of a 5.372-million-barrel draw for the reported week and a 7.3-million-barrel inventory draw the EIA reported for the previous week.
Last week’s frigid weather in the American state of Texas will likely keep oil prices higher for some time as production restarts slowly, and reports suggest that some of it may not return at all as companies have decided to halt production.
The bullish sentiment around the black gold could be attributed to the renewal of hopes from banks and traders, especially after Goldman Sachs said it expected prices to hit $70 and top it by the summer.
Also, confidence that a meaningful demand rebound will accompany widening vaccination availability by soon has supported prices and the production outages in the US only served to strengthen it further.
Key players in the oil market have been talking up the rising prices in the coming months, with some even floating the prospect of $100 crude in the next year or two as the global economy recovers from the COVID-19 pandemic.
Still, market participants continue to observed events leading to next week’s meeting between the Organisation of the Petroleum Exporting and its allies (OPEC+).
This meeting, set for March 4, is likely to set the tone into the second quarter of the year as they decide on whether to bump up production or seek even higher prices before the pick-up in demand has started to fully materialize.
Back in December, the group decided to restore 500,000 barrels a day as part of the gradual process, which was paused in January, to push the remaining 7 million withheld barrels a day back into the market.
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