Nigeria remains one of Africa’s most attractive investment destinations, offering opportunities across sectors such as fintech, energy, infrastructure, agriculture, manufacturing, and telecommunications. However, acquiring shares in a Nigerian company involves more than negotiating a purchase price and signing transaction documents.
The Investments and Securities Act (ISA), together with other applicable laws and regulations, has introduced a regulatory environment that requires investors to undertake careful due diligence before completing any acquisition.
Before acquiring shares in a Nigerian company, every foreign investor should consider the following:
1. Conduct Comprehensive Legal Due Diligence
Legal due diligence remains the foundation of every successful investment transaction.
Investors should verify:
- The company’s incorporation and legal status;
- Its share capital and ownership structure;
- Existing shareholder agreements;
- Regulatory licences and permits;
- Material contracts;
- Pending litigation and disputes;
- Intellectual property rights; and
- Compliance with applicable laws and regulations.
Many investors focus primarily on financial performance and discover legal risks only after the acquisition has been completed.
2. Confirm Regulatory Approval Requirements
Not every share acquisition requires regulatory approval. However, where a transaction qualifies as a merger, acquisition, or business combination under ISA, approval from the Securities and Exchange Commission (SEC) may be required before completion.
Failure to obtain required approvals can expose the parties to regulatory sanctions and may affect the validity of the transaction.
Investors should therefore assess regulatory filing obligations at the earliest stage of the transaction.
3. Assess Competition Law Risks
Under ISA, the SEC may assess whether a proposed transaction is likely to substantially lessen competition or remove an effective competitor from the market.
This is particularly important where:
- The target company operates in a concentrated industry;
- The investor already has interests in competing businesses; or
- The transaction may significantly increase market share.
Competition concerns identified late in a transaction can result in delays, additional conditions, or even refusal of approval.
4. Verify Sector-Specific Restrictions
Although Nigeria generally welcomes foreign investment, certain sectors remain subject to industry-specific regulations.
Investors should confirm:
- Licensing requirements;
- Local content obligations;
- Foreign ownership restrictions where applicable;
- Industry-specific approvals; and
- Ongoing compliance obligations.
Sector-specific due diligence is particularly important in regulated industries such as banking, insurance, telecommunications, energy, and aviation.
5. Review Tax Exposure
An attractive acquisition can quickly become problematic if significant tax liabilities are discovered after closing.
Investors should review:
- Outstanding tax obligations;
- Tax audits and disputes;
- Transfer pricing compliance;
- Withholding tax exposure; and
- Potential tax incentives available to the business.
Proper tax planning before acquisition often produces significant long-term savings.
6. Examine Corporate Governance Practices
Good governance often provides an early indication of a company’s operational health.
Investors should assess:
- Board composition;
- Internal controls;
- Risk management systems;
- Financial reporting practices; and
- Corporate governance policies.
Weak governance structures frequently translate into increased legal and operational risks.
7. Protect Exit and Investment Rights
Foreign investors should ensure that transaction documents adequately protect their investment.
Important protections may include:
- Board representation rights;
- Reserved matters;
- Information rights;
- Dividend protections;
- Tag-along and drag-along rights;
- Dispute resolution mechanisms; and
- Exit provisions.
The true value of these protections often becomes apparent only when disagreements arise between shareholders.
Conclusion
The most successful investors do not simply buy shares; they invest in a clear understanding of the legal, regulatory, commercial, and governance environment surrounding the target company.
ISA has reinforced the importance of regulatory scrutiny in mergers and acquisitions, making early legal planning more important than ever.
Foreign investors who undertake thorough due diligence, assess regulatory requirements, and structure transactions properly are better positioned to protect their investments and achieve their commercial objectives in Nigeria.
Before acquiring shares in a Nigerian company, obtaining experienced legal advice may be one of the most valuable investments an investor can make.