Key Due Diligence Considerations for Cross-Border Investments
Acquiring shares in an existing Nigerian company can be an effective way to gain immediate access to the local market. Unlike establishing a new business from the ground up, a share acquisition may provide access to customers, licences, contracts, employees, infrastructure, and operational expertise.
However, acquiring shares also means acquiring exposure to the target company’s existing legal, regulatory, and commercial risks.
For this reason, legal due diligence remains one of the most important stages of any acquisition transaction.
Understanding What Is Being Acquired
Before acquiring shares, investors must clearly understand the nature of the target business.
Questions that should be addressed include:
- Who owns the company?
- What assets does the company own?
- What liabilities exist?
- Are there ongoing disputes?
- Are regulatory requirements being satisfied?
These questions often reveal risks that may not be immediately apparent from financial statements or management presentations.
Reviewing Corporate Records
Investors should carefully examine the company’s corporate records.
This review may include:
- Incorporation documents;
- Share capital structure;
- Register of members;
- Board resolutions;
- Shareholder resolutions;
- Constitutional documents; and
- Regulatory filings.
Corporate records frequently reveal governance issues, ownership disputes, and compliance deficiencies.
Assessing Shareholding Structures
Ownership issues can significantly affect transaction outcomes.
Investors should verify:
- Existing shareholders;
- Shareholding percentages;
- Transfer restrictions;
- Pre-emptive rights;
- Voting rights; and
- Shareholder agreements.
Unclear ownership structures often create significant transaction risks.
Evaluating Regulatory Compliance
Regulatory compliance is a critical component of due diligence.
Investors should assess whether the target company possesses:
- Required licences;
- Regulatory approvals;
- Industry-specific permits;
- Tax compliance records; and
- Compliance management systems.
Regulatory deficiencies may result in penalties, operational restrictions, or future liabilities.
Reviewing Material Contracts
Commercial contracts often represent some of a company’s most valuable assets.
Investors should review significant agreements involving:
- Customers;
- Suppliers;
- Distributors;
- Lenders;
- Strategic partners; and
- Service providers.
The objective is to determine whether contractual rights are enforceable and whether any obligations may create future risks.
Employment and Labour Issues
Human capital often plays a significant role in business value.
Investors should evaluate:
- Employment contracts;
- Employee disputes;
- Compensation obligations;
- Pension compliance;
- Key personnel arrangements; and
- Restrictive covenants.
Employment-related liabilities can significantly affect transaction value.
Litigation and Dispute Exposure
Pending litigation and unresolved disputes may create financial and reputational risks.
Due diligence should identify:
- Existing lawsuits;
- Arbitration proceedings;
- Regulatory investigations;
- Debt recovery claims; and
- Potential contingent liabilities.
Understanding these issues enables investors to negotiate appropriate protections.
Intellectual Property Verification
For many businesses, intellectual property constitutes a significant portion of enterprise value.
Investors should confirm ownership and protection of:
- Trade marks;
- Copyrights;
- Software;
- Proprietary systems; and
- Brand assets.
Failure to secure intellectual property rights can undermine investment value.
Conclusion
Acquiring shares in a Nigerian company can create substantial opportunities, but every acquisition should be supported by comprehensive due diligence.
Investors who understand the legal, regulatory, and commercial condition of a target company are generally better positioned to negotiate favourable transaction terms and avoid unexpected liabilities.
Successful acquisitions are often the result of thorough investigation rather than optimistic assumptions.
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