Members of the Business Founders Coalition, on Tuesday in Lagos, urged the Federal Government and the National Assembly to protect Nigerian entrepreneurs and business owners from the antics of some predatory foreign private equity investors.
Speaking at a media parley, while recounting their individual harrowing experiences in the hands of such investors, they called for government policies to regulate the activities of Private Equity firms in Nigeria, especially the foreign ones.
Such regulation, they continued, must protect founders and businesses from pitfalls associated with PE firms, lamenting a situation where PE firms arm twist the Nigerian entrepreneurs, and hijack their businesses.
BFC urged the government put in place policies that do not allow an investor to have controlling rights in a Nigerian business, just as all legal contracts to guide such transactions should be domiciled in the country.
They also want a situation where “on exit, the investors must give the entrepreneur the right of first refusal to purchase the shares of the business; calling for a local entrepreneur protectionist structure, which they assured will not stop any genuine investor from coming into the country, as the “serious ones will still come in while it keeps out the ‘hijackers.”
Putting in place a local entrepreneur protectionist structure, according to a statement presented by Dr. Richardson Ajayi on behalf of the coalition, is a way out of the inadequate laws to protect homegrown business owners. The absence of these laws, he noted, allows “for the complete ‘fleecing’ of Nigerian businesses who brave foreign investments,” a situation they say must stop.
The members of the coalition including Ajayi of Synlab Nigeria (formerly Pathcare); Obinna Ekezie and Ralph Tamuno of Wakanow; Bukky George, Healthplus; Deji Akinyanju, Chicken Republic; and Kene Mkapru, Filmhouse Cinemas; lamented that what cripples the local businesses in particular, “is when we have to repay the foreign investment at 300% due to the devaluation of the Naira against foreign currencies.”
They therefore want the Federal Government to look into the development of a Nigerian venture fund to support the growth of local businesses; just as they urge that the Central Bank of Nigeria and Bank of Industry (BOI) intervention funds be restricted to Nigerian businesses only.
Drawing the attention of key stakeholders especially Federation and the business community to the plight of Nigerian entrepreneurs who started business but at some point in the pursuit of growth, had to access venture capital funds or foreign investments.
“Our experiences have largely been ‘tales of woes’ which has the possibility of stunting the growth of indigenous businesses like ours. We are also hoping that through this coalition, government can enact policies and laws that will correct that apparent lop-sidedness.
“Most of our local businesses due to unfavourable or unavailable access to local finance to grow their business have no choice but to approach foreign investors and venture capitalists. As progressive as this appears on the surface, they usually seek for controlling rights as one of the conditions to invest. Against the ‘spirit of the letter’ they often use this to wrestle control from the founders and force their positions which can be inimical to the growth of the business and overall national development. You will agree with us that the issue and conditions of controlling rights is exceedingly difficult to fight when looking for vital investment.”
They blamed the resort to private equity capital to lack of “options for growth capital, bank loans are prohibitively expensive with a high interest, that is if you can get a bank to lend you money. So, when you are talking to only one investor, which is usually the case, you really are between the ‘rock and a hard place’. You either take the money on the onerous terms or you watch your business dreams evaporate like many have done.
“On their part, these foreign investors make lots of promises beyond funding, capacity, processes, only to renege at the most crucial time of the growth. Many local entrepreneurs often initially stomach these breaches of agreements all in the desire to make it work. However, more often than not, things quickly deteriorate rather than improve, leading to boardroom tussle.”
Specifically, the statement drew attention to the plight of Mrs. George “and the on-going attempt by the primary investor to take over her business,” observing that there is an emerging pattern of killing local businesses and entrepreneurs.
From experiences, they lamented that some foreign investors do not come to invest in Nigeria to develop Nigeria, but only “come to make money and expand their businesses and we believe the government should put policies in place to ensure that the investments ultimately drive national development.”
Such positions, they stressed, are not isolated, giving examples of countries with FDI protectionism, including policies that prevent squeeze-out provisions, like that of Egypt that caps foreign ownership stake at 49% in strategic sectors.
Recounting her experience, Mrs. George recalled that Alta Semper Capital LLC UK, an international Private Equity firm was successfully onboarded, after pledging $18m to help by HealthPlus take advantage of the opportunities in the marketplace and scale its business.
Specifically, she said “the investment into HealthPlus was to enable the Company to capture the pent-up demand for high-quality yet affordable healthcare and professional beauty supplies by developing regional distribution centres in commercial hubs across Nigeria, rapidly expanding the company’s footprint across Nigeria as well as developing a wholesale channel and investing in private label and e-commerce.
“Unfortunately, the pledged funds were never fully disbursed in order to implement our strategic objectives,” she lamented adding that the “partnership has been fraught with serious challenges and unmet expectations, jeopardizing operations and relationships with our stakeholders.
This, she continued, was why “in May 2020, we filed a suit and served Alta Semper. Alta Semper requested for an informal mediation which lasted three months. They frustrated it.
“On Friday 25 September 2020, Directors of Alta Semper visited our office to forcibly remove me as the CEO, take over the company IT, Accounts, Security, and install a CTO, one Chidi Okoro,” all this, she stressed, were in defiance to the existing court action, without a board resolution and without approved minutes of a board meeting.
Photo caption: From left, Ralph Tamuno, Co-Founder, Wakanow ; Yomi Badejo-Okusanya, Group Managing Director, CMC Connect Limited; Richard Ajayi, Co-Founder, Synlab Nigeria (Formerly Pathcare); Bukky George, Founder& CEO, Healthplus and Obinna Ekezie Co-Founder, Wakanow during a media briefing organised by Business Founders Coalition in Lagos on Tuesday, September 29, 2020.