Entrepreneurs rarely have the capital to see ideas to fruition and must rely on outside financiers or external funding options. It might be thought that the entrepreneur would turn to traditional financing sources such as bank loans and issuance of public stock to meet their needs. However, varieties of factors are likely to lead to some of the most potentially profitable and exciting firms not being able to access these traditional financing sources. Private equity investors are almost invariably attracted to firms that find traditional financing difficult to arrange. Private equity investors are looking for companies that have the potential to evolve in ways that create value. Consequently, private equity deals and transactions have emerged strongly as a financing options in emerging markets, especially in the area of infrastructure development.
Private Equity is, therefore, one of the main alternatives necessary for bridging the funding gap in many of these developing countries in Africa due to the lack of access to capital or lack of adequately developed routes to obtaining capital. The book examines the practice of Private Equity extensively as it provides this much needed alternative funding to businesses as well as contributing to the country’s Gross Domestic Product (GDP). Private Equity has been defined variously by scholars and researchers leading to some sort of misconception as what Private Equity means. Despite this many competing definitions, it has to be noted that Private Equity is a major subsection of a much larger, multifarious part of the financial landscape known as the private markets and private equity investors are looking for companies that have the potential to evolve in ways that create value.
This book, therefore, examines the concept of Private Equity as undertaking investments in Equity and quasi-equity mainly (though not exclusively) in non-listed companies in order to generate high risk adjusted returns over a specific period of time, by backing entrepreneurs. The book highlights the significance of Private Equity as an alternative financing model that helps to bridge the funding gaps for businesses and companies. The book presents The Law and Practice of Private Equitya practical approach to private equity investing and deal-making so that the interest of stakeholders to the deal will be protected and profit returned to investors. At all material times and relevant chapters, applicable legal framework is examined to ensure that those engaging in Private Equity deals do so within the provisions of the law and regulatory requirements and regulatory provisions.
The book has eleven chapters, with appendices and a comprehensive bibliography. The chapters are interrelated with some form of overlap where necessary. Chapter One is the introductory chapter which laid the foundation for the discussion in the rest of the chapters of the book. This chapter examines the Concept of Financing Types, Sources of Financing, History and Basis for Private Equity, Evolving Practices. It is in this chapter the meaning of Private Equity is unpacked. Chapter Two analyses Private Equity in Capital Funding with specific emphasis on Capital Raising, Debts and Hybrid Financing. Chapter three examines Private Equity Funds which include Venture Capital and Managed Funds.
The Fourth Chapter took a more practical approach in discussing Deal Making and Deal Structuring in Private Equity under the following sub-heads: Matching the Portfolio Company and Private Equity Fund; Steps to Deal Making, Preliminary Stage (Term Sheets and Head of Agreement); The Deal State; Completion and Post Completion Issues. Due diligence is a very important aspect of Private Equity Deal. This is examined in Chapter Five with practical steps and issues to watch out during due diligence in structuring private equity deals. Chapter Six looks at Investment Arrangement in Private Equity which covers the Investment decision, Basic Terms and Conditions, Exits and Dispute Resolution.
The Seventh Chapter is dedicated to Tax Aspects of Private Equity which covers a critical analysis of the applicable Tax legal framework. Chapter Eight Examines Management and Ownership of Investee Companies in Private Equity. Fiduciary issues in Private Equity formed the major discussion in Chapter Nine, while Chapter Ten discussed extensively Corporate Governance in Private Equity Portfolio Companies. The last chapter offers an assessment of the Impact of Private Equity in National Development and Preface the State of Nigeria Private Equity Market with recommendations on the Regulatory outlook and reforms.
The book rightly points out that although Private Equity is still at infancy stage in a number of emerging markets, for instance, Nigeria, there is a positive impact of private equity deals in economies with potential to add to the Gross Domestic Product (GDP) and Foreign Direct Investments (FDI) and that Private Equity is more suitable for Small and Medium Enterprises (SMEs) to raise funds relative to obtaining debt capital. All of these have brought depth and meaning to this book. This book ‘The Law and Practice of Private Equity’ lays no claim to perfection, and I, therefore, take full responsibility for errors of omission and commission that may be found herein.
Professor Fabian Ajogwu, SAN
Lagos Business School
June 23, 2020