By Emmanuel Osie
A new KPMG report has disclosed that following the reported coming out of recession by Nigeria, Consumer Goods, Financial Services, Telecommunication, Media & Technology and Oil & Gas sectors are the most sort after sectors by foreign investors, saying these sector accounted for about 80 per cent of recent inbound investments into the country.
The new KPMG report titled, ‘Doing Deals in Nigeria – Key Insights from Deal Makers’ was presented to the public at the KPMG Nigeria office in Lagos.
The report is the result of a survey of 50 senior business executives based outside of Nigeria, who have attempted at least one inbound acquisition in Nigeria in the last four years. About 62% of the respondents are from five countries; South Africa accounting for the largest percentage (20%); closely followed by UK (18%) and USA (12%). Other notable countries with interest are France (6%) and Netherlands (6%).
62% of the respondents surveyed,would consider an acquisition in Nigeria over the next two years, while 86% of respondents indicated that they would more likely invest in Nigeria again.The report further noted that the key drivers for Nigerian acquisitions by foreign investors include the target’s customer base and domestic distribution channels and the opportunity for the investor to restructure the businesses to create further value. The ability of global corporates and private equity firms to use Nigeria as a base for expansion across West Africa further raises the country’s investment destination profile.
According to Dapo Okubadejo, Partner and Africa Head, Deal Advisory and Private Equity, KPMG in Nigeria, “Our key objective in conducting the survey for this report, was to hear first-hand from foreign investors. The survey report shares the contributors’ unique insights and perspectives on their deal-making experiences in Nigeria, providing a direct, credible feedback to potential investors on the true potential of Nigeria and what to expect in doing deals. The report also identifies the key sectors, deal dynamics, leading practices and recognizes challenges in doing deals in Nigeria.”
Despite the general positive tone of the report, respondents, however noted some critical challenges to deal making in Nigeria. Key amongst the challenges to investing in Nigeria, include political trends (76%); Lack of information/transparency on the target companies (74%), challenging compliance requirements (66%) and the lack of physical infrastructure in the country (50%). The lack of physical infrastructure in the country was the most important of all perceived challenges to investing in Nigeria. This challenge further buttresses the attractiveness of companies with effective distribution channels and route-to-market infrastructure as acquisition targets.
The report also notes the leading practices for successful deals in Nigeria, top of which is the need to engage the right local advisers with the right relationships and understanding of cultural nuances, considering that about 70% of the deals are with privately-owned businesses with bilateral ‘off-market’ negotiations.
Speaking on the implications of the survey findings, Okubadejo remarked that, “we sincerely hope that the findings in this report will contribute to Nigeria’s policy direction, with regards to foreign investments. Current and potential investors have been looking at Nigeria through the eyes of the western media; many of which may not be telling the right narrative. Today, the informal sector in Nigeria is very huge, hence it is imperative to drive more government revenue from an already diversified economy and bring a greater proportion of the population within the formal sector.