Top issues we uncover in pre-transactional due diligence


  • Low-level corruption. The use of low-level corruption to facilitate the target company’s day-to-day operations. This can be especially prevalent in companies that rely upon regular interactions with public authorities, such as customs agencies.
  • Political connections. The reliance on a potentially illicit relationship with a politician or political party. This exposes the target company to bribery and corruption risks, and potential operational difficulties in the event of a transfer of power.
  • Ownership structure. Multi-tiered shareholding structures that make use of low-disclosure jurisdictions. These can be used to anonymise the ultimate beneficial owners of the target company or its subsidiaries, or to hide corruptly held interests held in the company.


  • Management expertise. Concerns about the competence of the target company’s senior management. These often relate to a lack of proven managerial experience, or the absence of adequate technical knowledge required post-transaction.
  • Proxy management. Proxy control of management by an external actor can occur when a founder or former significant shareholder continues to exert influence over the operations of the target company.
  • Company culture. The corporate culture of a target company may impact on post-transaction integration of new management, or labour conditions may contribute to a poor reputation.

legal & regulatory

  • Regulatory change. Unanticipated regulatory or political changes may hamper or even entirely alter the company’s operating model.
  • Litigation. The target company may be involved in upcoming or ongoing litigation which could have a future financial impact. Board members who are anticipated to remain post-transaction may not have disclosed historical legal issues.
  • Compliance. The target company may have an underdeveloped compliance function. This can occur with smaller businesses which have expanded rapidly, or in jurisdictions with lower regulatory requirements.


The Nigerian investment climate: Opportunities amid headwinds

After nearly four years in office, the government of President Muhammudu Buhari has disappointed an electorate who were promised better security and a stronger and more diverse economy. A prolonged recession is over but economic recovery has been weak despite high oil prices; insecurity and sectarian violence have spread further across the country, and high inflation eats into living standards. This government’s stated priority has been to support domestic and international investment in the non-oil sectors where the scope for growth and job-creation is greatest and to reduce Nigeria’s dependence on the oil and gas industry which provides nearly all its exports and government revenue. The results are so far limited and restructuring the economy in this way will take years, but the government’s recent punitive action against the telecommunications market leader, South Africa’s MTN, has had a chilling effect on investor sentiment. From now until February 2019 the focus for the governing All Progressives’ Congress will be on raising funds and winning close-fought elections as defections and internal splits threaten to derail its campaign.

The recovery in the oil market last year has stabilised the economy. The oil price recently hit a four and a half year high of $85 a barrel. Output is still below capacity as a result of disruption by restive communities in the Niger delta, but has risen above 1.7 million barrels of oil a day. This has replenished foreign currency reserves, allowing the Central Bank of Nigeria to sell dollars to prop up the value of the naira, which President Buhari sees as a priority. The main constraints to doing business in Nigeria remain its harmful regulation, poor infrastructure and high levels of corruption and insecurity. The current government’s over-regulated foreign exchange system has added to these difficulties. Economic recovery has also been slowed by the government’s tight monetary policy with high interest rates and low availability of credit depriving all but the biggest local companies of the capital they need. Some investors are holding back capital because pressure on the naira exchange rate makes another devaluation likely, even if this is delayed until after the elections. Devaluation is likely to spur on inflation, which peaked at nearly 20% last year and remains in double figures, squeezing margins and weakening consumer demand.

Technology deals and regulatory aggression

Nigeria is Africa’s largest economy and investment prospects in Nigeria’s technology-driven financial services and telecommunications sectors are good. This is reflected in recent deals completed in the country: according to the Emerging Markets Private Equity Association, financial and technology sector deals have accounted for 39% of all private equity investments in Nigeria from 2017 to H1 2018. The country’s IT and technology sector has had a recent boost from a modest but high-profile investment into the pan-African coding school Andela, which is backed by Facebook co-founder Mark Zuckerberg, among others. Teleology Holdings Limited, a Nigerian investment firm, is completing a $450 million takeover of 9mobile, a large Nigerian mobile network operator, and Nigerian e-commerce company Konga has revealed its plans to invest N2.9bn (USD 8 million) in its logistics division K-Xpress. The company says it will develop software aimed at solving logistics problems that are crippling e-commerce in Nigeria.

However, sustainable growth depends on political and macroeconomic stability and a curb on the arbitrary government intervention that has marked its recent dealings with South Africa’s MTN. The demand on 28th August that mobile phone market leader MTN repay $8 billion in remittances to its South African parent deemed illegal by the central bank has shaken investor confidence. The local subsidiaries of Citibank, Standard Chartered and Standard Bank of South Africa are being heavily fined for their role in the transactions. The MTN issue has been a big setback for those seeking to raise capital in the technology sector. MTN’s proposed listing on the Nigerian Stock Exchange, making it the largest stock, promised to be a turning point, but is now in doubt according to the company.

MTN is the poster child for IT and telecoms in Nigeria and its listing would have put Nigeria on the map for technology investors, in the same way that Dangote has done for industrial commodities. A lot of other capital raising is planned once MTN has listed in Nigeria

says the director of a leading fintech company based in Lagos

Prominent among these is Interswitch, which would be Nigeria’s first technology unicorn (a start-up being sold for $1 billion). Interswitch is an Africa-focused integrated digital payments and commerce company. The company, which built Nigeria’s ATM network from 2002 in partnership with the banks, dominates the local market in transaction switching and electronic payments processing and is backed by international private equity firms TA Associates and Helios.

Nigerian authorities made a more forward-looking move in October this year when the Central Bank of Nigeria relaxed its previously restrictive controls on telecoms companies’ provision of banking services. Mobile money in this format has seen great success in many other sub-Saharan African markets, notably by M-Pesa in East Africa. The proven success of the model combined with Nigeria’s relatively high mobile penetration (c.80%) and low banking penetration (c.40%) suggests that this regulatory shift marks a significant shift both short-term in the potential of Nigeria’s financial technology market and long-term in the growth of consumer spending by the country’s middle class.

Further encouraging signs for investors are presented by an intervention by Okey Enelamah, Minister of Industry, Trade and Investment, to refine laws for Nigeria’s existing free trade zones to create six new Special Economic Zones across Nigeria targeted at specific industries. These zones offer tax breaks, preferential foreign exchange and capital repatriation rules, exemption from import and export licences and incentives. The intervention is expected to attract foreign investment in manufacturing and processing using local raw materials. The ministry also recently signed a memorandum of understanding with Volkswagen to create an automotive service and training hub in Nigeria.

Looking ahead to 2019

The presidential election in February 2019 will be a hard contest between the APC’s Buhari who is running for a second term and the main opposition PDP candidate, Atiku Abubakar, an astute politician and former vice president. Recent high-level defections have cost the APC its majority in both houses of the National Assembly and raised speculation that the wealthy south-western states will break away from the APC and back the main opposition People’s Democratic Party, which lost power in 2015. The implications for Nigeria’s business environment after February are largely unclear; Nigerian presidential candidates rarely differ significantly in terms of economic policy whilst campaigning. A greater immediate impact will be had by the nature of the election itself. Although the elections in 2015 were the first won by an opposition party and the first lost by an incumbent president, the transition to Buhari was managed smoothly. A successive peaceful election will lend further credence to Nigeria’s strength as a democracy, and as an attractive destination for investment.

S-RM has a dedicated Africa-focused due diligence team based in our office in Cape Town, who provide transactional due diligence to support private equity and venture capital ahead of deals. Please contact Natalie Thomas Stafford if you would like to discuss our approach and how we can help you.