September 2026, Edition 4
If structuring builds the vehicle, due diligence determines whether the investment is worth making. In Nigeria’s founder-led mid-market, where corporate and financial records can be sometimes incomplete, due diligence is often where the eventual purchase price, warranties, indemnities and closing conditions are negotiated.
(a) Legal Due Diligence: This covers the target company’s CAC status and corporate history; title to shares and material assets; material contracts, leases and licences; litigation and regulatory history; employment and pension compliance; intellectual property ownership; environmental and land-use compliance; indebtedness and security interests; data protection; any change-of-control restrictions and related-party transactions requiring resolution before closing.
(b) Financial and Tax Due Diligence: Independent advisers should assess quality of earnings, working capital, contingent and off-balance-sheet liabilities, and historical tax compliance, including exposure to unpaid or disputed company income tax, VAT, withholding tax and transfer pricing liabilities. They should also assess the target’s readiness for obligations under the Nigeria Tax Act and Nigeria Tax Administration Act. The review should specifically identify historic tax audits, disputed assessments, unpaid taxes, related-party arrangements, tax incentives and potential exposures arising from restructuring, debt financing or the proposed acquisition. Identified liabilities should feed directly into the valuation, tax covenant, warranties, indemnities and completion mechanics.
(c) Commercial and Integrity Due Diligence: The review should assess market position, customer concentration, competition and the sustainability of the target’s business model. Integrity diligence should also cover founders and key management, sanctions screening, anti-bribery risks and potential exposure under Nigerian anti-corruption laws, including the Corrupt Practices and Other Related Offences Act and the Economic and Financial Crimes Commission (EFCC) Act, as well as the US Foreign Corrupt Practices Act and UK Bribery Act where applicable. The resulting red-flag report should directly inform three decisions: the purchase price or valuation, the scope of warranties and indemnities, and, where risks cannot be adequately mitigated, whether to proceed with the investment at all.
In practice, a Nigerian private equity transaction typically does not rely on a single contract, but on a network of interdependent agreements, each addressing a specific aspect of the deal and required at different stages of the transaction:
Document | Principal Purpose |
Term Sheet / Letter of Intent (LOI) | Establishes key commercial terms; usually non-binding except for provisions such as exclusivity, confidentiality, and costs. |
Non-Disclosure Agreement (NDA) | Protects confidential information and should ordinarily precede access to the data room. |
Share Subscription / Purchase Agreement | Governs the primary investment or secondary acquisition, including conditions precedent, completion, warranties, indemnities and price adjustments. |
Disclosure Letter | Qualifies warranties by identifying matters disclosed to the investor during due diligence. |
Shareholders’ Agreement (SHA) | Regulates the post-investment relationship, including board rights, reserved matters, anti-dilution, pre-emption, tag/drag rights, information rights and deadlock mechanisms. |
Amended Articles of Association | Incorporates relevant shareholder rights into the company’s constitutional documents and should be aligned with the SHA. |
Escrow Agreement | Provides for retention of part of the consideration to secure potential warranty or indemnity claims. |
Security Documents | Where applicable, creates and perfects security over shares, receivables, assets or other collateral. |
First, the governing law and dispute resolution clause should be chosen deliberately rather than by default; many sponsors select Nigerian law for the SHA (to align with the target’s constitutional documents) with an international arbitral seat (such as Lagos, London, or Paris) under the rules of the Lagos Court of Arbitration, the International Chamber of Commerce (ICC), or the London Court of International Arbitration (LCIA), with Nigeria’s adherence to the New York Convention making the resulting award enforceable against local assets. Also, conditions precedent should be mapped against the transaction’s regulatory matrix so that every required consent, notification, filing, waiver, and corporate approval is identified before signing.
Every emerging-market private equity transaction carries a recognizable set of risks, and a well-advised deal is distinguished by how rigorously those risks are identified, allocated, and mitigated through contract or insurance. To counter regulatory, political, FX, and repatriation risks, deals should incorporate regulatory approvals as conditions precedent, secure political risk insurance from providers like the Multilateral Investment Guarantee Agency (MIGA) or African Trade and Investment Development Insurance (ATIDI), and safeguard Certificates of Capital Importation alongside offshore holding structures, noting that the Nigeria Tax Act 2025 now taxes indirect asset transfers.
Corporate-governance and founder risks can be mitigated through reserved matters, board representation, information and audit rights, founder undertakings, appropriate vesting arrangements and enforceable restrictive covenants. Minority investments require particular attention to governance, dilution, transfer and exit rights.
Title, fraud, misrepresentation and historic-liability risks require robust due diligence, warranties and indemnities, escrow arrangements and, where commercially appropriate, Warranty and Indemnity insurance.
Valuation risk may be managed through completion accounts, locked-box mechanisms, earn-outs, ratchets or other agreed price-adjustment mechanisms. Illiquidity should be addressed at entry through appropriately drafted tag-along and drag-along rights, negotiated transfer mechanisms and other lawful liquidity arrangements.
Insurance and other risk-transfer mechanisms should be distinguished from contractual protections. Key-person insurance, political-risk insurance and W&I insurance may complement, but do not replace, appropriate contractual allocation of risk.
