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FDI: Foreign investors target Nigerian start-ups …eight more risk takeover
By AYOOLA OLAOLUWA
There is a sense of anxiety among Nigerian startup owners over the growing threat of losing their companies to foreign private equity (PE) investors and venture capitalists (Vcs), Business Hallmark findings can reveal.
Nigerian startups, particularly e-commerce firms and fintechs, had in the last five years became attractive to foreign private equity investors and venture capitalists who had pumped in billions of dollars in exchange for equities in the firms.
Various data explored by BH indicates that local startups had received over $3billion from 2017 till date.
According to a report, Africa: The Big Deal, Nigerian startups cornered $1.37billion out of the total $4billion funding received by Africa in 2021 from venture capitalists headquartered in countries like the United Kingdom, the United States, Belgium, Switzerland and France.
The biggest beneficiaries of the funds, checks revealed, include HealthPlus, Chicken Republic, Chipper Cash, Flutterwave, Kuda Bank, Rensource, 54 Gene, Wakanow, AIC, PathCare, TradeDepot, Medsaf and Autochek, among many others.
The drift towards PE and VCs for the much needed funds, BH gathered, is largely fueled by the absence of single-digit and long-term funds in the local financial institutions. However, the funding seems to be coming at a huge price: The exposure of Nigerian businesses to forceful takeovers.
Also it was learnt that restrictions on capital profit repatriation from Nigeria in the past couple of years as a result if dwindling foreign reserves have opened up such businesses as investment options to engage and deploy idle funds by these investors.
BH findings revealed that the party is now over for many founders of local businesses who brought in private equity investors and venture capitalists as many of them are currently locked in bitter ownership struggles with their foreign financiers.
Among the local startups affected are HealthPlus, Wakanow, Chicken Republic, AIC and PathCare. The sour ending of an investment deal between Nigeria’s biggest pharmaceutical company, HealthPlus with a United Kingdom private equity firm, Alta Semper is particularly pathetic.
With over 90 outlets scattered all over the country, HealthPlus which makes about N5 billion revenue annually had in 2018 signed a deal with Alta Semper Capital for the equity firm, using an investment vehicle, HealthPlus Africa Holdings Ltd, to inject fresh $18million capital to enable HealthPlus expand its network and add other services in exchange for a controlling stake to enable the equity firm recoup its investment and exit after five years.
The deal involved an initial investment of $10million by Semper Capital to purchase the shares and a further injection of $8million to run the firm. With the arrangement, the founder, Mrs Bukky George’s equity in the company dropped to 48.9%, while the investor became the majority shareholder with 51.1%.
Barely two year after the deal, the marriage collapsed, with Semper Capital making two unsuccessful attempts to take over the bank accounts and offices of HealthPlus.
The first failed attempt was on Thursday, October 24, 2020, when Alta Semper Capital agents, after visiting the firm in the day, announced the appointment of Mr. Chidi Okoro as the Chief Transformation Officer (CTO) to replace Mrs. Bukky George. The founder fought the move and got a temporary relief.
Then on November 2, 2020, the chief transformation officer appointed by Semper Capital, Chidi Okoro, led some police officers to the head office of HealthPlus in Lagos and manhandled the security men on duty who barred them from entering the premises.
The attempt to take over the firm also failed as workers loyal to Mrs George failed to cooperate with the ‘invaders’. But he was alleged to have vowed to return with carpenters to change all the locks to the offices.
However, the embattled owner ran to the courts to challenge the legality of her sacking and takeover of the firm, insisting the board has not held a meeting in eight months.
It is the handiwork of unscrupulous foreign and local businesswoman and businessmen intent on reaping where they have not sown simply because they now see opportunities from the COVID-19 pandemic, like scavengers and vultures.
“In a bid to forcefully take over HealthPlus, Alta Semper starved it of funds required to operate. Contrary to what the equity firm is telling the world, it has not invested a dime in the company, apart from the funds it used to acquire it shares.
“The initial payment of $10million was for a stake in the company, and the money goes to the original stakeholders. While the remaining $8million is to be injected to enable the company expand its retail footprint and enhance its competitive position”, the embattled founder of HealthPlus explained.
She also alleged that apart from failing to discharge its obligation to fund HealthPlus in line with its agreements, Alta Semper meddled with management, interfered with the functions of key employees, abused the firm’s corporate governance processes, as well as attempting to remove her as CEO.
However, in it defence, Alta Semper Capital insisted that its decision to remove Mrs. George was after a series of significant breaches of the terms, of her engagement as the chief executive officer of the firm and that it was made in full compliance with Nigerian laws.
“The board has explored a range of options that would enable her (George) to continue to play an alternate leadership role, but she rejected the arrangement”.
It also accused the CEO of failing to achieve the targets the board set for her, noting that the financial support of $8million it agreed to inject into HealthPlus was expected to come from growth capital’ and not from its purse.
Mrs. George has not only refused to agree to offers of additional investment on commercially reasonable terms, but attempted to force ASC to restructure the existing binding contracts governing their relationship agreements, which she readily signed in 2018, after taking independent legal and financial advice.
“In the interest of all stakeholders and as a result, the majority of the Board of Directors of the Company determined that a change of leadership was required, if HealthPlus was to achieve its strategic goals, and the former CEOs appointment was terminated in accordance with its terms”, the equity firm stated.
The case has continued to linger in court with Mrs. Bukky George frantically trying to prevent Alta Semper Capital from taking over control of her company as a result of the breakdown of the investment deal between both firms.
Another local startup in the eye of the storm is Wakanow, set up by Messers Obinna Ekezie and Ralph Tamuno.
BH reliably gathered that Wakanow, one of Africas largest online travel agencies, had in December 2018, entered into an investment deal with Carlyle Group to invest $40million in the firm.
However, the investment deal would soon turned awry. Unlike the founder of Healthplus who is still holding tight to her firm until the courts determine its true owner, Wakanow has been taken over by the Carlyle Group.
“The investment facilitated by Platform Capital went awry because both Carlyle Group and Platform Capital have ulterior motive of hijacking the company by signing a merger deal with a major competitor, Travelstart, without the consent of Wakanow founders.
At a point, they went after Platform Capital legally on this issue and other malpractices. Carlyle then brought in a new CEO, and took over the company, one of the founders, Ekezie lamented.
Likewise, another local startup, Chicken Republic, owned by Food Concepts, did not fare better.
The founder of the company, Mr. Deji Akinyanju, had received $3.02 million from the International Finance Corporation (IFC), an arm of the World Bank, in 2011, at a well publicised event.
But the deal soon turned bad with the two parties presently locked in a vicious ownership tussle. Sources close to the Chicken Republic founder alleged that the International Finance Corporation (IFC) is poised on taking over the business.
However, the embattled Akinyanju, it was learnt, had instituted several suits in Nigerian courts to stall the move.
Not so lucky is another Nigerian startup, PathCare. Founded by a renowned medical doctor, Richard Ajayi, PathCare was acquired by Europes largest lab operator Synlab in 2017.
Sources close to the two contending parties said the deal went bad owing to allegations of breach of agreement and intellectual property, as well as a major disagreement on whether to bring in local or foreign experts, sources close to the deal said.
As of that time the deal was consummated, PathCare was the largest private pathology laboratory company in the country. The deal between PathCare and Synlab, owned by a private equity firm, Cinven, was opaque as both the startup and the investor did not publicly announce the amount that was invested in PathCare.
However, Pathcare claimed that the company bought back a 26 percent stake held by PathCare South Africa, its former parent company, a year before the Synlab deal.
Apart from HealthPlus, Wakanow, PathCare, founders of local startups like AIC and IMAX are battling to save their companies from being swallowed by their foreign partners.
Meanwhile, Nigerian business owners under the umbrella of the Business Founders Coalition, have called the attention of the Federal Government to the plight of local business founders.
Its coordinator, Dr. Richardson Ajayi, lamented that Nigerian business founders are forced to go shopping for foreign investor partners because of un-favourable or unavailable access to local finance to grow their business.
The coalition added that venture capitalists usually demand controlling rights as a condition to invest and often seize on this to wrest control from the founders.
Our objective is not to deride it or even paint everyone with the same tar. There are many good private equity companies and many successful private equity transactions as well as patient private equity players that understand the challenges of this market.
“But unfortunately, there are some who come into Nigeria literally to hijack our companies.
“Our intention therefore is to lead the charge in drawing attention to this unwholesome practice and advocate for a better investment climate for Nigerian entrepreneurs, said Ajayi.
He stated that foreign investors tend to make sweet promises beyond funding, but do not deliver at the time of the growth, forcing local entrepreneurs to endure the breaches in a bid to ensure their dreams do not go up in smoke. This, he said, often never works and leads to boardroom tussle.
