What Is a Core Investor Sale? Key Considerations for Core Investors in Nigeria

A core investor sale is one of the privatisation strategies adopted by the Bureau of Public Enterprises (BPE) in Nigeria to transfer ownership and management control of government-owned enterprises to private investors. The strategy is intended to attract investors with the financial resources, technical expertise and managerial capacity required to operate and grow these enterprises. We also examine what it means to be a core investor in Nigeria and the regulatory and contractual expectations that accompany the role.

What Is a Core Investor?

The BPE defines a core investor sale as the transfer of at least 51% of ownership, accompanied by management control, in a company from government to new private owners. Core investors may be individuals or firms, Nigerian or foreign, with the financial resources required to buy and operate the company and the technical and managerial capacity needed to ensure that it is profitable. The significance of the concept extends beyond the percentage of shares acquired. From a regulatory standpoint, a core investor is expected to assume a meaningful role in the ownership, governance and commercial performance of the enterprise. The precise scope of that role typically depends on the transaction documents, the structure of the investment and any applicable sector-specific regulatory requirements.

Key Commercial Considerations for Core Investors

1. Scope and Liability Allocation: Looking Beyond the Equity Purchase

The first consideration is the precise nature and scope of the acquisition. A core investor sale may involve the acquisition of shares in an existing company, but the value of the investment often depends on more than the percentage of shares being acquired. Thus, an intending core investor will typically establish whether the transaction covers the entire operating business or only specified assets, whether government will retain an interest, and whether the company has valid title to the assets required for its operations. Where the target company holds land, infrastructure, licences, concessions or other rights critical to the business, a core investor would ideally confirm the nature, duration and transferability of those rights.

Most importantly, a core investor must thoroughly understand the condition of the assets of the target company, its capital expenditure requirements, the reliability of its revenue and the extent to which its business depends on government support, regulated tariffs or public-sector counterparties.

Equally important to note is the fact that the purchase price is only one component of the investment. The capital required to rehabilitate the business, meet outstanding obligations and achieve the expected commercial performance may be considerably more significant. It is often strategic for a core investor in a Nigerian target company to examine whether the government has undertaken to retain or settle particular liabilities, whether those undertakings are enforceable, and whether the relevant government entity has the resources and authority to perform them. An assumption in a bid model that a liability will be settled by the Nigerian government is not a substitute for an express and enforceable contractual commitment.

2. The Legal Framework: Navigating the Multi-Document Transaction Suite

A core investor transaction in Nigeria is ordinarily governed by a suite of documents rather than a single share sale agreement. The documents will depend on the enterprise, the sector, the transaction structure and the terms approved by the relevant government authorities. The principal documents may include a Share Sale and Purchase Agreement, a Shareholders' Agreement, a Performance Agreement and, where applicable, asset transfer instruments, concession agreements, financing documents and sector-specific commercial contracts. Other transaction-specific agreements may be essential to the enterprise's continued operation. Depending on the sector, these may include power purchase agreements, gas supply and transportation agreements, receivables or liabilities transfer agreements, operating agreements and contracts governing access to essential infrastructure.

An intending core investor would therefore establish not only what the transaction documents require at completion, but also what the investor must deliver after taking control, which obligations are conditions to completion, which continue after completion, which are capable of being varied, and which may trigger a default or loss of control.

3. Governance vs. Equity: Securing Practical Operational Control

Ownership and management control are related, but are not necessarily identical. The percentage of shares acquired by a core investor does not, by itself, answer every question about the investor's practical authority over the enterprise. Therefore, an incoming core investor would establish its rights to appoint directors, appoint or remove senior management, approve budgets and business plans, determine capital expenditure, raise financing and implement operational changes, decisions that require government consent, regulatory approval or the agreement of minority shareholders.

Where the Nigerian government retains a shareholding, as is often the case, an incoming core investor should examine the rights attached to that interest. A minority shareholder may have consent rights over specified matters, even where it cannot ordinarily determine the outcome of shareholder decisions. Such rights can materially affect the investor's ability to restructure the business, incur additional debt, dispose of assets or implement a turnaround plan.

An incoming core investor should also distinguish between control at shareholder level and authority over the regulated business. In a licensed enterprise, the ability to appoint directors or acquire a majority shareholding does not remove the need to comply with the applicable regulatory framework.

4. Post-Acquisition Commitments: Mitigating Default and Regulatory Exposure

A core investor in a Nigerian enterprise is often expected to do considerably more than pay the purchase price. Depending on the transaction, it may be required to inject capital, rehabilitate infrastructure, meet service-delivery targets, improve operational efficiency, preserve employment or implement an approved post-acquisition plan. As a practical matter, these obligations should be assessed against the actual condition of the enterprise. An incoming core investor should not accept performance targets without testing the assumptions on which they are based, including the reliability of the asset register, the accuracy of financial and operational data, the adequacy of existing infrastructure and the availability of required inputs.

Additionally, a core investor must also technically examine how performance will be measured, who determines whether a target has been met, whether the targets can be revised when material assumptions change, and what happens when performance falls short. The relevant documents may provide for corrective action, additional reporting, restrictions on transfers, termination rights or other contractual remedies. The distinction between a contractual obligation and a regulatory obligation is equally important. A failure to meet a target may have consequences under the transaction documents, the sector's regulatory framework, or both. The investor should therefore understand those consequences before committing to the acquisition.

5. Debt Structuring and Collateral Ring-Fencing: Balancing Equity and Asset Security

The financing structure can determine whether an otherwise attractive acquisition remains viable when the business encounters difficulties. An investor using acquisition finance should distinguish between security granted over its shares in the target company and security granted by the target company over its own assets. The distinction is fundamental.

Where the acquisition lender takes security over the investor's shares, its collateral is the shareholding. If the investor defaults, the lender may enforce its security and realise the shares in accordance with the financing documents and applicable law. Depending on the security and enforcement process, this may involve a sale to a third party or another legally permitted method of realisation. It does not, by itself, make the lender a secured creditor of the operating company or give it priority over the operating company's assets.

By contrast, where the operating company validly grants security over its own assets to secure its own obligations, the secured lender may have recourse to those assets, subject to the terms and validity of the security and the applicable insolvency and priority rules.

This distinction has important commercial consequences. The value of security over the core investor's shares depends on the value of the equity interest. If the enterprise's liabilities exceed the value of its assets, the shares may have little or no realisable value, even where the lender has a valid and enforceable share charge. Security over the operating company's assets is a different form of protection, although its value will depend on the assets covered, competing claims and the applicable priority rules.

A core investor should therefore consider the proposed security package, permitted indebtedness, restrictions on asset disposals, financial covenants, events of default and any restrictions on changes in ownership or control. It should also establish whether the proposed financing and security arrangements require government consent, regulatory approval or compliance with restrictions in the transaction documents.

These issues are particularly important where the acquisition is financed through a holding company or acquisition vehicle. The lender's rights against that vehicle, the investor's shares and the operating company may be materially different.

Key Takeaways

Acquiring a core investor stake in a Nigerian state enterprise offers a compelling entry into high-growth infrastructure, but long-term value creation requires navigating a sophisticated legal and operational terrain. Success hinges on looking beyond majority equity ownership to secure genuine operational control, ensuring government commitments particularly around legacy liabilities and tariffs are backed by binding, enforceable contracts rather than informal assurances. Investors must account for total capital commitments well past the initial purchase price to satisfy stringent post-completion performance targets, while meticulously structuring acquisition debt to balance regulatory constraints on asset security with lender protections. Ultimately, deal success in Nigeria’s privatised sectors demands rigorous pre-acquisition due diligence, proactive regulatory management, and a transactional structure robust enough to withstand shifting market and political dynamics.