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Background
Alta Semper Capital LLP is a private equity (PE) firm that invests in healthcare and consumer companies across Africa. In 2018, the PE firm invested in HealthPlus and Moroccan oncology and radiology clinic, Oncologie et Radiologie du Maroc (ODM).
The investment in HealthPlus was $18 million. The investment made in 2018, was to be used for working capital, technology and infrastructure, building a distribution centre, and inventory management. HealthPlus is one of West Africa’s largest integrated pharmacy chains.
Founded in 1999 by Bukky George, HealthPlus has grown to over 90 retail outlets while employing over 850 people including more than 150 pharmacists. In Nigeria, the company is present across 11 of the country’s 36 states. It is also known to operate branches in strategically-located residential areas, airports, and shopping malls.
The investment from Alta Semper Capital was also to help HealthPlus expand its store footprint, to hire more talent and explore eCommerce initiatives. However, while the influx of cash gave the PE firm a majority stake in the company, issues around KPI set out in the agreement is one of the reasons for challenges in which the Company is embroiled.
On September 25, 2020, a press release from the Board of HealthPlus, terminated the appointment of Bukky George as the CEO although she remains the Founder and a Director in the Company.
The decision to terminate George’s appointment came with the announcement of an interim leader: Chidi Okoro. A renowned pharmacist and management executive, Okoro was to assume the role of Chief Transformation Officer in search of a reinvigorated HealthPlus Limited.
The letter from HealthPlus’ board to the Pharmacists Council of Nigeria (PCN) said George “remains a shareholder of the company, a member of the board of the company, and can participate in the decision-making process of the company at board level.”
In a statement outlining reasons for George’s termination, the board, headed by Alta Semper, stated that since the COVID pandemic began it tried exploring ways to grow HealthPlus with her, but there was little or no progress. So they had to change the leadership.
However, Bukky George came out to debunk these claims the following day.
“We wish to inform the general public, the Pharmacists Council of Nigeria, our staff, loyal customers, vendors, landlords, bankers and all stakeholders that the press release was not authorised by the Company or anybody acting on its behalf. And that the announcement of the appointment of a CTO is wholly false, wrongful and illegal and should be totally ignored,” it read.
According to the management, the five-year investment deal had the PE firm scheduled to exit the company in 2023. George then accused the PE firm of not keeping its end of the deal by withholding funds. This was not the song being sung by George however earlier, as the deal was being struck.
In 2018, when HealthPlus sealed the investment and partnership with Alta Semper, George was quoted as saying,
“We believe Alta Semper is the right partner for our next stage of growth. Alta Semper’s focus on the healthcare sector, as well as its ability to invest patient and flexible capital, will allow us to grow strategically across Nigeria. We believe we have found a partner who can help us achieve this goal over the coming years.”
Court Cases
George took legal action against HealthPlus Africa Holdings Limited in May 2020, an investment vehicle used by Alta Semper Capital to run HealthPlus Limited.
The petition tabled at the federal high court [Suit No. FHC/L/CS/609/2020] was to stop the holding company from “the deliberate delay and withholding of funds; meddling with management, interference with the functions of key employees; abuse of corporate governance processes and now the attempt to remove her as CEO.”
After being served the court summons, Alta Semper appealed for mediation of the crisis outside court, a process frustrated after three meetings in three months.
Alta Semper thereafter filed an arbitration claim in England. The private equity firm had initiated the case in the UK after appealing to the Nigerian court to allow it to settle through the arbitration process as stated in the agreements between both parties.
At the moment, George is holding on to her position as founder and CEO and has refuted and disowned the announcement of the CTO.
Legal Implications vis a vis FDI Inflows into Nigeria
There is a need for laws or regulations to guide the timing of investment flows into a recipient company in Nigeria. On paper, Alta Semper invested $18m into HealthPlus. That figure went into Nigeria’s FDI statistics and is part of the country’s FDI inflow reported for that year.
It is therefore pertinent to seek to ask how investment decision making or agreements between the investor and a local company is determined. There should be timelines built into agreements at the stage of drafting the resolutions binding the two parties and stating the times at which certain percentages of the quoted investments must be brought into the country.
Nigeria’s FDI declined by 37 percent from $3.5 billion to $2.2 billion in 2018, according to the United Nations Conference on Trade and Development.
On one hand, if this amount was based on figures indicated by investors at, say the point of expression of interest or registration of the investment, then it means that the actual amount that flowed into HealthPlus could be much lower than this. There is a need therefore for the government to establish a mechanism to differentiate between figures reported as Investment Announcements and the actual figures that come in and the time when they do. Without this, Nigeria’s reported FDI figures could well different (higher) what actually comes in.
There is no provision of such timing of investment inflows, whether in the form of cash or working capital (say raw materials). But this is critical, given the allegations made against Alta Semper by Mrs George.
There must be clearly stated processes of reducing equivocality in the organization. For cases involving foreign investors, the best place to start this is at the investment promotion centre or the NIPC.
The NIPC Act (Section 26) provides for dispute settlement between foreign investors and Nigerian businesses. One of the mechanisms for this is litigation through the country’s civil courts.
But before the parties get to the point of litigation, there should be a provision in the registration process or documentation between the parties for either of them to report to the NIPC about developments that could vitiate the objectives of the investment.
In the case of HealthPlus and Alta Semper, once the investors began to delay or default in their investment obligations, such a provision should have triggered a recourse to the authorities for their intervention, long before the thought of going to the court.
This could also apply where the complaint came from the foreign investors, as was the case also in the HealthPlus and Alta Semper matter. The latter also accused Mrs George of reneging on several key agreements reached by the partners. They also alleged that some performance indicators or goals set were not met. Such matters should ideally be clearly documented and therefore should serve as evidence in the event of disputes, first, in our view, at the level of the regulatory agency, in this case, the NIPC.
Nigerian law allows foreigners to invest in local companies through spare parts and raw materials. While this is commendable, its implementation must be monitored scrupulously by the investment agency to ensure that the foreign parties actually bring in these materials in the agreed quantities and at the right time when they can make the right impact on the local company.
Again, in this case, Alta Semper’s alleged withholding of funds made it impossible for HelathPlus to restock its shops across the 11 states in Nigeria where it operates. That automatically meant that all growth and other targets would be impossible to achieve. Whereas, the investors claimed that they have always been willing to make further investment, albeit with the assurance that KPIs are meant- a move that George has continued to thwart.
George defied her fiduciary responsibilities as a director by refusing to participate in Board meetings for the past year while the business has been facing significant challenges.
All these led to a rancorous relationship and characterised by a breakdown in communication and an organization with a polarized workforce: some were loyal to the Founder, others loyal to the foreigners, or the Board.
A company is nothing less than a network of communications that exists among the components. To the extent that communications flow freely within the structures of the organisation, to that extent could it be said that the company exists.
The breakdown in communication between the Founder and the Investors, Alta Semper Capital created a bad image for this transaction and the parties involved. This seems to have been at the centre of the dispute or the consequence of the crisis, as both parties no longer communicate.
This experience could hurt FDI flow into Nigeria, as potential investors could see it as a bad model.
Yet, it is a development that is avoidable through proper structuring of investment flows and regulation and keeping to contracts signed by Bukky George.
House of Reps Intervention: Understanding the limits of lobbying and politics
A fundamental flaw in the Nigerian business environment is a weak institution of property rights, which is partly due to the unrestrained power play and intervention of politics in private sector affairs.
Rather than make requisite legislation to strengthen governance in private institutions, enhance the cost of doing business and create an enabling environment for the private sector to flourish, political godfathers often take row calls in abusing their office in promoting unbalanced interventions in private sector matters, thus weakening relevant institutions, promoting market abuse and undermining investor confidence in Nigeria.
A case in point is the HealthPlus leadership tussle where different political forces threw caution in the air, intervening and making unsubstantiated legislations in a case that is currently in Court.
Such abuse of office, which undermines the integrity of the institutions they represent and more importantly public confidence in the sanctity and independence of the judiciary should not only be condemned but checked to avoid future occurrence.
Everywhere in the world, corporate leaders lobby politicians to make relevant laws in the interest of a sector or an industry, and in extreme cases of a lobby for the micro benefit of an institution, it would be done within the remit of jurisdiction and without abuse of political powers.
Politicians must respect laws and institutions, avoid undue interference that may inadvertently undermine the already low confidence of the global investor community and the general public in the judicial system and broader business environment.
He who comes to equity must come with clean hands, the common abuse of institutional powers in intervening and obstructing rule of law has far-reaching implications for the country, in terms of the cost of doing business, the propensity of the country to sustainably attract the long-term capital and prospect for private sector development.
If unchecked, Nigeria may continue to lose opportunities to smaller, less attractive markets, but a saner statutory environment, devoid of undue influence of politics and other unproductive distractions.
Private Equity: Why scare off the brave, even when the timid ones are far gone
Nigeria’s capital importation plunged 60 percent in 2020 to barely $9.7billion, a far cry from the $24 billion gross foreign investments into Africa’s largest economy in 2019.
Whilst it is convenient to attribute the low capital flow to the global COVID-19 pandemic in 2020, foreign direct investment actually grew 10 percent year-on-year, thus reinforcing the fact that there are more salient factors, as foreign direct investment, which is more resilient to VUCA factors has shrunk by over 50 percent in the past half-decade.
This compares to the country’s record of attracting $2.5bn in FDI in 2014, as many multinationals and brave global entrepreneurs may have ignored the compelling fundamentals of the Nigerian market for different reasons, including weak governance institutions, uncompetitive policy environment and often referenced undue interference of public power blocs in private matters.
Given limited domestic capital, Nigeria and indeed broader Africa needs foreign capital to drive industrialisation, create jobs and lubricate the path to sustainable economic growth.
Incidentally, as multinationals exit Nigeria or silently wind down, private capital formation continues to dwindle. At barely 0.25 percent of GDP, Nigeria lags peer countries like Ghana, Senegal, Brazil and Rwanda, which has FDI to GDP ratios of 5.8 percent, 4.2 percent, 3.8 percent and 3.7 percent respectively.
Whilst the growing appetite of private equity firms are partly bridging the gap of multinationals, recent events in the country may undermine the growth of this nascent source of global capital.
From Singapore to India, and more recently smaller emerging markets like Rwanda, Senegal and Brazil, the impact of private equity in stimulating foreign direct investments and more importantly in domestic corporate culture cannot be over-emphasized.
Beyond the flow of capital, private equity investments like those of Alta Semper have been seen as a source of modernisation and globalisation of local family businesses, with the most cherished benefit being the knowledge transfer and governance culture, which help to institutionalise local businesses and ensures their sustainability.
In developed markets, many of the biggest corporations were hitherto family businesses, passed on from generations to generations, leveraging institutional structures that ensure the businesses live beyond the founders.
Even as the rich British, European or American Lords retain sizable equity position and in many instances control, over these corporations, they ensure that the businesses are run independent of their family limitations, as successive corporate partners and capital providers have overtime engrained strong corporate governance culture in these institutions.
The Chinese and Indians have fast embraced these pertinent dynamics in growing SMEs into multinationals, leveraging the opportunities afforded by global capital, and more importantly access to new knowledge, enhanced governance bandwidth, strategic global alliances and in many cases free corporate advisory in transforming otherwise ailing cash-strapped entities into great companies with incredible success stories now being read in Africa.
Paradoxically, African family businesses, corporate leaders and policy authorities are yet to take a cue from this salient evolution in Asia, which is transforming the corporate environment and catalysing the much-needed growth for the economies.
Whilst there are a few case studies in Nigeria, where private equity firms have helped to unlock a new vista of hope for several small and medium scale enterprises, and has transformed otherwise stranded firms into thriving businesses, the undeserving experience of some PE firms may once again close this window of new opportunities.
Interestingly, the most impactful value of PE firms is not the global access to a rich pool of capital flows that an investee company may ride on for its medium to long term growth, rather the core value lies in the governance, technology and knowledge transfer, access to global network and synergy opportunities amongst others, which may not be easily monetised or quantified.
Interestingly, PE firms are also a great source of developing local capital markets through Mergers and Acquisition and public market listings, which are the typical exit channels for PE firms.
How then can a country like Nigeria miss this new window of opportunity, even as emerging local businesses struggle to access capital? How can the policymakers address the perennial problem of youth employment without requisite attention to critical sources of capital formation needed to catalyse private sector growth and employment generation?