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Before investing in any Nigerian company, whether through a share acquisition, a joint venture, or a full takeover, it is essential to conduct thorough due diligence. Nigeria is a vibrant and fast-growing market, but the business landscape is diverse, and the quality of record-keeping, regulatory compliance, and internal governance can vary significantly from one company to another. Proper due diligence helps investors verify facts, understand risks, and avoid surprises that could undermine deal value.
Most investors begin with a clear objective: to confirm who owns the company, how it is structured, whether it is in good standing with regulators, and whether its financial and commercial claims hold up under scrutiny. With foreign investors, there is an added need to understand how Nigerian corporate practices work in reality, beyond what is stated on paper.
Legal Due Diligence
A good starting point is confirming the company's legal identity. This usually involves a search at the Corporate Affairs Commission (CAC) to retrieve its incorporation records, shareholding structure, details of its directors, and any existing encumbrances. This verification step is crucial, especially when the investment involves buying shares or partnering with the owners. It also immediately reveals whether the company has been complying with its statutory obligations, such as filing annual returns.
The next stage of due diligence involves reviewing the company's governance documents. These include its Memorandum and Articles of Association, any shareholders' agreements, board resolutions, and past meeting minutes. These documents often reveal how decisions are made, who truly controls the business, and whether there are restrictions on share transfers, voting rights, or profit distribution. Many investment disputes in Nigeria stem from governance issues that were overlooked at this stage.
Contracts form another vital part of the process. Investors need to understand the commercial commitments the company has made with suppliers and customers, loan facilities, leases, employment contracts, distribution arrangements, and any long-term obligations. A careful contract review helps uncover liabilities that may not immediately appear on financial statements, such as unresolved payment obligations, exclusivity arrangements, or indemnities that could affect future revenue.
It is also essential to understand the company's litigation and dispute history. A court search can reveal existing lawsuits, enforcement actions, arbitration proceedings, or regulatory investigations. Even if the company is not directly involved, you may discover relationships or contractual arrangements that expose it to future claims.
Financial Due Diligence
Financial due diligence usually runs in parallel with the legal review. This involves examining audited financial statements, cash flow records, loan obligations, the company's working capital position, and its overall economic health. Because asset ownership can be a sensitive issue in Nigeria, investors often take additional steps to verify land, equipment, and other key asset titles. Inconsistent valuations, undisclosed liabilities, and irregular accounting practices are common red flags.
Tax compliance is another critical area to examine. Nigeria has a multi-layered tax system, and businesses are expected to meet obligations at both the federal and state levels. Reviewing tax filings, outstanding assessments, tax clearance certificates, and correspondence with tax authorities can reveal whether the company has unpaid liabilities or ongoing disputes with the Federal Inland Revenue Service (FIRS) or state revenue agencies.
Regulatory Compliance Due Diligence
Sector-specific due diligence is equally important. Nigeria's regulatory environment is active, and many industries require approval from regulators such as the Central Bank of Nigeria (CBN), the Nigerian Communications Commission (NCC), NUPRC, NAFDAC, SON and others. Ensuring that all licences are valid and verifying compliance with industry regulations can significantly reduce investment risk.
Operational Due Diligence
Operational due diligence provides a practical picture of the company's day-to-day realities. This may involve speaking with management, reviewing internal processes, assessing human resources policies, and confirming the status of any expatriate staff. Site visits are particularly valuable. They offer insight into how the business actually functions, how employees interact, and whether operations align with what is presented in documents.
Depending on the nature of the company, technology, and data protection, compliance may also need to be assessed. With Nigeria's National Data Protection Act now in force, investors should verify how customer data is stored and processed, what cybersecurity measures are in place, and whether the company is exposed to potential breaches or liabilities.
In certain industries, especially manufacturing, energy, natural resources, and agriculture, environmental and ESG issues also play a role. Reviewing environmental permits, safety practices, and sustainability commitments helps investors understand long-term compliance risk and whether the company meets the expectations of global investors or lenders.
Conclusion
Ultimately, due diligence on a Nigerian company is not just a box-ticking exercise. It is a practical way to understand the business you are about to invest in, identify potential risks early, and negotiate the terms of your investment with complete clarity. Many deals have collapsed or been renegotiated because issues uncovered during due diligence have fundamentally changed the transaction's value or viability.
Nigeria offers strong growth opportunities, but success depends on entering the market with the correct information and local insight. A well-executed due diligence exercise gives investors confidence, protects capital, and improves the chances of a smooth and profitable transaction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
