Due Diligence: The Beacon Illuminating Nigeria's Business Landscape

Nigeria's dynamic business landscape is increasingly attracting interests from both local and international investors. Due diligence, the rigorous appraisal of a business undertaken by a prospective buyer, is the key to navigating this terrain successfully.

In Nigeria, with its unique blend of cultures, regulations, and market dynamics, due diligence is especially crucial. It can help businesses identify and mitigate potential financial, operational, legal, and integrity risks.

Some of the key risks that businesses face without proper due diligence in Nigeria are

Financial Loss

The Nigerian market, while lucrative, has its nuances. Without proper due diligence, businesses can overpay for assets or invest in ventures that aren't as profitable as they seem. For example, a foreign company that enters Nigeria and partners with a local company without thorough due diligence could later discover that the local firm is in significant debt. This could lead to significant financial losses for the foreign company.

Legal Repercussions

Nigeria's legal landscape is intricate. Overlooking potential legal liabilities can lead to hefty penalties. For example, a business that acquires a Nigerian company without conducting proper due diligence could later discover that the company is involved in ongoing litigation or is subject to regulatory investigations. This could lead to legal costs and penalties for the acquiring business.

Reputation Damage

The Nigerian market values trust. A single oversight can harm a brand's reputation. For example, a foreign company that partners with a Nigerian company that is involved in environmental violations could face public backlash and reputational damage.

As Folorunsho Alakija, Vice Chair of Famfa Oil and Founder of the Folorunsho Alakija Foundation, notes, "Due diligence is not just about protecting yourself from fraud or financial loss. It is also about understanding your potential partners and investments well enough to make informed decisions about whether or not to proceed."

In Nigeria, due diligence is the beacon that illuminates the path, ensuring businesses and expats navigate the market confidently and successfully. By conducting thorough due diligence, businesses can identify and mitigate potential risks, make informed decisions, and protect their interests.

Consider these tips when attempting to conduct due diligence in Nigeria.

Engage Experienced Professionals

Due diligence can be complex and time-consuming, so it is important to engage experienced professionals, such as lawyers, accountants, and industry experts, to assist with the process.

Tailor The Due Diligence To The Specific Transaction

The scope of due diligence will vary depending on the size and complexity of the transaction, as well as the specific industry and market in which the target company operates. It is important to tailor the due diligence process to the specific transaction to ensure that all relevant risks are identified and assessed.

Be Thorough

Due diligence is a process, not an event. It is important to be thorough and to carefully review all relevant information before deciding whether to proceed with that crucial investment decision.

By following these tips, business owners and expats can conduct effective due diligence and make informed decisions about their investment decisions in Nigeria.