Divestment Strategies: How To Maximize Returns When Exiting A Business

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Tel: (+234) 802 320 0801, (+234) 807 576 5799)

E-Mail: info@qeeva.com

Office Address: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria.

Introduction

Exiting a business is a crucial decision that requires careful planning to ensure maximum returns. As an investor in Nigeria, understanding the right divestment strategy can help you protect your interests, comply with legal requirements, and secure profitable outcomes. Our approach focuses on three main strategies: Asset Sales, Management Buyouts (MBOs), and Investor Exits each with unique advantages. We will also reference the Companies and Allied Matters Act (CAMA) and other relevant Nigerian laws to guide you.

Unlocking Business Value

Asset sales involve selling individual business assets, such as property, machinery, intellectual property, or customer contracts, rather than the entire business entity. This strategy allows us to maximize value by selling high-performing assets separately.

Legal Considerations For Asset Sales

Company Authorization: Under Section 343 of CAMA, a company must obtain approval from its shareholders before selling significant assets.

Valuation and Due Diligence: As required by Section 175 of CAMA, the company must ensure that assets are accurately valued before the sale.

Tax Implications: The Capital Gains Tax Act mandates a 10% capital gains tax on profits from asset sales. Proper structuring can minimize tax liabilities.

When to Choose Asset Sales

If we want to retain parts of the business while liquidating underperforming segments.

If selling assets individually offers higher returns than selling the business as a whole.

When the company is facing financial difficulties and needs to generate immediate cash flow

Management Buyouts (Mbos): Selling To Existing Leadership

A Management Buyout (MBO) occurs when the current management team purchases the company from its owners. This option is ideal for ensuring business continuity while providing the seller with a controlled and structured exit.

Legal Considerations for MBOs

Under Section 144 of CAMA, shareholders must approve a management buyout if it involves a change in control.

MBOs often involve debt financing, so compliance with the Companies Income Tax Act (CITA) on deductible interest payments is essential.

We must ensure that key employment contracts comply with the Labour Act, especially if changes in management affect employee benefits.

When to Choose an MBO

If we want to exit without disrupting operations, as existing management already understands the business.

When the management team is financially capable of acquiring the business.

If we prefer a confidential and smooth transition rather than a public sale.

Selling To External Buyers Or Private Equity Firms

Investor exits involve selling the company to strategic buyers, private equity firms, or venture capital investors. This option often results in higher valuations, especially if the business has strong growth potential.

Legal Considerations for Investor Exits

Under Section 22 of CAMA, a private company must obtain shareholder consent before selling shares to an external investor.

Existing shareholders have the right of first refusal under Section 176 of CAMA, meaning they must be given the option to buy before external parties.

If we sell to a foreign investor, approvals from the Nigerian Investment Promotion Commission (NIPC) and the Securities and Exchange Commission (SEC) may be required.

When to Choose an Investor Exit

If we seek a higher sale price, as private equity firms often offer competitive valuations.

When we need additional investment for growth before fully exiting.

If we prefer a partial exit, allowing gradual divestment over time.

Key Steps To A Successful Business Exit In Nigeria

Regardless of the divestment strategy we choose, following a structured process ensures a smooth transition and maximum returns.

Here’s how we can effectively plan and execute an exit strategy:

Conduct a Business Valuation

Before selling, we need to determine the true market value of the business or its assets. A professional valuation helps in setting a competitive price and attracting the right buyers.

Under Section 175 of CAMA, businesses must conduct proper financial assessments before any sale or transfer of assets.

Engage a certified accountant or valuation expert to assess the company’s tangible and intangible assets.

Prepare Financial Records and Legal Documentation

Potential buyers will request financial statements, tax records, contracts, and compliance reports. A well documented business attracts serious buyers and speeds up negotiations.

Section 331 of CAMA mandates proper record keeping and disclosure of financial statements during business transfers.

Ensure audited financial statements, tax filings, and regulatory approvals are up to date.

Choose the Right Exit Strategy

Each strategy asset sale, MBO, or investor exit has different advantages, and selecting the right one depends on business goals.

Section 22 of CAMA for share transfers, Section 343 of CAMA for asset sales, and Section 144 of CAMA for management buyouts.

Evaluate market conditions, buyer interest, and tax implications before finalizing the strategy.

Structure the Sale for Tax Efficiency

Exiting a business may attract capital gains tax (CGT), corporate income tax (CIT), and other levies. We must structure the deal to minimize unnecessary tax liabilities.

The Capital Gains Tax Act (CGTA) and Companies Income Tax Act (CITA) regulate tax obligations for business sales.

Consult a tax expert to explore tax-efficient sale options like share sales instead of asset sales.

Obtain Regulatory Approvals and Compliance Clearances

Certain business exits, especially those involving foreign investors or publicly traded companies, require approvals from Nigerian regulatory bodies.

NIPC Act: Required for foreign investors acquiring or selling stakes.

Mandatory if the company is listed or has external investors.

Needed for divesting financial institutions like banks or fintech companies.

Submit required documents to regulatory authorities before finalizing the deal.

Negotiate and Close the Deal

Once due diligence is complete, we enter final negotiations and sign the necessary agreements. This includes share purchase agreements, asset sale contracts, and non compete clauses.

Sections 98–100 of CAMA govern the execution of contracts and business transfers.

Engage a legal expert to draft and review agreements for clarity and protection.

Post-Exit Transition and Financial Planning

After exiting, We may need to:

Hand over management to the new owners.

Reinvest funds into other ventures.

Ensure compliance with post-sale obligations, such as non-compete clauses or earnout agreements.

Develop a post-exit financial strategy for reinvestment or retirement planning.

Ensuring A Profitable Business Exit

Exiting a business in Nigeria is a complex but highly rewarding process when done right. The key to maximizing returns is choosing the most suitable divestment strategy, ensuring legal and financial compliance, and preparing for a seamless transition.

Common Challenges In Business Exits And How To Overcome Them

While exiting a business can be profitable, it comes with challenges that can affect the valuation, timeline, and success of the divestment.

Here are some common obstacles and how we can navigate them:

Difficulty in Finding the Right Buyer

Not all buyers have the financial capacity or strategic interest to acquire the business at a fair price.

We can explore multiple exit options, including competitor buyouts, private equity investments, and listing the business on a mergers and acquisitions (M&A) marketplace. Engaging a business broker or investment banker can also help attract serious buyers.

Under-Valuation of the Business

Buyers often attempt to negotiate a lower price, claiming financial or operational risks.

A professional valuation backed by audited financials and a strong growth projection increases bargaining power. Under Section 331 of CAMA, financial statements must be transparent and accurate, helping establish a solid valuation.

Regulatory Delays and Bureaucracy

Obtaining approvals from the Nigerian Investment Promotion Commission (NIPC), the Securities and Exchange Commission (SEC), or the Central Bank of Nigeria (CBN) can slow down the exit process.

Early compliance planning helps reduce delays. We should initiate regulatory filings months in advance and engage legal experts familiar with business exits.

Tax Liabilities and Unexpected Costs

Capital gains tax (CGT) and other tax obligations can reduce net proceeds from the sale.

Structuring the sale through share sales instead of asset sales may reduce tax liabilities. Under the Capital Gains Tax Act, certain business transactions may qualify for exemptions if structured correctly. Tax advisors can help optimize the sale for better financial returns.

Transition and Employee Retention Issues

A sudden change in ownership can lead to employee dissatisfaction, operational disruption, or loss of key talent.

If opting for an MBO, maintaining clear communication with employees ensures continuity and stability. Under Section 173 of CAMA, employee contracts must be honored, so structuring an employee retention agreement can prevent loss of talent.

Case Study: Successful Business Exits In Nigeria

To illustrate how a well-structured divestment can maximize returns, let’s look at a real life example of a foreign investor successfully exiting a business in Nigeria.

Case Study: Private Equity Exit in the Fintech Sector

A foreign investor owned a successful digital payments company in Nigeria. After five years, they decided to exit and sought the highest valuation for their business.

Strategy Used:

Instead of selling the business outright, the investor attracted a private equity firm interested in the company’s growth potential.

A detailed financial audit under Section 331 of CAMA and strong revenue projections helped secure a higher valuation.

The sale was structured as a share transfer instead of an asset sale, reducing capital gains tax obligations under the Capital Gains Tax Act.

Approvals from the NIPC and SEC were obtained in advance, avoiding last minute delays.

Employees were retained under a performance based earnout agreement, ensuring continued business success post-exit.

Outcome:

The investor exited at a 5 times return on investment.

The private equity firm expanded the business, benefiting from the strong operational structure left behind.

The employees remained engaged, ensuring minimal business disruption.

How We Can Help You Exit Successfully

Exiting a business in Nigeria requires a strategic approach to ensure the best possible financial and operational outcome. Whether you’re considering an asset sale, a management buyout, or selling to an external investor,

We can help you:

Evaluate your business valuation and optimize your exit strategy

Navigate regulatory approvals and compliance requirements

Structure the deal to reduce tax liabilities and maximize profits

Negotiate favorable terms with buyers and investors

Ensure a smooth transition for continued business success

FREQUENTLY ASKED QUESTIONS (FAQs) ABOUT BUSINESS EXITS IN NIGERIA

What is the best way to exit a business in Nigeria as a foreign investor?

The best exit strategy depends on your financial goals, business structure, and market conditions. If you want to maximize cash flow quickly, an asset sale may be ideal. If you prefer a smooth transition, a management buyout (MBO) works well. For higher valuations, selling to private investors or private equity firms may yield the best returns.

What are the legal requirements for selling a business in Nigeria?

Shareholder approval is required for asset sales or share transfers (Sections 22, 144, and 343 of CAMA).

Financial records must be up-to-date and transparent (Section 331 of CAMA).

Regulatory approvals may be needed from the NIPC, SEC, or CBN, depending on the industry.

Capital Gains Tax (CGT) applies to most business sales under the Capital Gains Tax Act.

How long does it take to exit a business in Nigeria?

The timeline depends on the complexity of the transaction, regulatory approvals, and buyer negotiations. A simple asset sale may take 3-6 months, while an investor exit or MBO may take 6-12 months due to due diligence and financing arrangements.

How can I reduce taxes when selling my business?

Opt for a share sale instead of an asset sale, as it may reduce capital gains tax (CGT).

Structure payments over time (installment sales) to spread tax obligations.

Utilize tax exemptions and incentives available under the Nigerian Investment Promotion Commission (NIPC) Act.

Consult a tax expert to explore legal ways to minimize tax liabilities.

Can I sell my business to a foreign investor?

Yes, foreign investors can acquire Nigerian businesses, but regulatory approvals from the NIPC and SEC may be required, especially for businesses in banking, fintech, oil and gas, and telecommunications.

What happens to my employees when I exit the business?

In an MBO or investor exit, employees typically retain their jobs under new management.

In an asset sale, employment contracts may need to be renegotiated.

Under Section 173 of CAMA, employee rights must be protected during a business transfer.

Can I exit my business and still receive payments over time?

Yes, this is called an earnout agreement, where you receive installment payments based on business performance after the sale. This is common in investor exits and private equity acquisitions.

Ensuring A Profitable And Seamless Exit

Successfully exiting a business in Nigeria requires:

✔️ A clear strategy based on financial and legal considerations

✔️ Regulatory compliance with CAMA, tax laws, and investment regulations

✔️ Strong financial documentation to attract high-value buyers

✔️ Expert legal and tax guidance to minimize risks and maximize returns

✔️ Smooth transition planning to protect employees and business continuity

Conclusion

Whether we opt for an asset sale, an MBO, or an investor exit, a well-planned exit ensures that we leave on favorable terms, with the right returns on our investment. Seeking expert legal, financial, and regulatory advice can help us avoid pitfalls and structure the deal to our maximum benefit.

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Contact us today, to explore your best exit options and maximize your returns.

We provide:

✅ Professional business valuation services

✅ Legal and regulatory compliance support

✅ Exit strategy consultation and negotiation assistance

Tel: (+234) 802 320 0801, (+234) 807 576 5799)

E-Mail: info@qeeva.com

Office Address: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria.

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