Developing a Framework for Private Equity Investment in Nigerian SMEs

Private equity investment is an important source of patient capital for growth-stage Nigerian SMEs that are too large for microfinance but too small for capital markets, and developing a professional investment framework addresses gaps in the SME finance ecosystem. This study developed a private equity investment framework for Nigerian SMEs, drawing on assessment of the current PE landscape, consultations with 15 PE fund managers, 20 SME operators, and 10 capital market specialists, and benchmarking against successful PE-SME models from South Africa, Egypt, and Kenya. Assessment confirmed that the PE market in Nigeria was concentrated in large and mid-cap deals, with fewer than 12 percent of PE transactions involving SMEs with under N500 million in revenue. Investment ticket sizes below N100 million were rarely considered viable by most PE funds due to fixed transaction costs. The framework specifies a Nigerian SME PE Fund structure with blended public-private financing, standardised SME investment readiness assessment, graduated equity entry provisions, and exit pathway options including buyback and secondary market listing. Expert review by 10 investment specialists confirmed the framework's commercial viability. Recommendations include the Bank of Industry anchoring an SME PE Fund as a limited partner, NEPZA designating SME PE vehicles as qualified institutional investors, and establishing an SME PE network under the Securities and Exchange Commission to coordinate deal flow and investor relations.

Keywords: private equity, SME investment, Nigerian capital market, SME finance, investment framework