Rescuing a Listed Capital Markets Operator: Lessons from a Private Equity Investment in a Distressed Nigerian Public Company

Private equity investment in a distressed company is never just a capital injection. In a regulated, listed public company, it is a legal, governance and regulatory reconstruction exercise. I recently advised on a transaction involving a Nigerian Exchange (NGX) listed capital markets operator (CMO) undergoing recapitalization through the subscription of new shares by a private equity sponsor acquiring control. The structure was documented through a heavily engineered Share Subscription Agreement (SSA) designed not merely to invest, but to stabilize, cleanse and future-proof the business.

This article distils the legal architecture behind that structure and what sophisticated investors must get right when stepping into a distressed listed entity.

1. Control Acquisition through Recapitalization — not Secondary Purchase
Rather than acquire existing shares, the PE investor subscribed for newly issued ordinary shares to reach a minimum 55% controlling stake post-Completion.

This approach achieved three things simultaneously:
• Immediate recapitalization of the company’s balance sheet
• Economic control aligned with capital injection
• Regulatory transparency under the Investments and Securities Act and NGX Rules

However, control acquisition in a listed company is rarely straightforward. The transaction was structured subject to a “Regulatory Solution” — a term deliberately defined to capture a SEC-approved control pathway.

In distressed listed companies, regulatory choreography is as critical as commercial negotiation.

2. Regulatory Hard-Wiring: SEC, NGX and FCCPC Alignment
The transaction expressly recognized:
• Change of control implications under capital markets regulation
• Mandatory offer and takeover triggers
• Merger control thresholds under competition law

Completion was conditioned upon:
• SEC confirmation of the regulatory pathway
• NGX approvals and market disclosures
• FCCPC clearance (where applicable)
• Restoration and validation of the Company’s CMO licences by SEC.

Critically, regulatory compliance was not treated as a mere condition precedent. It was hard-wired into ongoing covenants, including:
• Prohibition on structuring around takeover rules
• Standstill compliance under competition law
• Anti-market abuse and insider dealing safeguards

In distressed PE investments in regulated institutions, regulatory risk must be ring-fenced both before and after Completion.

3. Escrow as a Risk-Containment Instrument
Subscription funds were paid into a segregated escrow account pending satisfaction of all regulatory approvals and corporate actions.

Release mechanics required:
• SEC and NGX approvals
• FCCPC clearance (or non-notifiability confirmation)
• Shareholder resolutions
• Confirmation of valid licensing status
• Governance reconstitution

The escrow framework also allowed:
• Partial release if a mandatory tender offer was required
• Retention of funds to secure indemnities
• Post-Completion survival for unresolved litigation

Escrow, in this context, functioned not merely as a payment mechanism, but as regulatory and litigation insurance.

4. Director-Level Risk Allocation — Personal Indemnity Architecture
One of the most significant features of the SSA was the imposition of:
• Personal warranties from each Director
• Joint and several liability
• Litigation disclosure undertakings
• A high-value liability backstop threshold

If undisclosed litigation, regulatory proceedings or contingent liabilities crystallized within 18 months post-Completion and exceeded an agreed monetary threshold, Directors were personally liable.

In distressed transactions, reliance solely on corporate warranties is commercially naive. Personal accountability shifts disclosure discipline and recalibrates behavioral incentives.

5. Anti-Leakage and Value Preservation Controls
From signing until completion (and in certain respects beyond), the Company and its Directors were prohibited from:
• Declaring dividends or bonus payments
• Entering related-party transactions
• Settling litigation without consent
• Negotiating side restructurings with creditors
• Extracting value in any form

Any breach constituted “Leakage” and triggered Naira-for-Naira repayment obligations.

In distressed scenarios, the period between signing and completion is often the most vulnerable. Anti-leakage protections are not cosmetic, they are existential.

6. Governance Reconstitution: Control Is Not Merely Shareholding
Post-Completion governance reflected the investor’s control position:
• Majority board nomination rights
• Investor-controlled committees (Audit & Risk; Investment & Strategy; Remuneration)
• Reserved matters across capital, debt, litigation, regulatory matters and senior management
• Information rights extending to regulatory correspondence and litigation reports

No material action could be taken without Investor consent.

In distressed PE transactions, governance is not an afterthought, it is the stabilization mechanism.

7. Exit Engineering in a Listed Company
Because the target was already publicly listed, the exit strategy was framed around:
• Block trades and accelerated bookbuilds
• Takeover bids or schemes of arrangement
• Strategic or trade sales

The agreement embedded:
• Drag-along mechanics
• Absolute cooperation covenants
• Long-stop liquidity triggers
• IRR-protected exit fallback

Even in a rescue context, exit discipline must be embedded from day one.

8. Lessons for Private Equity Investors
Investing in a distressed regulated company is fundamentally different from investing in a healthy private enterprise.

The legal architecture must:
1. Separate pre-completion misconduct from post-signing risk
2. Preserve indemnity rights without diluting them through overbroad MAC clauses
3. Align regulatory approvals with personal liability
4. Protect capital through escrow and clawback mechanics
5. Engineer exit pathways even within an existing public listing

Private equity in distress is not opportunism; it is structured risk absorption backed by contractual discipline.

Closing Reflections
Nigeria’s capital markets are evolving, and distress within regulated public corporates requires credible sponsors willing to recapitalize and rebuild. However, the rule of law must travel with the capital.

Well-structured subscription agreements in this context do more than close transactions — they restore governance, regulatory confidence and market stability.

For investors considering entry into distressed public or regulated entities, the message is simple: capital alone does not rescue a company, legal architecture does.