Deal Summary
Africa Capital Alliance (ACA), through its $570 million Cape IV Fund, recently sold shares worth ₦19.8 billion in Aradel Holdings Plc (Aradel) following the company's Listing by Introduction on the Nigerian Stock Exchange (NGX) in mid-October 2024. Executed over three days (October 13 – 15), ACA sold over 24.7 million shares at an average price of ₦802.99 per share. This sale was conducted at a premium to Aradel’s listing price of ₦702.69. ACA initially invested in Aradel in 2016, providing an $80 million convertible loan during a period of low global oil prices and local production disruptions. This loan was converted to equity in 2021, positioning ACA as the company’s largest shareholder.
Aradel operates as a fully integrated energy company in Nigeria, with activities spanning the upstream, midstream, and downstream segments of the oil & gas value chain, as well as in power and renewables. Its key asset, the OML
Deal Rationale
Aradel’s recent public listing offers enhanced liquidity and price transparency, potentially allowing ACA to achieve greater capital gains from its investment. Previously, Aradel performed impressively on the NASD, with share prices rising from ₦197.78 at the start of 2023 to a high of ₦9867.38 by September 2024. To leverage the NGX’s increased liquidity, Aradel undertook a 20:1 stock split, raising its outstanding shares to 433,844,360 and lowering its share price to ₦464.95. This partial share sale enables ACA to realise a portion of its returns amid a general slowdown in private equity exits. Furthermore, by selling a small portion of its stake on the open market, ACA enhances liquidity for Aradel’s newly listed shares, likely boosting investor confidence and supporting future capital-raising efforts. The public listing also serves as a case study for NGX listings as an effective liquidity solution and exit mechanism for private equity investments in Nigeria. ACA’s prior successes on NGX, notably with MTN Nigeria, having invested in the company through its Cape I, Cape II, and Cape III funds, reinforce this strategy.
- Market Opportunity: With ACA remaining the largest shareholder in Aradel, it stands to benefit from the company’s future growth, particularly as Aradel expands its footprint across the Nigerian energy landscape. As ACA’s largest oil and gas investment, Aradel’s recent acquisition of the Olo and Olo West marginal fields represents a key growth catalyst, potentially increasing production by up to 5,000 barrels per day. Nigeria’s domestic demand for refined petroleum products, which exceeds 450,000 barrels per day, positions Aradel to capture significant market share in a space where local supply has historically fallen short, ensuring both revenue growth and investment returns for ACA. Further, Aradel has demonstrated robust financial performance in recent years, nearly sevenfold, increasing its revenue and tripling its profits from 2020 to 2023. As of the nine months ending 2024, net profits have already doubled compared to the full year of 2023. As Nigeria’s largest oil and gas company on the NGX by market capitalisation, Aradel has a solid foundation to explore renewable energy initiatives aligned with the Nigerian government’s goal of achieving 20% renewable energy by 2030. This dual focus on traditional and renewable energy sources aligns Aradel’s expansion strategy with global ESG priorities, creating diversified avenues for growth and resilience against sector volatility.
- Risk/Return Analysis: While Aradel’s market positioning presents considerable opportunity, key risks include oil price volatility and regulatory uncertainties. Global oil price fluctuations can impact Aradel’s revenue significantly, as its reliance on upstream production makes it sensitive to changes in market prices. A drop in oil prices could result in a notable decrease in revenue, affecting overall profitability. Additionally, regulatory risks are pronounced in Nigeria’s energy sector, as seen in the Nigerian Upstream Petroleum Regulatory Commission’s recent rejection of Shell’s $1.3 billion onshore asset sale involving Aradel. Such regulatory barriers could limit Aradel’s future acquisition opportunities and slow down expansion efforts. Operational challenges, particularly security issues in the Niger Delta, also pose risks to Aradel’s output. The region has seen high rates of vandalism and theft, contributing to production losses across the industry. For Aradel, these disruptions could lead to significant annual revenue losses, underscoring the need for robust security measures and infrastructure resilience. However, Aradel’s integrated operations across upstream, midstream, and downstream segments provide a buffer against these risks. By diversifying revenue sources, particularly through its mini-refinery operations, Aradel mitigates some exposure to upstream price volatility. Additionally, with the NGX listing, Aradel will have greater access to capital, which can support investments in security, infrastructure, and expansion into renewable energy—strengthening its overall risk-return profile.
About the Fund Manager
Africa Capital Alliance Limited (ACA) is a pan-African investment firm founded in 1997, with offices in Mauritius, Nigeria, and Ghana. The firm specialises in middle-market, later-stage, and growth capital investments in small and medium-sized enterprises. ACA primarily targets sectors such as oil and gas, electric services, technology, export-oriented manufacturing, and agribusiness, with a particular focus on West Africa and the Gulf of Guinea, especially Nigeria. Its portfolio includes notable companies like Aradel, Food Concepts, and Global Accelerex. ACA typically makes investments ranging from $1 million to $60 million, taking equity stakes between 25% and over 50% and often securing board representation with substantial minority or majority rights. With five funds to date, including its current C.A.P.E IV Fund, ACA has accumulated over $1.1 billion in assets under management, delivering private equity, asset management, and real estate management services through its subsidiaries.
