Egypt: Private M&A Comparative Guide

1 Deal structure

1.1 How are private M&A transactions typically structured in your jurisdiction?

The structure of private M&A deals in Egypt can vary based on the specific circumstances of:

• the transaction;
• the target; and
• the parties involved and their commercial objectives.

However, the common private M&A structure in Egypt is:

• the transfer of shares in joint stock companies; and
• the transfer of quotas in limited liability companies.

Also, other transaction structures can involve asset purchases or merger, which involves the consolidation of two or more companies into a single entity.

The acquisition of the shares of the target is a common approach in Egypt. Buyers purchase the shares from existing shareholders, resulting in a change of ownership and control of the entire company.

Asset purchases also allow buyers to acquire specific assets and liabilities of the target. This approach can be useful when buyers want to cherry-pick certain assets or avoid certain liabilities.

In Egypt, the key laws that govern private M&A transactions are:

• the Companies Law (159/1981) and its Executive Regulation, as amended;
• the Capital Market Law (95/1992) and its Executive Regulation, as amended;
• the Egyptian Exchange Regulations;
• the Financial Regulatory Authority Regulations; and
• the Competition Law (3/2005), and its Executive Regulation, as amended.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Each deal structure has its own pros and cons, with distinct benefits and challenges. The optimal choice depends on factors such as:

• strategic goals;
• financial considerations;
• industry dynamics;
• regulatory requirements;
• tax implications; and
• the preferences of the parties involved.

1.3 What factors commonly influence the choice of transaction structure?

The choice of transaction structure is usually decided based on factors such as:

• the target structure;
• the purpose and dynamics of the deal;
• the specific needs of each company/deal;
• the size of the transaction;
• international elements;
• competition matters; and
• regulations.

Key factors that influence deal structures generally include:

• local nationality restrictions applicable to certain activities (eg, imports and commercial agencies);
• the timing for the transfer of regulatory licences;
• employees and government contracts in asset deals;
• the timing for governmental approval on direct or indirect change of control, as required in certain industries or for concessions granted by the government; and
• the need to mitigate the effect of any unforeseen fluctuations in foreign exchange rates.

1.4 What specific considerations should be borne in mind where the sale is structured as an auction process?

Auction processes are concerned in particular industries, for example in the private equity industry, in government privatizations, or in large-value transactions or exploitation of natural resources.

Key considerations are:

• The identification of potential buyers, making a list of all interested buyers which the seller believes a qualified potential buyer.
• Requiring potential buyers to sign a Non-Disclosure Agreement (NDA) to keep all disclosed information secured. After signing the NDA, an information memorandum is disclosed to all potential buyers enclosing all detailed information about the target.
• For bank M&A, the Central Bank of Egypt (CBE) needs to be informed in advance.
• Depending on the circumstances, additional legal or regulatory prior consents may be required.

2 Initial steps

2.1 What agreements are typically entered into during the initial preparatory stage of a private M&A transaction?

During the initial preparatory stage of a private M&A transaction, various agreements and documents may be entered into in order to outline:

• the intentions and responsibilities of the parties; and
• the terms of the deal.

These agreements help to set the framework for the transaction and guide the subsequent steps.

The main agreements and documents include the following:

• Non-disclosure agreements (NDAs): An NDA is often one of the first agreements signed. It outlines the confidentiality obligations of the parties, ensuring that sensitive information shared during the exploration phase or due diligence remains in strict confidence and confidential.
• Letter of intent (LOI): An LOI expresses the preliminary terms and conditions of the proposed transaction. While not legally binding, it serves as a roadmap for further negotiations and due diligence.
• Exclusivity agreement or no-shop agreement: This agreement may restrict the seller from negotiating with other potential buyers for a specified period, giving the buyer a certain exclusivity period to conduct due diligence and negotiate the final deal.
• Term sheet: This document summarises the main terms of the transaction, providing a clear overview of:
• • the deal structure;
  • the purchase price;
  • the payment terms; and
  • other significant elements.
• Advisory engagement agreements: Agreements with legal, financial and other advisers outline the scope of their services, fees and responsibilities in guiding the parties through the transaction.

These agreements:

• help to establish a foundation for the M&A transaction; and
• provide a clear understanding of the parties' intentions and obligations.

The specific agreements entered into may vary based on:

• the unique circumstances of each deal; and
• the preferences of the parties involved.

2.2 Which advisers and stakeholders are typically involved in the initial preparatory stage of a private M&A transaction?

In the preparatory stage, several advisers and stakeholders are usually involved through the process, such as:

• the corporate executives and business owners who are the decision-makers within the target, who initiate the transaction and determine the strategic direction of the deal;
• legal advisers, financial advisers, accountants and financial due diligence specialists, industry experts and consultants, who may be engaged to provide insights into market trends, the competitive landscape and industry dynamics; and
• tax advisers, who provide guidance on the tax implications of the transaction, helping to structure the deal in a tax-efficient manner.

2.3 Can the seller pay adviser costs or is this limited by rules against financial assistance or similar?

Financial assistance is not common. Typically, each party incurs its own related advisory costs unless otherwise agreed between the parties.

3 Due diligence

3.1 What due diligence is typically conducted in private M&A transactions in your jurisdiction and how is it typically conducted?

In Egypt, a typical due diligence in private M&A transactions usually involves a comprehensive review and analysis of the target's legal, financial, tax, operational and commercial aspects. Legal due diligence will usually cover:

• corporate structure;
• regulatory compliance;
• contracts and commercial engagements;
• licences and permits;
• IP rights;
• labour and social security matters;
• litigation; and
• environmental matters.

There are two types of reports that can be prepared, depending on the client's request:

• a red-flag report; or
• a full due diligence report.

In light of the findings from the due diligence report, the share purchase agreement is drafted, negotiated and executed.

3.2 What key concerns and considerations should participants in private M&A transactions bear in mind in relation to due diligence?

As due diligence is a complex, detailed and time-sensitive yet critical task, it is essential to be prepared in order to organise an efficient due diligence process. Due diligence is an essential step in the M&A process, which helps to set expectations with regard to the opportunities and risks of the transaction. A non-disclosure agreement must be signed before any confidential information is shared. Considering the importance of the team working on the task, it is important to hire trustworthy and highly skilled firms to conduct the due diligence in order to:

• conduct a sufficient risk assessment;
• ensure legal, tax and financial compliance; and
• avoid future liabilities or unforeseen risks.

3.3 What kind of scope in relation to environmental, social and governance matters is typical in private M&A transactions?

In 2021, environmental, social, and governance (ESG) reporting regulations matters were introduced into the Egyptian legal landscape by the Financial Regulatory Authority (FRA). The FRA has passed Resolutions 107/2021 and 108/2021 requiring Egyptian Exchange-listed firms and non-banking financial services institutions to file annual ESG reports and to publicly disclose their performance each year. Further, the resolutions indicate the company's standards and key performance indicators for ESG matters.

These reforms should encourage companies to act more responsibly and ease the screening of potential investments by socially conscious investors when considering M&A transactions, regarding:

• environmental operations;
• carbon emissions;
• energy usage;
• water usage;
• waste management;
• gender diversity and pay ratio;
• non-discrimination;
• labour rights; and
• anti-corruption.

The FRA regulates and monitors these disclosure requirements.

4 Corporate and regulatory approvals

4.1 What kinds of corporate and regulatory approvals must be obtained for a private M&A transaction in your jurisdiction?

The transfer of unlisted shares in a joint stock company must be effected through the Egyptian Exchange (EGX). An authorised licensed broker must be designated to facilitate the transfer of shares, following the share transfer procedures outlined in both EGX and Financial Regulatory Authority (FRA) regulations.

. The consideration for the sale of shares must be deposited into a bank regulated by the Central Bank of Egypt (CBE) if:

• the value of the transaction exceeds EGP 100,000; or
• a party involved in the transaction is a foreign entity.

In addition to the basic approvals required in every M&A transaction, some regulations apply to transactions in specific industries requiring certain approvals. For example, any transaction valued at EGP 20 million or more requires:

• the prior approval of the EGX Pricing Committee; and
• notification of the FRA.

The General Authority for Investments (GAFI) must also be notified of the transaction otherwise, an EGP 50,000 fine may be imposed. The prior approval of the CBE is required if the company is governed by the banking legislation. Companies that engage in non-banking financial activities, such as fintech companies, require the FRA's approval. In fintech M&A transactions, the acquisition of a non-banking financial institution representing 10% or requires the prior approval of FRA.

For companies operating in the Sinai Peninsula, prior approval may be required from the Sinai Development Authority.

Approval from the Egyptian Competition Authority is required in transactions that entail a change in control or material influence that meet the thresholds stated in the Competition Law (please see question 9).

Further, other authorities may also be involved depending on the industry in which the target operates.

Other regulatory approvals include shareholders' signatures which reflect the target sale into the target's articles of association through the convening of an extraordinary general meeting ratified by GAFI.

4.2 Do any foreign ownership restrictions apply in your jurisdiction?

In the general sense, there are no foreign ownership restrictions. However, in some cases, foreign ownership restrictions apply to some sectors and industries, such as:

• commercial agency;
• real estate brokerage; and
• importation.

In the case of commercial agency activity, the company's share capital must be fully owned by Egyptian nationals.

With regard to import activity, 51% of the company's share capital must be fully owned by Egyptian nationals. However, a new draft law is approved by the Egyptian Cabinet aimed at easing the foreign ownership restrictions concerning import requirements by allowing foreign investors to be registered as importers for a term of up to 10 years, which can be extended by another 10-year term. It is still in its early days and we will need to see how it will be enacted in practice once it is finalised.

Also, it was recently made easier for foreigners to conduct business in Sinai pursuant to new amendments to Law 14/2012 allowing foreigners to own properties in certain areas of Sinai subject to specific approvals.

4.3 What other key concerns and considerations should participants in private M&A transactions bear in mind in relation to consents and approvals?

The transaction process must adhere to the Competition Law to avoid any fiscal penalties (please see question 9). Also, depending on the nature of the transaction, certain approvals may be required – for example, if the transaction is in the telecommunications industry, the prior approval of the National Communication Regulatory Authority must be obtained in relation to:

• the transfer of any licences;
• mergers; and
• changes to the shareholding structure.

5 Transaction documents

5.1 What documents are typically prepared for a private M&A transaction and who generally drafts them?

Please see question 2.1 for details of the preparatory stage agreements.

Additionally, the transaction documents for private M&A in Egypt include:

• the share purchase agreement;
• an escrow agreement; and
• a shareholders' agreement, if any.

For share transactions, additional documentation might be necessary as specified by the Egyptian Exchange during the sale process. An asset sale agreement encompasses all target assets, along with separate agreements for distinct asset types, which are executed before relevant governmental authorities.

Also, some ancillary agreements may be required depending on the transaction's specifics and nature, such as:

• employment agreements;
• non-compete agreements; and
• IP transfer agreements.

These documents are generally prepared by the lawyers of the parties involved after the parties have negotiated the main terms.

5.2 What key matters are covered in these documents?

When drafting any of the documents mentioned in question 5.1, the key matters that should be covered include:

• the purchase price;
• the payment schedule;
• any adjustments based on closing date conditions or post-closing adjustments;
• the process for transferring ownership of shares, including representations and warranties related to ownership and title;
• covenants covered by agreements and obligations that the parties must fulfil before and after closing, such as restrictions on the target's activities during the interim period;
• conditions precedent listing the conditions that must be satisfied before the transaction can be completed, such as regulatory approvals or shareholder consents; and
• any reserved matters.

5.3 On what basis is it decided which law will govern the relevant transaction documents?

Primarily, the governing law is chosen based on the type of transaction and is typically determined through negotiations between the parties involved. That said, certain aspects that may influence the choice of governing law concern the jurisdiction of the parties involved in the transaction, in terms of where they are located or incorporated. In an asset sale transaction, the physical location of the target's assets or business operations may play a role in determining the applicable law. In Egypt, the notarisation of asset sale documents by the competent authorities is necessary in order to perfect the asset sale transaction.

The choice of law is a strategic decision and should be carefully considered by both parties. The chosen law will impact on:

• the interpretation of the transaction documents;
• the enforceability of the contract; and
• any potential disputes that may arise.

6 Representations and warranties

6.1 What representations and warranties are typically included in the transaction documents and what do they typically cover?

Representations and warranties are assertions provided by the seller to the buyer representing and warranting that all statements in the transaction regarding the target's business, assets, liabilities and operations are true as of the closing date. The scope of these statements usually covers the following:

• The target has full legal authority and capacity to enter into and execute the transaction;
• The ownership of the shares or assets being sold is accurate and such shares/assets are free from any encumbrances;
• The target is validly existing, duly organised and in good standing under the applicable laws relevant to the transaction;
• The target is in compliance with all applicable laws, regulations and permits, and all necessary licences and permits required for its operations are valid and in good standing;
• There have been no material adverse changes in the target's business, financial condition or operations since a specified date;
• There are no pending or threatened legal or regulatory actions or claims against the target;
• The target is compliant and fully up to date with its tax obligations; and
• The target is not in breach of any material contracts and there are no undisclosed contractual obligations or commitments that could adversely affect the business.

6.2 What are the typical circumstances in which the buyer may seek a specific indemnity in the transaction documentation?

Common risks covered by indemnification provisions include:

• financial risks;
• operational risks;
• legal risks; and
• tax risks.

Indemnities involve specifying the amount and mechanism for the buyer to seek financial recourse if certain risks or liabilities materialise post-closing.

6.3 What remedies are available in case of breach and what is the statutory timeframe for bringing a claim? How do these timeframes differ from the market standard position in your jurisdiction?

The statute of limitations for any contractual obligation is generally stipulated in the Civil Code and lapses after 15 years unless otherwise determined by law. However, pursuant to the Trade Law (17/1999), the statute of limitations will be seven years for commercial obligations between commercial parties.

6.4 What limitations to liability under the transaction documents (including for representations, warranties and specific indemnities) typically apply?

The typical limitations that may apply are:

• a cap on liability;
• a de minimis threshold;
• a basket or deductible;
• fraud or wilful misconduct;
• no double recovery;
• certain specific exclusions; and
• third-party claims.

6.5 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

In Egypt, warranty and indemnity insurance is rarely observed. Also, this will depend on the nature of the transaction and the parties involved.

6.6 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

Financial due diligence may include a thorough examination of the seller's:

• financial statements;
• assets;
• liabilities; and
• overall financial health.

A portion of the purchase price may be withheld for a specified period after closing. Also, warranties play a crucial role in this case.

6.7 Do sellers in your jurisdiction often include restrictive covenants in the transaction documents? What timeframes are generally thought to be enforceable?

The restrictive covenants that are commonly incorporated in a transaction include:

• non-compete covenants;
• non-solicitation covenants; and
• non-disclosure covenants.

The timeframe normally ranges from two to five years.

6.8 Where there is a gap between signing and closing, is it common to include conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

During the interim period between signing and closing, certain conditions to closing may include:

• obtaining necessary regulatory approvals, third-party consents and financing arrangements; and
• ensuring compliance with specified covenants.

The inclusion of these conditions helps to manage the risks associated with the period between signing and closing, during which unexpected events may impact the transaction. It will not always be possible for the buyer to reject closing the transaction upon the occurrence of a MAC. However, depending on the transaction and industry norms, some clear measurable financial parameters may be set, meaning that the target declines by a certain number of percentage points.

6.9 What other conditions precedent are typically included in the transaction documents?

• Shareholder and/or board approvals;
• Regulatory approvals;
• Environmental clearances;
• Title and ownership of assets;
• Tax matters;
• Labour matters;
• Material contracts; and
• Compliance with covenants.

7 Financing

7.1 What types of consideration are typically offered in private M&A transactions in your jurisdiction?

There are no restrictions on the type of consideration; this will depend on the deal in place. However, the type of consideration that is most commonly used in practice in Egypt is cash.

7.2 What are the key differences and potential advantages and disadvantages of the various types of consideration?

The pros and cons of cash and equity are as follows:

• Cash:
• • Advantages: It provides immediate liquidity to the seller; simplifies the transaction process; and reduces exposure to the buyer's financial performance post-closing.
  • Disadvantages: It may require the buyer to secure financing, potentially leading to delays or additional costs that could cause the buyer to miss out on a potential future higher value.
• Equity:
• • Advantages: It allows the seller to share in the future success of the combined entity, aligning interests with the buyer; and can facilitate a strategic partnership between buyer and seller.
  • Disadvantages: The seller's future returns depend on the buyer's performance; there may be a potential dilution of value if the buyer's stock is issued to other parties; and regulatory approvals may be required.

7.3 What factors commonly influence the choice of consideration?

The choice of consideration is usually influenced by:

• the parties' financial position and liquidity;
• the valuation of the target and purchase price;
• risk allocation; and
• the long-term objectives of the parties.

7.4 How is the price mechanism typically agreed between the seller and the buyer? Is a locked-box structure or completion accounts structure more common?

The choice of price structure can vary based on factors such as:

• industry norms;
• negotiation dynamics;
• deal complexity; and
• the parties' preferences.

Both structures have been used in private M&A; however, completion accounts are more commonly used in Egypt.

7.5 Is the price typically paid in full on closing or are deferred payment arrangements common?

The choice between full payment on closing and deferred payment arrangements will depend on factors such as the parties':

• financial capabilities;
• respective risk tolerance; and
• assessment of the target's future performance.

In practice, consideration is paid in its entirety. Nevertheless, depending on the size and complexity of the deal, part cash on closing and part deferred payment arrangements may be achieved.

7.6 Where a deferred payment/earn-out payment is used, what typical protections are sought by sellers (eg, post-completion veto rights)?

Earn-outs are not commonly used.

7.7 Do any rules on financial assistance apply in your jurisdiction, and what are their implications for private M&A transactions?

There are no general limitations on financial assistance, except where specific restrictions have been imposed by law. Banks that are officially registered with the Central Bank of Egypt (CBE) can extend acquisition funding, with an upper limit of 50% of the acquisition value. Nonetheless, under Egyptian law, companies are prohibited from extending loans for the fulfilment of obligations relating to their board members.

7.8 What other key concerns and considerations should participants in private M&A transactions bear in mind from a financing perspective?

Certain regulatory approvals may be required – for example, prior approval from the CBE is required by financing banks. A proposal must be submitted to the Financial Regulatory Authority confirming the availability of finances to cover the offer from a licensed bank.

8 Deal process

8.1 How does the deal process typically unfold? What are the key milestones?

For unlisted Egyptian joint stock companies, the transfer of shares is perfected before the Egyptian Exchange (EGX) through a licensed broker in compliance with the EGX and Financial Regulatory Authority regulations concerning the transfer of ownership of shares. The consideration for the sale of shares must be deposited into a bank regulated by the Central Bank of Egypt if:

• the value of the transaction exceeds EGP 100,000; or
• a party involved in the transfer is a foreign entity.

If the purchase price is above EGP 20 million, the review and approval of the EGX Pricing Committee is mandatory.

With regard to the transfer of quotas in a limited liability company, the transfer of quotas is perfected through official or unofficial agreement and annotated in the quota holders' ledger.

8.2 What documents are typically signed on closing? How does this typically take place?

• The share purchase agreement;
• All other required EGX documents to perfect the deal;
• All board resolutions and consents; and
• Any ancillary agreements relating to the transaction (eg, escrow agreement, non-compete agreement).

8.3 In case of a share deal, what is the process for transferring title to shares to the buyer?

Please see question 8.1.

8.4 Post-closing, can the seller and/or its advisers be held liable for misleading statements, misrepresentation, omissions or similar?

Yes, post-closing, the seller and its advisers can potentially be held liable for misleading statements, misrepresentations or omissions. However, the extent of this liability and the ability to bring a claim will depend on various factors, such as:

• the representations and warranties provided regarding the target;
• the scope of the indemnification clauses; and
• local laws and regulations governing the transaction, if applicable.

8.5 What are the typical post-closing steps that need to be taken into consideration?

Typical post-closing steps that may be considered to facilitate a smooth transition and successful integration of the target may include:

• integration planning and execution;
• employee transition contracts and communication;
• financial integration;
• legal and regulatory compliance;
• contract and agreement review;
• brand transition; and
• other business-related issues.

9 Competition

9.1 What competition rules apply to private M&A transactions in your jurisdiction?

The Competition Law (3/2005) and its Executive Regulations, including Amendment Law 175/2022, aims to:

• promote market competition; and
• deter anti-competitive practices as a result of M&As.

9.2 What key concerns and considerations should participants in private M&A transactions bear in mind from a competition perspective?

Amendment Law 174/2022 introduced a pre-merger control mechanism giving the Egyptian Competition Authority (ECA) the power to review and approve M&As before they can be signed. A transaction leading to an economic concentration that reaches a certain financial threshold will require the prior approval of the ECA. The relevant thresholds are as follows:

• The total annual turnover or consolidated assets of the relevant entities in Egypt exceeded EGP 900 million in the preceding fiscal year, if the annual turnover in Egypt of at least two of the parties individually exceeded EGP 200 million in the latest approved consolidated financial statements for the preceding fiscal year; or
• The annual turnover or accumulated worldwide assets of the parties collectively exceeded EGP 7.5 billion in the last fiscal year, if the annual turnover in Egypt of at least one of the parties in the latest consolidated financial statements exceeded EGP 200 million.

Failure to comply with the above rules may result in a fine of between 1% and 10% of the total annual turnover, assets or value of the transaction of the economic concentration, whichever is highest pursuant to the last consolidated financial statement. Otherwise, a fine of between EGP 30 million and EGP 500 million may be imposed.

10 Employment

10.1 What employee consultation rules apply to private M&A transactions in your jurisdiction?

The Labour Law (12/2003) governs relationships between employers and employees, with the aim of protecting employees. The law does not require any employee consultation or approval rule in the case of M&A transactions, but it does restrict any workforce changes during the process.

10.2 What transfer rules apply to private M&A transactions in your jurisdiction?

The process differs depending on whether the transaction is an acquisition of assets or shares. However, in all cases the employees continue their employment with the target.

10.3 What other protections do employees enjoy in the case of a private M&A transaction in your jurisdiction?

Shared liability for the satisfaction of employee rights is imposed between the former and new employer, in order to protect employees. According to the Labour Law, they are "responsible jointly for implementing all obligations arising from employment contracts".

10.4 What is the impact of a private M&A transaction on any pension scheme of the seller?

The benefits, pensions, acquired rights and other entitlements of the target's employees remain unaffected by the change in shareholding. The status of employees remains unchanged unless otherwise agreed by the parties to the contract.

10.5 What considerations should be made to ensure there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target?

The following steps should be taken to ensure that there are no concerns regarding the potential misclassification of employee status for any individual associated with the target:

• Conduct thorough due diligence on contracts and roles;
• Clearly define classification criteria and roles;
• Review and update contracts regularly; and
• Address misclassifications promptly if identified.

Discussing the status and employment of future employees in the deal is important in order to avoid violating the rights of the target's current employees.

10.6 What other key concerns and considerations should participants in private M&A transactions bear in mind from an employment perspective?

In acquisitions, downsizing usually occurs; therefore, it should be ensured that:

• there are no concerns regarding employee status; and
• the deal includes clauses aimed at protecting current employees of the target.

Compliance with the Labour Law is essential to avoid any violations.

11 Data protection

11.1 What key data protection rules apply to private M&A transactions in your jurisdiction?

The Private Data Protection Law (151/2020) (PDPL) is the key law in private M&A deals that involve companies which process data. The PDPL:

• safeguards the personal data of individuals; and
• prohibits the collection, processing or transfer of personal data without the data subjects' explicit prior consent.

11.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from a data protection perspective?

Compliance with the PDPL is necessary to avoid any liabilities.

In data-driven M&A transactions, it is essential to conduct thorough due diligence in order to:

• identify and assess any data protection risks associated with the target's data processing activities and data security measures; and
• ensure compliance with data protection regulations.

12 Environment

12.1 Who bears liability for the clean-up of contaminated sites? How is liability apportioned as between the buyer and the seller in case of private M&A transactions?

According to the ‘polluter pays' principle, the polluter bears liability for the clean-up of contaminated sites. In the case of multiple polluters, this liability may also be shared in proportion to their action or inaction. Liability for cleaning up contamination is criminal, meaning that it is personal and cannot be transferred from one person to another. Hence, if the contamination happened before the acquisition, the liability rests with the seller; while if it happens after closing, the buyer bears the liability.

The Egyptian Environmental Affairs Agency (EEAA) oversees environmental matters, including pollution and contamination issues. EEAA regulations and directives provide guidance on addressing environmental liabilities.

In private M&A transactions, the allocation of liability for the clean-up of contaminated sites is typically negotiated and addressed in the share purchase agreement. The buyer and seller can agree on how environmental liabilities and potential clean-up costs will be allocated between them. Allocation of liability may involve representations, warranties, indemnities and other contractual provisions that specify which party will be responsible for addressing environmental issues discovered post-acquisition.

Due diligence is crucial in identifying potential environmental liabilities and assessing the associated risks, which can inform the negotiations between the parties.

12.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from an environmental perspective?

Key environmental concerns include the risk of the EEAA suspending the target's activities or shutting down sites in case of a failure to remedy contamination. It is thus essential to ensure compliance with the Environmental Law (4/1994). Further, environmental due diligence and the documentation of environmental issues and sites of the target are also necessary.

13 Tax

13.1 What taxes are payable on private M&A transactions in your jurisdiction? Do any exemptions apply?

The taxes that are payable will differ based on the type of transaction involved, whether an asset sale or a shares sale. Capital gains tax is levied on the sale of shares or assets at a rate of 22.5% and is born by the seller. A 10% withholding tax is imposed on dividend distributions paid by a non-listed Egyptian companies. Value-added tax applies at a rate of 14% in the event of the sale of an asset. Stamp duty is also imposed at a rate of 0.05% for the unlisted sale of shares.

Egypt is a signatory to double tax treaties (DTT) with more than 50 countries. The application of a DTT in a cross-border transaction may result in a reduction in or exemption from the above-mentioned taxes.

13.2 What other strategies are available to participants in a private M&A transaction to minimise their tax exposure?

It is always advisable that the Parties to the transaction shall have their tax advisors/consultants to guide them through the transaction deal from a tax a perspective.

13.3 Is tax consolidation of corporate groups permitted in your jurisdiction? Can group companies transfer losses between each other for tax purposes?

In Egypt, each company within a group of companies is regarded as a separate legal entity. The Egyptian Tax Law does not permit tax consolidation. Hence, within the same company group, individual entities are not able to allocate profits and losses in order to minimise tax exposure.

13.4 What other key concerns and considerations should participants in private M&A transactions bear in mind from a tax perspective?

Please see 13.1.

14 Trends and predictions

14.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

M&A deal volumes in the Middle East and North Africa (MENA) region in 2023 have decreased by 20% compared to 2022. However, the market remains active and there is strong interest in the Egyptian market, especially from the Gulf Cooperation Council states (GCC) and from companies keen to expand into emerging markets. In general, the MENA region is a strong market for M&A activity compared to other parts of the world. Also, Egypt is considered the most active start-up M&A market in Africa.

The Egyptian market has recently seen numerous M&A deals, both private and public, across diverse industries. Activity in the technology sector is robust, with a considerable number of deals taking place recently. Other notable sectors include:

• healthcare, with a specific focus on telemedicine and remote pharmacies;
• the retail and consumer market; and
• the fintech and financial services sectors.

14.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

In a bid to attract increased foreign direct investment, Egypt has proposed new amendments to the Investment Law (72/2017) through Law 160/2023 addressing:

• exemptions for the implementation of infrastructure and utilities; and
• monetary incentives for projects that are funded in foreign currency.

Further, in line with the digital transformation strategy, in July 2023 the Central Bank of Egypt issued the regulatory framework for licensing of e-banks in Egypt.

15 Tips and traps

15.1 What are your top tips for the smooth closing of private M&A transactions and what potential sticking points would you highlight?

The smooth closing of private M&A transactions requires:

• careful planning;
• effective communication; and
• meticulous attention to detail.

Our top tips for smooth closing include:

• clear communication;
• detailed due diligence;
• well-defined agreements to mitigate any potential risks or misunderstandings;
• regulatory compliance;
• timing and sequencing; and
• escrow arrangements.

Potential sticking points to watch out for include:

• regulatory approvals;
• financing;
• shareholder approvals and third-party consents; and
• currency fluctuations.

By proactively addressing these potential sticking points and following best practices, participants in private M&A transactions can increase the likelihood of a smooth closing and the successful integration of the acquired business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.