1 Relevant Authorities and Legislation

1.1 What regulates M&A?

The role played by regulatory agencies and institutions, as well as professional parties, in the M&A process is pivotal. Many legislations, institutional and regulatory agencies must be approached and their guidelines and requirements met before an M&A scheme can sail through in Nigeria.

These legislations include the Federal Competition and Consumer Protection Act, 2018 (FCCPA), the Investment and Securities Act, 2007 (ISA), the Companies and Allied Matters Act, 2020 (CAMA) and sector-specific regulations.

The institutional and regulatory agencies are the Federal Competition and Consumer Protection Commission (FCCPC), Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), Federal High Court of Nigeria (FHC), Nigerian Stock Exchange (NSE) and Corporate Affairs Commission (CAC).

1.2 Are there different rules for different types of company?

The rules and regulations governing M&A can differ depending on their industry and whether the companies involved are public or private; for instance, the Insurance Act (2003), the CBN Revised Operational Guidelines for Bureaux de Change (BDCs), and the Banks and Other Financial Institutions Act (2020), which require participants to seek applicable regulatory approval before entering into an M&A deal. Similarly, publicly quoted companies are subject to rules set by the SEC.

1.3 Are there special rules for foreign buyers?

In M&A deals involving foreign buyers, there are specific rules and regulations that foreign investors must consider. The regulatory environment is designed to ensure that foreign investments align with the country's economic policies, protect national interest and comply with existing laws. Regulations included under the Nigerian Investment Promotion Commission (NIPC) encourage foreign investors to register with the NIPC.

Under the FCCPC and Consumer Protection Commission Guidelines on foreign-foreign mergers, the FCCPC will oversee any change in control of a business, part of a business, or assets of a business in Nigeria that arises from the acquisition of shares or other assets outside the country.

1.4 Are there any special sector-related rules?

There is certain sector-specific legislation that regulate M&A schemes in Nigeria. These rules complement the major legislations governing M&A schemes. Specific sector-related rules apply in the oil and gas, telecommunication, banking, aviation, mining, insurance and energy sectors. 

For instance, the Department of Petroleum Resources (DPR) provides certain rules for companies involved in M&A in the oil and gas sector. M&A transactions involving banks and financial institutions are subject to the regulations of the CBN and Banks and Other Financial Institutions Act, 2020. The Nigerian Communications Commission (NCC) regulates M&A activities in the telecommunications sector. Companies involved in M&A in this industry must comply with NCC regulation and approval from the NCC may be required. Besides oil and gas, there are other parts of the energy sector, such as power generation and distribution. Regulatory bodies like the Nigerian Electricity Regulatory Commission (NERC) may have specific rules for M&A transactions within this sector.

Thorough due diligence is usually conducted to identify and ensure compliance with any sector-specific rules that may apply to the M&A deal.

1.5 What are the principal sources of liability?

M&A transactions in Nigeria can involve various sources of liability. The specific sources of liability can vary depending on factors such as the nature of the transaction, the industries involved and the conduct of the parties involved.

Some principal sources of liability arise from contractual obligations, existing litigation or claims on the target company, tax liabilities, financial misrepresentation and regulatory compliance.

2 Mechanics of Acquisition

2.1 What alternative means of acquisition are there?

Company acquisition refers to the takeover of an entity by another entity. There are diverse alternative means of acquisition, which include:

  • Merger: two businesses come together to form a new company through a merger. Both businesses may merge as equals and contribute to the new corporation, or one business may buy the other out.
  • Acquisition of assets: a buyer may decide to buy particular assets from the target company rather than the complete business. This could apply to technology, real estate, intellectual property (IP), or other valuable assets.
  • Purchase of stock: in a purchase of stock, the acquiring company acquires control and ownership of the target company by purchasing all or most of the shares of the target company
  • Hostile takeover: this transpires when the purchasing firm proceeds with the acquisition in opposition to the desires of the target company's board and management. This may entail obtaining the vast majority of the shares.
  • Leveraged buyouts (LBOs): in an LBO, a company is purchased with a sizable loan, frequently with the target firm's assets acting as collateral. Private equity firms frequently employ this strategy.
  • Joint venture: two businesses may decide to form a joint venture in place of a full purchase to create a new company that both of them would own. Through joint ventures, businesses can work together on particular initiatives or endeavours while keeping their unique identities.
  • Management buyouts (MBOs): an MBO is when a company's current management team purchases a majority stake in the enterprise, frequently with the aid of outside funding
  • Reverse merger: a reverse merger allows a private company to go public without having to go through the initial public offering process. This is done by a private company acquiring a public company.

2.2 What advisers do the parties need?

A number of strategic, financial, and legal factors must be taken into account during the acquisition process. Consequently, parties to an acquisition usually enlist the services of a group of expert advisors to help them navigate the process. The following important advisors could be involved in an acquisition:

Investment bankers and financial advisors/auditors

Financial advisors and investment bankers help organise the transaction, negotiate the financial terms, and offer financial advice on the target company's valuation. Additionally, they are essential in locating possible buyers or sellers, evaluating the target company's financial standing and financial statements, and carrying out due diligence on the business.

Attorney consultants

Attorneys specialising in corporate law offer legal counsel regarding deal structuring, contract drafting and negotiation, regulatory compliance, and risk management. They also undertake due diligence on the target company, investigating its directors' and shareholders' legal status, ensuring regulatory compliance, and identifying any potential or ongoing litigation or claims against the company.

Advisors on taxation

Tax advisors: tax advisors assist in structuring the transaction to minimise taxes by taking into account the tax implications for both the seller and the buyer. They also offer guidance on tax compliance and planning.

Industry experts: depending on the specifics of the acquisition, industry experts might be contacted to offer opinions regarding the marketplace and market trends.

Advisers on regulation and compliance

Regulatory Consultants: experts with experience in industry-specific rules and matters of compliance such as the SEC, FCCPC, federal inland revenue service, CAC and CBN, etc. can assist in navigating regulatory obstacles and guaranteeing that the acquisition conforms with legal standards.

2.3 How long does it take?

In Nigeria, the length of an acquisition process might vary greatly based on a number of variables. The length of time might vary depending on the intricacy of the deal, discussions, regulatory approvals, due diligence procedures, and other factors. Usually, there are multiple steps in the purchase process, each with a certain deadline. Here are a few broad things to think about:

Phase of preparation

This stage entails preliminary conversations, bargaining, and research.

Duration: A few weeks to a few months, based on the parties involved and the intricacy of the agreement.

Exercise due diligence

Due diligence is a process whereby the target and acquiring companies evaluate each other's operational, legal, financial, and other elements.

Duration: It can range from a few weeks to a few months, depending on the extent and depth of the due diligence.

Negotiation of terms

The acquisition price, terms, and any other pertinent agreements are negotiated by the parties.

Duration: depending on the intricacy and quantity of issues to be settled, negotiations may take from weeks to months.

Documentation and regulatory approval, completing other legal procedures, getting regulatory permissions, and drafting and finishing legal documentation

Duration: timelines for regulatory approval vary and it could take weeks or months to complete the documentation procedure. For instance, the timeline for the SEC approval for mergers varies from 10–12 weeks, while that of an acquisition varies from three to four months. Also, the FCCPC approvals timeline for a merger can range from one month to six months.

It is crucial to remember that the schedules listed above are only estimates, and that real times may differ depending on the particulars of each transaction.

2.4 What are the main hurdles?

  • Antitrust and regulatory compliance: in industries where concentration may give rise to competition issues, regulatory obstacles, such as antitrust approvals, can have a substantial impact on the timeframe and outcome of a merger. Securing some other regulatory approvals like that of the SEC and the CBN (where applicable) can also prove a hurdle.
  • Issues with due diligence: having trouble getting thorough and accurate data during due diligence might make it more difficult to evaluate the operational, legal, and financial stability of the target organisation.
  • Exercising due diligence can also take a lot of time and waiting for the required information can increase the slowness of the process.
  • Variations in valuation.
  • Differentiating valuation expectations: it might be difficult to come to a mutually agreeable purchase price when there are disagreements regarding the target company's valuation.
  • Concerns with contracts and law: unexpected legal problems; disagreements over contracts; or difficulties drafting and negotiating agreements can provide difficulties during an M&A process.

2.5 How much flexibility is there over deal terms and price?

In general, M&A transactions in Nigeria may allow for some degree of flexibility with regard to deal terms and price, but in order to reach mutually agreeable agreements that optimise value and reduce risks for all parties involved, parties must navigate regulatory requirements, market dynamics, and negotiation dynamics.

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Originally Published by International Comparative Legal Guides

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.