Mergers and acquisitions (M&A) are strategic tools for companies looking to expand their market presence, diversify operations, or achieve operational efficiencies. In Nigeria, the M&A process involves careful planning, due diligence, negotiation, regulatory compliance, and post-merger integration. Completing this process calls for an understanding of the legal requirements as well as the specific regulations that apply to your business.
Key regulatory bodies guiding M&A in Nigeria include the Federal Competition and Consumer Protection Commission (FCCPC), the Securities and Exchange Commission (SEC), and other sector-specific regulators like the Central Bank of Nigeria (CBN), National Insurance Commission (NAICOM), or National Pension Commission (PenCom). Additionally, companies must adhere to the Companies and Allied Matters Act (CAMA) to ensure legal compliance throughout the transaction.
In this article, we highlight the guidelines for the M&A process in Nigeria. But first, let us examine mergers and acquisitions.
Overview of Mergers
A merger refers to the amalgamation or combination of the undertakings, assets, liabilities, or interests of two or more companies. In practical terms, a merger involves the fusion or joining together of the businesses, clients, capital base, intellectual property, debts, and overall operations of the entities involved.
In many cases, a merger leads to the dissolution of the original companies, with all assets and liabilities transferred to a newly formed entity that represents the combined interests of the merging parties. This new entity becomes the legal successor to the merging companies, assuming all rights, obligations, contractual relationships, and regulatory responsibilities.
Companies usually merge because they want to grow, reduce competition, cut costs, work more efficiently, or expand into new areas.
Overview of Acquisition
An acquisition occurs when one company purchases a controlling interest either through the purchase of shares or the acquisition of substantial assets of another company. Through this purchase, the acquiring company obtains control and management rights over the target company.
Unlike a merger, an acquisition does not always require the creation of a new entity. The acquired company may retain its legal identity, brand, and operational structure but operate as a subsidiary or business unit of the acquiring firm. In other situations, the acquiring company may fully integrate the target into its operations, leading to the eventual dissolution of the acquired entity.
Acquisitions may also take the form of a takeover, which can be either friendly or hostile. A friendly takeover occurs with the full cooperation and approval of the target company’s board and shareholders. In contrast, a hostile takeover happens when the acquiring company seeks to obtain control despite resistance or lack of consent from the target’s management and board.
Companies often acquire other businesses for strategic expansion, enter new markets, gain useful technology or skilled workers, stay competitive, or obtain important assets that help their business succeed.
Procedures for Mergers and Acquisitions in Nigeria
1. Preliminary Planning and Target Identification
The first step in any M&A is to define the reason for the strategic merger or acquisition. The objectives may include expanding market share, diversifying into new products or services, achieving economies of scale, or acquiring new technology or talent.
Once objectives are defined, companies must research potential targets that align with their goals. This involves analyzing financial performance, market position, operational capabilities, and cultural fit. A well-chosen target forms the foundation for a successful merger or acquisition.
2. Due Diligence
Conduct a thorough review of the target company’s financial, operational, and legal records. This includes assessing its assets and liabilities, reviewing contracts, evaluating human resources, and analyzing business processes to uncover risks and potential synergies.
A comprehensive examination is important to ensure that the target company complies with Nigerian laws, including Company regulations, tax obligations, employment regulations, and sector-specific rules. Any non-compliance may pose risks or affect the transaction structure.
3. Negotiation and Structuring
Negotiations cover the purchase price, payment method, warranties, representations, and post-merger/acquisition roles. A clear understanding of these terms protects both parties and reduces potential disputes.
The transaction structure is influenced by legal, financial, and tax considerations. It can involve acquiring the target company’s shares, purchasing specific assets, or forming a joint venture or strategic alliance.
4. Corporate and Regulatory Approvals
To proceed with a transaction, corporate approval must be obtained from the boards of directors and, where necessary, the shareholders of both companies. The specific approvals required depend on the transaction’s size, type, and industry. Large mergers that could affect market competition may need approval from the Federal Competition and Consumer Protection Commission (FCCPC).
Transactions involving publicly listed companies require approval from the Securities and Exchange Commission (SEC) to protect investors. Additionally, industry-specific regulators, like the Central Bank of Nigeria (CBN) for financial institutions or the National Insurance Commission (NAICOM) for insurance companies, may also need to approve the transaction.
5. Documentation
Relevant corporate, financial, and legal documents must be compiled and submitted to support the merger process. These documents include the following:
- Merger Plan: A detailed document explaining the purpose of the merger, strategic objectives, and supporting market analysis.
- Minutes of Meetings: Official records of board or shareholder meetings where the merger was discussed, including resolutions and approvals granted.
- Business Plans: The most recent business and operational plans of both entities, including growth strategies and financial projections.
- Financial Statements: Audited financial reports for the past two years from each company to show financial performance and stability.
- Market Analysis Reports: Surveys, studies, or assessments conducted within the last two years that evaluate industry conditions, competitive dynamics, and market growth potential.
- Legal Documentation: Relevant corporate and transactional records, including Memorandum and Articles of Association (Memart), Certificates of Incorporation, and any other documentation.
6. Execution and Closing
Once the above requirements have been met, a definitive M&A agreement will be prepared to formalize all negotiated terms, warranties, covenants, and responsibilities of the parties. The closing of the transaction occurs after all required conditions, such as regulatory approvals, financing arrangements, and shareholder consents, are satisfied.
7. Post-Merger Integration
A successful M&A requires integrating people, technology, and operations. This often means blending different company cultures, unifying systems, and standardizing policies.
After the merger, it’s important to track the financial performance, operational efficiency, and regulatory compliance. Regular monitoring helps ensure that the new organization meets its strategic goals and stays on the right side of the law.
Conclusion
In summary, mergers and acquisitions are powerful strategies for growth, but their success depends on careful planning, seamless integration, and ongoing oversight. By effectively aligning people, processes, and technology, while monitoring financial performance and regulatory compliance, companies can achieve strategic objectives and create lasting value for stakeholders.
The process of merger and acquisition can be complex. It is highly advisable to work with a competent law firm to guide you through each stage of the M&A process with clarity and due diligence.
Leave a Reply