In the economy of any nation, mergers and acquisition plays a very significant role. Financial Times has reported that worldwide, mergers and acquisitions activity has exceeded $3tn for the fourth consecutive year, extending an unprecedented wave of dealmaking that bankers say is set to accelerate in 2018. There are several means by which
a business may be combined. They may combine by a transfer or amalgamation of assets or shares, or both, or other interests held in those entities. The primary forms of business combinations in Nigeria are mergers, acquisitions, takeovers and external restructurings.
By Section 119 of the Investment and Securities Act a merger means any amalgamation of the undertakings or any party of the undertakings of two or more companies or the undertakings or part of the undertakings of one or more companies and one or more bodies corporate.
An acquisition, on the other hand, involves the purchase of most (if not all) of a company’s ownership stake in order to assume control of the target company.
A takeover is the acquisition by one company of sufficient shares in another company to give the acquiring company control over that other company.
- 2. The Main Laws Regulating Business Combination in Nigeria.
The Investment and Securities Act 2007 (the ISA)
- The Companies and Allied Matters Act Cap C20 Laws of the Federation of Nigeria (LFN) 2004 (the CAMA)
The Securities and Exchange Commission (the SEC) Rules 2013 (as amended), which are made by the Securities and exchange commission pursuant to the ISA (the SEC Rules); and
- He Nigerian Stock Exchange Rule Book 2015 (applicable to public companies listed
on the Nigerian Stock Exchange.)
i. Sector-specific legislations that apply to business combinations. These include:
- the Banks and other Financial Institutions Act Cap B3 LFN 2004 and the Procedures Manual for Applications for Bank Mergers/Take-overs 2004 issued by the Central Bank of Nigeria (applicable to the banking sector);
- the Insurance Act, Cap I18 LFN 2004 (applicable to the insurance sector);
- the Nigerian Communications Commission Act Cap N97 LFN 2004 and the NCC Competition Practices Regulations 2007 (applicable to the telecommunications sector);
- the Electric Power Sector Reform Act 2005 (applicable to the power sector);
- the National Broadcasting Commission Act Cap N11 LFN 2004 (applicable to the broadcasting sector); and
- the Department of Petroleum Resources Guidelines for obtaining Ministerial
Consent (2014) (applicable to the oil and gas sector).
ii. Governing Law
Typically, the transaction agreements are governed by Nigerian law but it is not uncommon for share purchase agreements and other transaction documents to be governed by foreign law. However, where parties elect to use foreign law, Nigerian courts have held that such choice of law must be real, genuine, bona fide, reasonable or consistent with public policy.
If a foreign law is chosen to govern transaction documents, advice should be sought from Nigerian counsel on possible treatment and recognition of such law by Nigerian courts.
3. Government influence
Outside competition law regulation and industry specific approvals for regulated entities, government agencies may not ordinarily influence or restrict business combinations.
However, in matters involving national defence or national security, the powers of the government are typically wide and peremptory and may be invoked to influence or restrict a business combination that could jeopardise national defence or security.
4. Cross-Border Transactions
The structure for cross-border transactions is no different from that of in-country transactions. However, certain laws and regulations are particularly relevant in the context of an investment by a non-Nigerian in a Nigerian company. Also, on such transactions, tax efficiency would (as in almost all cases) be a primary concern for investors.
The Nigerian Investment Promotion Commission Act Cap N117 LFN 2004 deals with investments in Nigeria. The CAMA will be relevant in the incorporation and operation of any Nigerian companies in furtherance of the business combination. The ISA and the SEC Rules require the registration of an investment by a foreigner in a public company with the SEC. The Foreign Exchange (Monitoring and Miscellaneous) Act Cap F34 LFN 2004 and the CBN Foreign Exchange Manual 2006 will be relevant in relation to importation and remittance of foreign capital, and other exchange control related issues and the provisions of the National Office for Technology Acquisition and Promotion Act Cap N62 LFN 2004 will be relevant for transactions that require repatriation of fees for intellectual property rights or technology transferred, or both.
Apart from the above, certain industries require compulsory participation in or control of such businesses by Nigerians, and these will ultimately be relevant to the structuring of cross-border transactions. These industries include oil and gas, maritime, aviation and wireless telegraphy.
5. Anti-Corruption and Sanctions
There is no specific law which deals with anti-corruption, anti-bribery and economic sanctions in connection with business combinations in Nigeria. There are, however, broad provisions on anti-corruption, anti-bribery and economic sanctions that could be applied to business combinations in the underlisted laws:
- the Corrupt Practices and Other Related Offences etc Act 2003;
- the Economic and Financial Crimes Commission (Establishment) Act 2004;
- the Money Laundering (Prohibition) Act 2011 (as amended);
- the Criminal Code Act Cap C38 LFN 2004; and
- the Miscellaneous Offences Act Cap M17 LFN 2004.
The general thrust of the above-listed laws is to criminalise any act that seeks to induce action or inaction on the part of government officials or third parties for an advantage. This would be particularly relevant to business combinations transactions where regulatory approvals are sought. The applicable sanctions would entail fines and imprisonment for
officers of the companies, possible liquidation of the company at the instance of the court in a winding-up petition.
Mergers and Acquisition appear to have evolved and to have been devised to address, or to at least mitigate potential exposure to current and emerging economic challenges. Certain transactions have utilized convertible note and convertible equity-link structures in preference to traditional acquisition signaling the increasing interest in low finance and
alternative capital structures.
There have been increased calls to pass into law the Federal Competition and Consumer Protection Bill in order to regulate M&A activities across sectors and also establish a Competition Authority and Tribunal aimed at resolving issues that emanate from the proposed bill. The proposed bill aims to render invalid any agreement which has the effect of preventing, restricting or distorting competition in any market. Also, there are sector specific reforms being proposed in the mining, agricultural and insurance sectors which are expected to encourage foreign direct investment and foreseeably, increase M&A collaborations within these sectors.
In the insurance sector, there are proposed plans by the Nigerian Insurance Commission to introduce recapitalisation requirements and a risk-based supervision model of underwriting policies by insurance companies. The primary feature of the policy is the redefinition of the nature of risks that can be underwritten by certain insurance companies and this would be assessed on the basis of capitalisation. Where implemented, business combinations will be impacted.
There are some macro-economic variables that are potential drivers for mergers and acquisition in Nigeria. Some of which are stable and high global commodity prices. Stable inflation regulatory changes and far-reaching public-sector reforms.
a. Sustained GDP Growth:
Nigeria aims to achieve a growth rate of 7 percent by the year 2020. This is according to its Economic Growth and Recovery Plan (EGRP). However, an analysis of the economy would reveal that that is a lofty goal. In the third quarter of 2017, Nigeria’s GDP was 1.4 per cent. We are not close to achieving the 2.2 per cent and 4.8 per cent in 2018. The reason for this
slow growth can be traced to strong reliance on oil. In 2010, according to the National Bureau of Statistics (NBS) Nigeria’s GDP reached 7.9 per cent with non-oil sector contributing the largest percentage.
b. Foreign Exchange Stability:
The Central Bank of Nigeria has been making efforts to ensure the stability of the Foreign Exchange Market. Recently, it injected 339.89 million dollars in the retail Secondary Intervention Sales (SMIS) segment.
The above may affect investors’ confidence.
7. Volume of M&A in Nigeria:
Global Transaction report obtained by Sweetcrude indicated that total M&A value in Nigeria and other African nations was $4.4 billion in 2017. The report predicted this rise to $4.5 billion in 2018, with deal value rising again in 2019 to $5.2 billion before dropping to $3.3 billion in 2020.
Herbert Smith Freehills in its overview of Mergers and Acquisitions in the African Market has noted that the slowdown in M&A activity across African markets, which became apparent in 216, has continued into 2017 with a 48 per cent drop in the number of inbound M&A deals, and an 83 per cent drop in deal value, compared to the equivalent period in
previous year. This slowdown is attributable to the interaction of a number of factors operating on a global and regional level. 8
On a different note, there has been a credit and foreign currency liquidity crisis in Nigeria that has led to investor apathy on account of uncertainty of repatriation of investments, complications arising in the valuation of foreign currency investments, and unwieldy fiscal policies and interventions. Perhaps it is useful to add that the crisis, being a spin-off of the
global decline in oil prices, led to significant divestments and demergers in the oil and gas industry. A number of operators in the oil and gas industry undertook divestments of their downstream and midstream businesses to facilitate focus on their core upstream operations.
In terms of the regulatory regime, the crisis partly informed an increased revenue drive of the government of Nigeria to shore up funds from various sources, and consequently, the Federal Inland Revenue Service and the SEC have in recent times taken steps to strictly enforce certain tax laws (such as the Stamp Duties Act) and regulatory fees applicable to
M&A activity against large corporates.
There is no overarching competition to govern mergers and acquisition in Nigeria. Competition regulation in Nigeria is mostly by way of merger control by the SEC.
This work has analysed mergers and acquisitions in Nigeria. It considers the regulatory framework of mergers and acquisition in Nigeria. It highlights the Investment and Securities Act, the Company and Allied Matters Act, the Securities and Exchange Commission Act. The work further analyses the major trends in mergers and acquisition in Nigeria, highlighting the challenges that abounds in mergers and acquisitions. The lack of a comprehensive legislation on competition law in Nigeria is a major issue in mergers and acquisition in Nigeria.