Some sector specific rules and laws as well as regulatory authorities relevant to M&As include:

Investment activities in the Nigerian M&A market remain active, especially in the financial, oil and gas sectors. In the DealMakers Africa Q3 2024 issue, it was estimated the value of M&As in Nigeria in the first nine (9) months in 2024 to be about USD3,800,000,000 (Three Billion, Eight Hundred Million United States Dollars), the second highest figure in Africa after South Africa. This is a small decline from what was reported in the year 2023. In addition, private equity investment and exit still suffer a slowdown. This may be due to the continual hike in the CBN’s Monetary Policy Rate in Nigeria, among others.

Active sectors recently are the financial services, oil and gas, technology, Fast Moving Consumer Goods (“FMCG”) and health sectors. Increasing activity in the financial sector can be linked to the Central Bank of Nigeria’s circular released on March 28, 2024, mandating an upward review of the minimum share capital of banks at different levels on or before March 31, 2026. This has resulted in banks embarking on public offers of equity, private placements, and rights issuances to enable them to meet the revised share capital requirement.

Similarly, the Nigerian oil and gas sector have witnessed high value divestments and acquisitions. One of the most recent being the divestment by Shell International B.V. of its interests in Shell Petroleum Development Company of Nigeria to Renaissance Africa Energy Company for approximately USD2.4bn (which we acted as Nigerian Counsel to the Seller). The healthcare technology and financial technology sectors are also other key areas of investment, driven by growing awareness of infrastructure gaps and the use of technology in addressing these deficiencies. The Nigerian technology and FMCG have also in recent times had a fair share of mergers and acquisitions. In 2024, the economy witnessed startups merging as well as acquiring businesses to better position themselves in the market. We have also had significant activity in the FMCG sector, with businesses diversifying, among others. Some of these acquisitions/divestments include Tolaram Group’s acquisition of Diageo’s 58.06% stake in Guinness Nigeria Plc (which we also advised on), OmniRetail acquisition of Traction Apps, Google’s indirect acquisition through the African Development Partners (ADP) III fund of interest in Moniepoint Incorporated, amongst others.

In the next two (2) years, three (3) important factors that may influence M&A activity include: (i) Environmental, Social, and Governance (“ESG”) considerations; (ii) technological disruption; and (iii) macroeconomics concerns.

ESG consideration is fast gaining traction as a key driver in corporate decision making. There are investors interested in evaluating the level of compliance with ESG requirements by a target while making investment decisions.

Further, technological disruption impacts supply which may result in new prospecting businesses and outdating some existing businesses. A company with a large client base may consider merging with a startup with technology resources to be able to stay innovative and respond to changing market conditions.

In addition, macroeconomics concerns due to market volatility play a key role in influencing M&A activity.  Factors such as exchange rates and currency fluctuations, interests’ rates, government policies and regulations, and consumer trends are crucial in estimating return on investment due to the economic condition of the country where a proposed investment will be made. For example, we have in recent times witnessed increased activities in the banking sector following the CBN’s new capitalization requirement for banks.  This has resulted in an increased number of rights issues by banks to meet this new minimum capital requirement. Providus Bank Ltd. also recently announced its merger with Unity Bank Plc, with the approval of the CBN.

Acquiring equity interest in a publicly traded company can be achieved through an acquisition, a merger, a takeover, private placement, or a scheme of arrangement. Common procedures to these forms of acquisition include:

1. conducting financial and legal due diligence exercise on the target company;
2. passing relevant resolutions by respective parties, approving the transaction;
3. notification to the exchange on which the shares are listed.
4. obtention of regulatory approvals from Nigeria anti-trust agency, Federal Competition and Consumer Protection Commission, and applicable sector-specific approvals. For companies operating in the financial services sector, the approval of the CBN and not that of the FCCPC will be obtained;
5. negotiate transaction documents;
6. fulfillment of condition precedents to the transaction by parties;
7. transaction completion obligations; and
8. implementation of post completion obligations, including filings.

All company records filed with the CAC, including the constitutional documents, the shareholding and directorship details, details of any registered charge are public information accessible at the Nigerian companies’ registry, CAC.

In addition, public companies are required by law to put on their website’s information such as the audited financial statement, announcements, circulars, and reports. Listed companies will also have on the exchange, details such as the company’s profiles, details of members of the board of directors, financial statements and other disclosures made to the exchange, where such public company is quoted on the exchange.

During acquisition, disclosure of information by the target to the potential acquirer is a commercial arrangement between parties and not a regulatory matter. Depending on the nature of the target and the transaction, the potential acquirer may elect to proceed with a post-audit arrangement. To protect the interest of the proposed acquirer, comprehensive representations and warranties are usually extracted from the target company and/or the selling shareholders (as the case may be) in the transaction documentation, while the target/selling shareholders) may limit its exposure through a disclosure letter setting out general and specific disclosures by the target.

The scope of a due diligence exercise is usually determined by the nature of the transaction, the sector the target operates in and the transaction structure. For instance, during an asset sale, due diligence may focus on the title of the seller to the assets, whether there are any rights and outstanding obligations tied to the assets sought to be sold, the physical status of the assets through inspections, intellectual property evaluations, review of the contracts relating to the assets, and financial performance of intangible assets, among others. On the other hand, a share sale will require a more comprehensive investigation of the Company’s affairs including corporate information, material contracts, level of regulatory compliance, assets, taxation, insurance, and litigation, among others.

A tax due diligence will focus on confirming the extent of compliance by the target company with statutory obligations in respect of payment and remittance of taxes, levies and contributions. Tax compliance is traced to a period of six (6) years to the transaction date. This is because tax assessment for a financial year by the tax authority becomes statute barred upon the lapse of six (6) years. This limitation, however, does not apply where there is proof of fraud, willful default, or neglect by the target.

In a vendor due diligence, what is essential is an examination by the seller of the target’s business and assets before commencing the transaction to uncover any risks requiring  remedy. A buyer due diligence conducted by the buyer on the target company may be more in-depth and will require a more thorough assessment as it will enable the buyer to access the risks associated with the transaction, negotiate representations and warranties, and value the target.

A company can make corporate decisions through its directors and shareholders. The approval rights of shareholders depend primarily on the type of deal structure adopted. A business combination undertaken by a scheme of arrangement requires the approval of not less than three quarters by value of the shareholders of the relevant company, present and voting at the court-ordered meeting convened to approve the scheme.

However, in the case of a tender offer for public companies, the approval of the shareholders is obtained on a one-on-one basis through the acceptance by each shareholder of the offer in the tender offer bid. Under the ISA, to fully implement a 100% tender offer and acquire the shares of all the shareholders through a squeeze-out, the offeror must have received at least 90% acceptance from the shareholders to whom the offer was made.

CAMA has introduced certain restrictions with respect to the transfer of assets. By a combined reading of sections 342(2) and 22(2)(a) of CAMA, a company can by the provisions of its articles set out the approval required for the execution of “major asset transactions” (namely, transactions outside the ordinary course of business, representing 50% or more of the book value of the company’s assets). Such transactions can either be effected by a unanimous shareholders’ approval, the approval of shareholders holding 75% of the voting rights or by a simple majority of the shareholders.

Section 22(2) of CAMA which impacts only private companies also vest additional approval rights in shareholders by way of a right of first offering (“ROFO”). The import of the ROFO is that: (i) no shareholder acting alone; or (ii) shareholder(s) holding more than 50% of the shares of the company acting jointly, shall in the case of (i) sell its shares to a third party without first offering it to the existing shareholders or in the case of (ii) sell its/their shares to a third party unless such third party has offered to buy all the shares of all existing shareholders on the same terms.

Other forms of approval rights available to shareholders can also be drawn from the shareholders agreement. By the shareholders’ agreement, the shareholders can set out certain matters that would require a certain threshold of approval. These matters are usually referred to as “reserved matters” and there is typically a threshold for approval by shareholders, in most cases 75% by value. Such reserved matters can include: the company disposing an asset exceeding a particular amount, the company disposing a part of its business, the company modifying the rights attached to shares, making changes to the board, among others. The list is inexhaustive and dependent on the agreement between the shareholders.

Directors owe a fiduciary duty to the company to act in its best interest. Other duties of directors to a company (including the target) include duty:

1. to act at all times in the best interest of the company as a faithful, diligent, careful and ordinarily skillful director would act in the circumstances;
2. take necessary prompt steps, in the case of a public company, to address an event of serious loss of capital by the company;
3. make necessary disclosures, including disclosing any personal interest or conflict of interest in a transaction, multiple directorship and in the case of a public company, the age of the director if at least 70 years old;
4. advancing the company’s business and preserving its assets;
5. not to make any secret profits or undue benefits while performing their duties;
6. not to misuse corporate information for personal benefits; and
7. not to fetter the discretion to vote in a particular way.

In addition, corporate governance codes made by regulators set out additional specific duties of directors serving as executive directors, independent non-executive directors, and non-executive directors.

In relation to a tender offer, directors must do all things reasonably necessary to ensure that particulars with respect to the proposed payment and the amount are included in or sent with any notice of the offer dispatched to the shareholders. Further, under the ISA, directors also owe obligations to the shareholders in a tender offer, upon receipt of the tender documents, to send a circular to each shareholder of the company and to the SEC at least seven (7) days before the date on which the tender offer is to take effect. Directors are also statutorily required to disclose certain information in the prospectus such as information relating to the company’s proprietorship, management, capital requirement, among others. The directors may incur liability for failure to disclose or a misrepresentation of any disclosed information except where there is a justifiable reason for the non-compliance. (section 73 ISA)

Controlling shareholders on the other hand typically owe the general duty to act in a fair and equitable manner. Accordingly, controlling shareholders must give regard to minority shareholders and must not act in a way that perpetuates fraud or injustice of the minority.

Generally, there are no specific approval, consultation or other rights vested by law in employees or other stakeholders before undertaking an M&A or making similar business decisions. Nevertheless, an employee may be informed and/or consulted if the employment contract specifically vests on the employee such rights. Clauses like this are unusual and if at all, may apply to employees holding management positions.

However, for asset sale and purchase transactions, where “workers” (being manual or clerical employees), within the definition of the Labour Act 1971 will be transferred from the seller to the buyer pursuant to the sale, their consent must each be sought and obtained before the transfer of employment is effected.

Notably, part of the considerations by the Federal Competition and Consumer Protection Commission (“FCCPC”) during notification for mergers and acquisition is the impact of the transaction on employment. The merging parties are required to notify the employees’ representative of the transaction and file evidence of the notification with the FCCPC.

Other stakeholders with certain approval or consultation rights are the regulators and the creditors of a company. Creditors may insert in facility and borrowing agreements negative clauses requiring the consent of the creditor before change of ownership. In addition, regulators, especially sector specific regulators, will mandate by law that their approval be obtained before a change of ownership crosses a particular threshold. Examples of such sector specific regulators include the: NUPRC, NMDPRA, NCC, NCAA, NERC, among others.

This will depend on the nature of the transaction and the extent of disclosure made by the seller during due diligence. Parties are at liberty to set their own pre-conditions and post-conditions. The law (especially regulations from agencies) also imposes pre-conditions that the parties must adhere to. In practice, the most common pre-conditions are regulatory approvals, corporate approvals, financing and third-party (or previous lenders) approvals. Post-conditions may include post completion compliance update (such as updating the company’s register and making the necessary filings).

The acquirer can enter into an exclusivity agreement with the target company or insert an exclusivity clause in the transaction implementation agreement, memorandum of agreement, or any other similar document to the effect that during an agreed period, the target company or the seller will not engage another potential buyer regarding the said transaction.

Other deal protection and cost coverage mechanisms acquirers may employ include entering into arrangements or agreements including any of the following in the purchase documentation:

1. a breakup fee clause to compensate an acquirer for the time and resources spent, payable in the event the seller backs out of the deal or causes a default before transaction completion. This is particularly where the acquirer is in a strong bargaining position;
2. interim period covenants and change of control clauses to make any change in control of the target a triggering event which requires the acquirer’s prior consent or entitling the acquirer to either terminate or claim some other contractually stipulated benefit;
3. elaborate and extensive representation and warranties (on the target, its operations, regulatory compliance as well as the seller’s title to the shares being sold), covenants and indemnity provisions in the sale and purchase agreement or subscription agreement (as the case may be). These are given to protect the acquirer against losses that may be suffered by buyer/acquirer in the event that information disclosed is false or inaccurate.

In addition, a retention escrow amount may be negotiated by the acquirer to offset any legacy liabilities in the target. This protects the acquirer in the event of any legacy liabilities arising post-completion of the transaction.

For a less than 100% acquisition, an acquirer can negotiate and include in the shareholders’ agreement provisions on drag along right, tag along right, and right of first refusal to deal with events of exit. To ensure management and control of the target, negotiations can include the right to appoint key officers and provisions ensuring that the quorum for meetings is only met with the presence of the designated representative(s) of the buyer.

An acquirer can also use non-compete provisions to protect the  target’s business. This is typically done by including clauses that restrict the seller(s) from engaging in a competing business for a specified period.

Parties are generally at liberty to agree terms regarding consideration. The law allows cash payment and other forms of valuable consideration other than cash. The commonest form is consideration by cash. Where a public company issues shares and the parties agree to employ valuable consideration other than cash, the law requires that the value of the consideration be determined by an independent valuer.

Other types of obtainable considerations other than cash include share swap, debt assumptions, earnout instruments, and convertible securities. Parties can agree on one type or a combination of more than one form of consideration.

The relevant disclosures to be made are usually determined not only by level of ownership but also by the deal structure adopted by the parties, the size of the deal and whether the transaction would involve a change of control.

Where an acquisition will result in a direct or indirect change of control of the target company and subject to meeting the prescribed turnover threshold, whether any of the parties is foreign or not, a disclosure must be made with the Federal Competition and Consumer Protection Commission (FCCPC) with a view to obtaining merger control approval.

Acquisitions involving a public company will require the approval of the Securities and Exchange Commission (SEC) upon disclosing necessary details about the transaction. This is, however, subject to certain exceptions that include: (1) where the shares of the public company are not issued as consideration for the acquisition; and (2) divestments below 15% of the total assets of the public companies, or of assets or liabilities (or both) that do not constitute a business line of the company.

Where a tender offer is triggered for public companies, the parties would be required to disclose to the SEC in order to obtain authorization to proceed with the tender offer; and approval of the bid document and its registration. Also, the intention to make the tender offer must be advertised in at least two (2) national daily newspapers and on the company’s website, and announced on the floor of the exchange on which the company’s shares are listed or its securities are traded.

By section 119 CAMA, where there is an acquisition of at least five percent (5%) shareholding of the shares or voting rights of a private or public company, whether directly or indirectly, the acquirer is required to inform the company within seven (7) days of holding such equity stake, consequent to which the company will notify the CAC of such ownership within one (1) month from the date of receipt of the information. In the case of a public company, the company will give notice to the CAC within fourteen (14) days of receipt from the shareholder.

The securities exchange where the shares of a public company are listed may also have specific provisions on disclosure. The NGX requires public companies listed on it to provide notification of change in beneficial ownership of at least five percent (5%) of the shares of the company. In addition, transactions that may affect the company’s financial condition must be disclosed to the NGX immediately within ten (10) business days after the transaction.

Further, some sector-specific legislation often requires the disclosure of the acquisition of a substantial interest in a company. Some of these include: (i) the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks in Nigeria 2023 which requires that the CBN’s prior approval and no objection be first sought and obtained before the acquisition of shares of a bank that would result in equity holding of five per cent (5%) and above, by any investor; (ii) the Revised Market Conduct and Business Practice Guidelines for Insurance and Reinsurance Companies 2024 stipulate that any acquisition of less than 10% of the shares of an insurance company requires prior notification to NAICOM, while acquisitions of more than 10% of the shares require NAICOM’s no objection and approval before the transaction is completed; and (iii) the Nigerian Communication Commission Licensing Regulations, 2019 which prescribes that a transfer of more than 10% of the shares of a telecommunications company requires the prior approval of the NCC.

During negotiations, where a disclosure is required, whether to the public directly or a regulator, such disclosures are made typically, prior to consummation of the transaction. Under the FCCPC regulations for instance, non-disclosure to the FCCPC by the transaction parties where required is considered as “gun jumping” and may attract penalties from the FCCPC. Also, companies listed on the NGX are required to immediately disclose to investors and market through the NGX, price-sensitive information, such as information around the giving or receiving of notices of intention to make a takeover, acquisition, merger, tender offer or divestments.

There is generally no statutorily prescribed maximum period for negotiations or due diligence. This is a commercial arrangement for parties to agree on. However, in special circumstances, regulatory authorities may prescribe a timeframe for transaction completion after obtaining that regulator’s approval.

Generally, there is no stipulated time period under any applicable law to complete a transaction from the date of announcement of same. However, where the transaction is statutorily required to be undertaken, a regulatory authority may provide a time period for completion of the transaction.

Parties may agree on the minimum threshold for the consideration payable for the transaction. For instance, a convertible debt instrument may set the conversion ratio and the minimum conversion price when outstanding debts are converted into equity. In addition, where there is an exercise of pre-emptive right or the right of first refusal, it is usual that the shares are not offered at a price lower than what is offered to the existing shareholders.

Also, in the event of a tender offer, the price of the shares must equal the amount or price offered to the majority shareholders.

Notably, for subscriptions, companies are prohibited from issuing shares at a discount, that is below the face value.

Generally, a company and its subsidiaries are prohibited from rendering financial assistance directly or indirectly to any person for the purpose of the acquisition of the shares of the company. This assistance could be in the form of a gift, guarantee, security or indemnity, loan or any form of credit. Financial assistance is, however, only prohibited where the net assets of the company are reduced by up to 50% or completely by the assistance.

Exemptions to this general rule include:

1. where the company carries on lending business and has lent a sum to enable an acquisition;
2. payment for fully paid shares in a company or its holding company to be held by or for the benefit of employees, including salaried directors, pursuant to a scheme;
3. provision of loans to employees (excluding directors) to acquire fully-paid shares in the company or its holding company;
4. authorized financial assistance by law, including distribution of assets as dividends, distributions during winding-up, allotment of bonus shares, court-approved capital reductions, or redemption or purchase of shares;
5. actions pursuant to court-approved schemes, such as arrangements, mergers, or restructuring; and
6. assistance incidental to a larger purpose of the company and in good faith in the company’s interest, not primarily to aid the share acquisition.

A private company is permitted to provide financial assistance for acquiring its own shares or those of its holding private company if approved by its shareholders by a special resolution and there is a statutory declaration to this effect by the directors. In addition, such financial assistance by the private company must not reduce the company’s net assets and must be provided from the company’s distributable profits.

Parties are allowed by contract to determine applicable governing law and specify this in the transaction documents. Notwithstanding, Nigerian law will govern the administration and management of the target company. Further, target companies are regulated by their articles of association as well as the provisions of CAMA. The articles of association must comply with the provisions of CAMA. In the event of a conflict between the provisions of the articles of association and any transaction document, the provisions of the articles of association will prevail.

Documents filed with the SEC during the acquisition of a public company containing details of the acquirer include (i) board and shareholders resolutions of the acquirer approving the transaction, (ii) letter of consent by the acquirer to the transaction, (iii) corporate documents such as the Memorandum and Articles of Association and certificate of incorporation of the acquirer and (iv) any other applicable documentation required by law, depending on the nature and structure of the acquisition.

For merger/competition filings, the FCCPC also requires the parties to a merger to provide copies of the contracts to be exchanged between the parties and through which the transaction will be implemented. Such contractual documents include the share purchase agreement, asset purchase agreement, share subscription agreement, and other relevant transaction documentation.

Parties usually enter a share purchase agreement to document share transfer and agree elaborate provisions governing parties’ rights and obligations. In the case of a partial transfer, a new Shareholders Agreement may be drafted to regulate shareholders’ relationship upon completion. Side letters can also be entered to provide for parts of the transaction which may apply to different sets of parties. Stamp duty is payable on the share purchase agreement at an ad valorem rate of 1.5% of the total consideration for the share transfer. To manage stamp duty exposure, share transfer forms (rather than an elaborate share purchase agreement) may be used to effect the sale of the shares since stamp duty is not charged on share transfer forms.

Filing documents with the CAC are (i) duly executed share transfer form, (ii) board resolution of the target company approving the share transfer, and (iii) means of identification of the new shareholder.

Capital gains tax (“CGT”) at the rate of 10% is generally payable on gains from the transfer of the shares except where:

1. the proceeds are reinvested to acquire shares in a Nigerian company within the relevant year of assessment. CGT will be payable on the portion of the proceeds not so reinvested;
2. the proceeds are less than NGN100,000,000 in any twelve (12) consecutive months; or
3. the shares are transferred between an approved borrower and lender in a regulated securities lending transaction made pursuant to the Securities and Exchange Commission Rules 2013 (as amended).

By law, evidence of payment of CGT is a precondition for the change of ownership in the transferred shares.

Hostile acquisitions are not prevalent in Nigeria although not prohibited.

The directors of a target company facing a hostile takeover may explore mechanisms such as (i) a staggered board – staggering the number of openings available on the board directorship at once, (ii) break-through rule or dual class recapitalizations – to create different classes of shares to keep control of the target company in the hands of selected group of shareholders, (iii) standstill agreements – to allocate for a period the right to nominate a board member for appointment, and (iv) golden parachute defence – to give directors benefits and severance packages with significant cost implications in case the company gets acquired and their appointment is terminated.

For public companies, management of a target company can undertake several mechanisms to resist a hostile tender offer. The directors may, through the circular they are required to issue to shareholders in a tender offer, provide recommendations that will discourage shareholders from accepting the tender offer. Further, where the acceptance of the shareholders is below 90%, the offeror will not be able to trigger the squeeze-out provisions under the Investments and Securities Act 2007 (ISA). Also, under Rule 445(3)(g) of the Rules and Regulations of the Securities and Exchange Commission, dissenting shareholders may, where they constitute at least 50% of the shareholders of a company, state in writing that they would not accept a mandatory tender offer.

This applies to public companies. Where a shareholder (alone or in concert with others) acquires between 30% and 50% voting rights in the company, the shareholder must make a takeover offer. An exemption from making a takeover bid can be made to the SEC where (i) there are less than twenty shareholders representing 60% of the members of the target company, (ii) the acquisition that should trigger the takeover was made through private placement, (iii) the effect of the acquisition was disclosed to the acquirer in a prospectus published during an initial public offer, (iv) there is a conversion of convertible securities approved by the shareholders of the target company, (v) an individual or entity holds shares of more than fifty percent (50%) of the outstanding votes, or (vi) shareholders holding at least fifty percent (50%) of the outstanding votes indicate in writing intention not to accept the takeover bid.

Minority shareholders enjoy rights and protections preserved by law for their protection. These include, among others, protection against oppressive and unfairly prejudicial conducts. Also, minority shareholders have the right to petition the court for the winding up of a company on just and equitable grounds. They also enjoy the right to receive information and inspect the records of the company. In addition, shareholder agreements usually contain reserved matters which will ensure that the minority shareholders’ concurrence is obtained to approve certain matters depending on the bargaining power of the minority shareholders.

Acquisition of at least 90% of the shares of a company will entitle the acquirer to exercise a squeeze-out of the shares of dissenting shareholders. Also, where there is a drag-long clause in a shareholders’ agreement and it is triggered, this will give the majority shareholder a right to drag the minority shareholder to compulsorily sell its shares along with that of a majority shareholder to a prospective acquirer.