Guide to Mergers and Acquisitions in Nigeria

Although mergers and acquisitions are common in developed nations, they have only recently gained popularity in Nigeria, particularly in the banking sector. 

Before the consolidation in 2013, Nigerian banks did not fully embrace mergers and acquisitions as expected due to, among other things, their cultural backgrounds regarding asset ownership, greed, shame, fear of what people will think, and a lack of the necessary proficiency. 

In September 2013, under Sanusi Lamido Sanusi’s tenure as the Central Bank’s governor, the issue of mergers and acquisitions in the banking sector was commonly raised. The CBN introduced measures aimed at overhauling the entire banking sector, this saw weaker banks pressured to merge with larger ones for survival.

This article looks into Mergers and Acquisitions in Nigeria and the basic terms that guide its practice.

Terms in Merger and Acquisition

Acquisition

An acquisition is simply the full or partial purchase of a business. Depending on a variety of factors, an acquisition could involve either shares or assets. 

The company that owns the assets is not sold as part of a deal when assets are acquired. The main benefit of the acquisition is that, in most cases, liabilities attached to the company stay with it and are not transferred to the buyer. 

Both cash and non-cash considerations can be used to complete acquisitions. The important thing to remember is that an acquisition is a commercial transaction, and like other commercial transactions, parties to an acquisition seek trade-offs that may involve cash or other non-cash considerations.

Mergers

Simply put, a merger is the combination of two businesses or companies. At the close of the transaction, this combination could create one entity, keep the two existing entities, or create three entities. It should be made clear that no term or idea used in business transactions is ever so rigid.

Terms keep changing in line with the inventiveness of the parties to the contract. Therefore, even though a “merger” typically refers to two businesses coming together to form one, two parties can combine by exchanging stock at a predetermined valuation while maintaining their separate business operations and/or brand identities.

A merger technically may not involve the exchange of shares. Subject to the Federal Competitions and Consumer Protection Act, a simple agreement between two companies to combine the operations of their business units to consolidate market share or to purchase supplies as one unit may qualify as a merger and be subject to regulatory approval.

Takeover 

Takeover simply refers to the acquisition of publicly traded stock. In layman’s terms, publicly traded shares are taken over rather than acquired. Takeover only applies to publicly traded shares, as opposed to an acquisition, which only applies to privately held shares.

Consequently, the Investment and Securities Act of 2007 of Nigeria’s Section 133(4) expressly states that a takeover bid may never be made when the shares being acquired are those of a private company. This demonstrates that shares that are privately held cannot, in a strict sense, be the target of a takeover.

Unlike an acquisition which typically takes place through negotiations between the private company’s shareholders and the prospective buyer(s), following which a share purchase agreement is signed and the prospective buyer takes over management of the business. In a takeover, the buyer is unable to easily negotiate with the shareholders, who are probably numerous and dispersed all over the world. As a result, negotiations with the public company’s management are usually conducted before the buyer makes an offer to buy its shares, at which point the management makes the offer to the shareholders. If the offer is approved by the shareholders, the buyers will pay the shareholders and take their shares, transferring ownership of the business to them.

Regulators of Merger and Acquisition transactions in Nigeria

The Federal Competition and Consumer Protection Commission (FCCPC), the Securities and Exchange Commission, and occasionally industry-specific regulators with oversight responsibilities over the transaction parties are in charge of overseeing the Nigerian Merger and Acquisition market. 

1. The Federal Competition and Consumer Protection Commission (FCCPC)

The FCCPC now has extensive authority to regulate mergers and to impose strict penalties on any company or undertaking that abuses its dominant position in any industry or sector in Nigeria after the FCCPC was established as the country’s highest federal competition regulator. 

The FCCPC continues to be the main regulatory body in Nigeria for employers. It was created by the Federal Competition and Consumer Protection Act of 2018 (FCCPA), which transferred merger review and approval authority and repealed some provisions of the Investment and Security Act of 2007.

Parties to a merger are required by the FCCPC to inform it of any proposed transactions that are likely to result in a change of control and to provide sufficient information to allow the Commission to assess whether the merger will create a monopoly or an anti-competitive market. 

Typically, the FCCPC takes the lead in ensuring a smooth procedure for merging parties to obtain approval or clearance. This includes regularly publishing rules, directives, and updates to the aforementioned whenever possible or required. The Commission launched a merger notification portal in October 2021 to expedite the merger application and review process.

2. Securities and Exchange Commission (SEC)

The Investments and Securities Act, 2007, which governs the SEC, was previously Nigeria’s main law governing mergers and acquisitions. 

The SEC still has the authority to control the following Merger and Acquisition transactions relating to any merger, acquisition, or business combination involving acquisitions of shares, assets, businesses, or subsidiaries of a public company; any divestment of a controlling stake (valued at 15% or more of the company’s total assets); and any corporate restructuring by a public company (including any carve-out). 

The FCCPC has assumed primary responsibility for sanctioning merger transactions.

3. Central Bank of Nigeria (CBN)

The CBN has the power to regulate mergers and acquisition transactions involving banks or other financial institutions.

4. Federal High Court

The Court sanctions transactions relating to mergers and acquisitions in Nigeria.

5. Corporate Affairs Commission (CAC)

The CAC is the body possessing all records of filing for the merger.

Conclusion

Merger and Acquisition transactions in Nigeria are gaining momentum. Nonetheless, the impact of transactions in the industry is expected by experts to drop following concerns over regulatory bureaucracy.

Frequently Asked Questions (FAQs)