31 March 2023

Turnover And Control Considerations For Merger Clearance In Nigeria

Balogun Harold


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Balogun Harold is a specialist law firm for investment and financing transactions focused on Africa. We routinely undertake debt finance, private equity, project finance, venture capital, market entry and technology transactions on behalf of clients. We deliver proven, guaranteed and exceptional outcomes by always aiming for the best level of legal and transactional support necessary to achieve our clients' strategic goals.
In a recent mergers clearance filing, which we undertook and successfully concluded on behalf of a South African Power and Infrastructure Conglomerate, the FCCPC agreed with our pre-notification submissions ...
Nigeria Corporate/Commercial Law
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In a recent mergers clearance filing, which we undertook and successfully concluded on behalf of a South African Power and Infrastructure Conglomerate,1 the FCCPC2 agreed with our pre-notification submissions regarding the application of IFRS 10 towards the calculation of the relevant turnover. The object of the pre-notification submission, was to, amongst others, avoid double counting and to positively impact the amount payable as notification fees towards mergers clearance. Although, the subject mergers clearance was within the context of a strategic acquisition, in this update, we reflect on that engagement and highlight some of the most important points for strategic and financial investors to consider regarding the calculation of "turnover" and the legal concept of "control". The law summarised herein, is stated as of March 2023.

Which Banks & Private Equity/Venture Capital Firms are Exempted from Mergers Clearance under Section 92(3) of the FCCPA?

The key points to note, with respect to the calculation of "turnover" for mergers clearance purposes, are as follows:

  1. Mergers are notifiable where (1) the combined turnover of the buyer and the seller, in, into, or from Nigeria equals or is more N1,000,000,000 or where the annual turnover of a seller, in, into or from Nigeria equals to or exceeds N500,000,000.
  2. For mergers transactions by foreign entities with a "local component", the relevant turnover for the purpose of calculating the applicable notification fees, is the turnover based on, or attributable to the business of or in the local component(s) in Nigeria.
  3. For mergers transactions by Private Equity Firms, the relevant turnover, for the purpose of calculating the notification fees, is the combined turnover of the relevant fund and that of the seller/target company
  4. For the purpose of merger notification, the applicable turnover of a business is the turnover of the relevant business arising during the previous financial year.
  5. The legal meaning of "Turnover" includes
    • all monies actually received by a business from the sale of good and services in the relevant financial year
    • receivables due and payable to the business in the relevant financial year, either as cash or on accrual basis
    • any other monies received by a business not necessarily in exchange for goods and services, or as sales
    • equity contributions/investments, whether or not those equity contributions are deferred or convertible
    • any income received by a business on account of the use by another person of the assets of the business, including royalties, rent, dividends and interest paid or payable to the business
    • all amounts deductible as a matter of law3
    • if a business sells any of its assets at the end of the relevant financial year but before a merger notification, the FCCPC may factor in the turnover of such other "buyer"entity, in the definition of turnover.
    • Turnover calculations are expressed in Naira terms. The FCCPC expects that turnovers in foreign currencies will be converted into Nigerian Naira at the prevailing official exchange rate as determined by the Central Bank of Nigeria, as of the date of the accounts.
    • The turnover calculation summarised is applicable across all industry sectors
    • The calculation of turnover is generally expected to be consistent with accounting principles applicable in Nigeria
    • The amount payable as notification fees by parties to a mergers transaction is calculated as follows. The FCCPC will charge the higher of the amount calculated as payable based on the percentage formulas below4
    • Threshold Fees (consideration of transaction) Fees (last combined annual turnover)
      First ₦500 million (Five Hundred Million Naira) 0.45% 0.45%
      Next ₦500 million (Five Hundred Million Naira) 0.40% 0.40%
      Any sum thereafter 0.35% 0.35%

It is equally useful to note that the primary legal threshold for determining whether the purchase of a business constitutes a merger is the existence of a "control relationship" between the parties to a proposed transaction. Such control can be indirect or indirect. It is essential that if a transaction does raise merger control questions, that these are identified early.

The key points to note here are as follows:

  1. The evidence of "control" can manifest through (i) a purchase of the shares, assets or interests in another business (ii) a lease of the shares, assets or interests in another business (iii) a joint venture (d) an amalgamation or joint venture between a buyer and a seller.
  2. In relation to share acquisitions, a "control" of another business can also manifest whether or not a buyer proposes to purchase a majority[2] of the shares of another. In other words, a control relationship can exist even where a buyer intends to acquire a minority shareholding in a seller. For instance, if a buyer, who does not wish to acquire a majority of the shares of a seller, will at the close of the transaction have the contractual rights to (i) cast a majority of the votes that may be cast at a general meeting of the seller; (ii) control how the owners of the majority shares, exercise their voting rights, either directly or indirectly, the FCCPC will consider such buyer to have met the legal threshold for "control"and the proposed acquisition will fall within the regulatory remit of the FCCPC.
  3. A "control relationship" will also be deemed to exist where a buyer who intends to take a minority stake in a seller, (i) is able to appoint or to veto the appointment of a majority of the directors of the seller; (ii) is a holding company and the seller is a subsidiary of the buyer (iii) in the case of an undertaking that is a trust, the buyer has the ability to control, the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust; (iv) has the ability to materially influence the policy of the buyer in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of "control" as defined above.


1. Balogun Harold obtained an unconditional merger clearance on this transaction, which required merger clearance across multiple jurisdictions

2. FCCPC is Nigeria's merger control regulator

3. This requirement is concerning as it suggests that taxes paid are also counted as part of the turnover. Whereas, global practice suggests that the calculation of a turnover is typically net of any sales rebate, value added tax and other taxes directly related to that turnover

4. The following fees are additionally applicable: Application fees- ₦50,000 (Fifty Thousand Naira) per undertaking; Expedited procedure fee- ₦10,000,000 (Ten Million Naira). Application fee for negative clearance is ₦2,500,000 (Two Million Five Hundred Thousand Naira)

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.

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