Introduction
Mergers and Acquisitions (M&A) play a crucial and strategic role in enabling companies to drive growth, foster innovation, and sustain a competitive edge. In Nigeria, a growing number of businesses are restructuring and consolidating their assets and resources through mergers and acquisitions, with the aim of expanding their market share and complying with recapitalization requirements set by industry regulators.
In this newsletter, we highlight the potential for M&A in Nigeria necessitated by the ongoing recapitalization in the country's banking, insurance and finance sectors while advocating for observance of data governance practices in M&A deals.
A. REGULATORY REFORMS DRIVING M&A IN NIGERIA
Sector regulatory reforms often drive M&A as companies respond to changes in policies. Such reforms can create new compliance requirements and open opportunities that prompt businesses to merge for strategic alignment and regulatory compliance.
The CBN in its March 28, 2024 circular announced an upward review of the minimum capital requirements of banks in Nigeria, mandating banks to raise their minimum paid-up capital by March 2026 as follows: ₦500 billion for international banks; ₦200 billion for national banks; ₦50 billion for regional banks; ₦20 billion for national non-interest banks; and ₦10 billion for regional non-interest banks.
To meet these capital thresholds, banks are leveraging mergers and acquisitions. An example is the concluded merger between Union Bank of Nigeria and Titan Trust Bank. The ongoing merger between Providus Bank and Unity Bank which commenced in 2024 is a prospective M&A deal in response to the CBN recapitalization requirements.
With the deadline of March 31, 2026 fast approaching, banks have either met or seek to meet the new minimum capital requirements through M&A strategies and more deals are anticipated.
Similarly, the insurance industry is in a transition phase resulting from the Nigerian Insurance Industry Reform Act 2025 (NIIRA) which mandates recapitalization of insurance entities operating in Nigeria. Life insurance companies must have at least ₦10 billion; Non-life insurance companies at least ₦15 billion; and Reinsurance companies are mandated to have at least ₦35 billion. In view of this, there is good possibility that a few mergers would occur in the insurance industry.
B. PROCESS FOR M&A TRANSACTIONS
The key requirements for M&A in Nigeria are primarily regulated by the Federal Competition and Consumer Protection Act 2018 (FCCPA) with additional regulations by other relevant laws depending on the sector. The process includes:
1. Preliminary Planning
Preliminary planning represents the crucial first phase in any successful merger process. The party seeking to merge must clearly define the primary objectives driving the merger and identify the ideal target company. The acquiring party may initiate the deal by sending a Letter of Intent (LoI) to the target company. The LoI generally outlines the main terms and provides an initial overview of the proposed merger.
2. Due Diligence
Conducting due diligence is a vital requirement in the M&A process, involving a detailed evaluation of the target company. Key elements examined during due diligence include: the target's corporate structure and governance; outstanding debts; information technology systems; intellectual property; real estate; ongoing or potential litigation; human resources; insurance coverage; and regulatory compliance.
3. Negotiation
In undertaking an M&A transaction, parties are required to negotiate and agree on the key terms of the merger. This includes deciding purchase price, payment method, assets to be acquired, and how the company will be managed after the merger. Parties would use reports from due diligence and company valuations to help make informed decisions during this stage.
4. Corporate Approvals
Securing the necessary corporate approvals is a crucial step in an M&A transaction. The rights of minority shareholders must be carefully considered in this process. Under the Companies and Allied Matters Act, there are specific provisions that govern the acquisition of shares from minority or dissenting shareholders, and meeting these requirements is often a prerequisite for completing the transaction.
Shareholders also hold certain protections, such as pre-emption rights, which gives existing shareholders the opportunity to purchase existing or newly issued shares. These rights are typically checked and addressed before closing the transaction.
In addition to shareholder approvals, board approvals may also be required. Both parties must obtain all necessary corporate consents, as failure to do so could grant either party the right to terminate the deal.
5. Regulatory Approvals
Depending on the industry, sector-specific regulatory approvals are required for M&As in Nigeria. For example, mergers involving banks need approval from the Central Bank of Nigeria (CBN), while insurance company mergers require authorization from the National Insurance Commission. These regulators oversee compliance with relevant laws during the merger.
Mergers with a combined annual turnover of ₦1 billion, or where the target's turnover exceeds ₦500 million, must be notified to and approved by the Federal Competition and Consumer Protection Commission (FCCPC). Notification includes submitting Notification Form (Form 1), audited accounts, details of the parties, and the merger's impact on competition.
For small mergers below the set threshold with potential to reduce competition, notification to the FCCPC is still required, though formal approval may not be mandatory. Failure to notify or secure approval before completing a merger ("gun-jumping") can result in fines of up to 10% of the company's annual turnover.
The Securities and Exchange Commission (SEC) regulates mergers involving public companies in Nigeria. Therefore, public companies must also notify the SEC before undertaking a merger. The Corporate Affairs Commission (CAC) regulates schemes of arrangement used by companies to implement mergers and supervises all related filings and resolutions.
6. Execution and Closing
Parties to a merger are required to finalize and agree on all terms, conditions, and responsibilities related to the merger by negotiating and signing a definitive agreement, setting out the terms of the merger. Once all necessary legal and regulatory conditions are satisfied, ownership and control of the company is officially transferred according to the final agreement.
7. Post-Merger Integration
This requirement marks the concluding phase of the merger process. It involves the unification of the merging entities into a single entity. It also involves the consolidation of personnel, systems, and operations leading to the establishment of the new entity's corporate culture, practice and processes.
C. DATA GOVERNANCE CONSIDERATIONS IN M&A
With increased emphasis on data protection in Nigeria under the oversight of the National Data Protection Commission (NDPC), the role of Data Governance in M&A transactions has become even more vital.
Alongside the M&A process set out above, it is essential for each company to appoint skilled representatives and professionals to ensure proper data handling and to mitigate regulatory risks throughout the transaction.
Effective Data Governance prevents a range of common pitfalls that often arise during M&A transactions. These pitfalls include:
i. Due Diligence Failures
Failure to take into consideration the level of data compliance of the merging entities during the due diligence phase, can result in incorrect valuations or expose a company to hidden liabilities.
ii. Regulatory and Compliance Risks
Data privacy regulations are critical in M&A transactions, as violations can result in fines and legal consequences. During a merger, entities must ensure that data exchanges or transfer comply with the Nigeria Data Protection Act 2023 (NDPA) and the guidelines set out by the NDPC, so that the rights of data subjects are protected against risks such as breach of sensitive personal data, data inaccuracies, unauthorized access, improper data sharing, and lack of consent. Effective Data Governance ensures compliance with these requirements, thereby mitigating regulatory risks and safeguarding the integrity and confidentiality of all data.
iii. Data Integration Issues
During the integration phase, merging data from entities with differing structures can lead to data inaccuracies, potentially violating the rights of data subjects. Robust Data Governance ensures that data is clearly mapped and harmonized. Thereby sustaining data integrity and compliance throughout the post-merger process.
Conclusion
In view of the ongoing recapitalization in the banking and insurance sector, it is expected that there would be more mergers and acquisitions. Companies seeking to embark on M&As to achieve recapitalization must pay close attention to the processes and recommendations set out in this newsletter.
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.
