The spotlight has been cast on Nigeria's merger and acquisition scene since 2021, owing largely to the increase of mergers and acquisitions (M&A) deals and increased activities by regulators to enforce compliance with established merger controls in Nigeria.
While Nigeria has witnessed a boom in the M&A space, both in value and number of deals, the mergers controls obtainable in Nigeria are not immediately understood by many. The objective of establishing M&A controls ultimately seek to discourage and clamp down on mergers that significantly reduce or prevent competition by ensuring that restructuring of companies in a given market caused by a merger deal does not cripple or damage the competitive structure of that particular market.
In this newsletter, we highlight the various regulatory and enforcement regimes obtainable in the Nigerian M&A space.
- What Constitutes a Merger or Acquisition?
The Federal Competition and Consumer Protection Act (FCCPA) 2018 recognizes that a merger occurs when one or more entities directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking. The FCCPA further provides that a merger can be achieved in different ways including through-
- the purchase or lease of the shares, interests, or assets of the other entity who is a party to the merger
- the amalgamation or any combination with the other entity who is a party to the merger, or
- a joint venture.
The FCCPA has also provided the parameters to determine whether an entity ultimately has control over another entity, such as, whether the entity:
- beneficially owns more than half of the issued share capital or assets of the other entity;
- is entitled to cast a majority of the votes that may be cast at a general meeting of the other undertaking, or has the ability to control the casting of a majority of those votes either directly or indirectly;
- is able to appoint or veto the appointment of a majority of the directors of the other entity;
- is a holding company, and the entity is a subsidiary of that holding company as contemplated under the Companies and Allied Matters Act, 2020;
- in the case of an entity that is a trust, 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;
- has the ability to materially influence the policy of the undertaking.
Often times, control in an M&A deal is considered in terms of acquisition of majority interest, shares or assets. There are however instances where acquisition of minority interests in an entity will result in control of that entity. Where the acquisition of minority interests, shares, or assets will result in the acquiring entity exercising significant influence over the acquired entity, such transaction will be considered a merger within the scope of the FCCPA.
2. What is the Regulatory Framework Governing M&A transactions in Nigeria?
In considering the regulatory framework governing M&A in Nigeria, the laws, guidelines, and rules governing mergers, and the regulators/authorities charged with the responsibility of enforcing these laws, rules, and regulations are identified below;
- Legal Framework- the main legislations governing M&A in Nigeria are:
- Federal Competition and Consumer Protection Act (2018)– this is the primary regulation governing M&A transactions in Nigeria and it sets forth the main merger control legislations for both public and private entities. Following the provisions of the FCCPA, the Federal Competition and Consumer Protection Commission (FCCPC) is empowered to issue certain merger control regulations and guidelines such as the FCCPA Merger Review Regulations, 2020 ("Merger Review Regulations"), the FCCPA Merger Review Guidelines, 2020 ("Merger Review Guidelines"), the FCCPA Notice of Merger Review Timeframe ("Notice"), etc. These subsidiary legislations make provisions for the types of mergers, notification requirements, merger thresholds, merger review process, etc.
- The Investment and Securities Act, 2007(ISA)- the provisions of the ISA and the Securities and Exchange Commission Rules on Mergers, Take-overs and Acquisition ("SEC Rules"), 2013 (as amended) apply to mergers involving public companies and every merger, acquisition, combination, or other affected transactions between or among companies involving acquisitions of shares, assets, business, or subsidiaries of a public company.
- The Companies and Allied Matters Act, 2020 (CAMA)– The CAMA is generally applicable to all companies in Nigeria (whether public or private), and makes such provisions relating to sale, acquisition and transfer of shares and a company's assets, protection of minority rights, filing of returns with the Corporate Affairs Commission (CAC), etc.
- Sector Specific Regulations: other prominent regulations which are applicable to their specific sectors include-The Central Bank of Nigeria (CBN) Revised Operational Guidelines for Bureaux de Change (BDCs) in Nigeria, 2015 ("Operational Guidelines"); The banks and Other Financial Institutions Act (2020); The Insurance Act (2003) which require participants to seek applicable regulatory approval before entering into a merger and/or acquisition.
- Regulatory Authorities
The Key regulators of the relevant merger control regulations include (i) The FCCPC, (ii) The Central Bank of Nigeria, (iii) The Securities and Exchange Commission (SEC) (iv) The CAC.
3. What are the Merger Controls in Place in Nigeria?
- Classification of Mergers
In order to understand the merger control measures in place in Nigeria, and the obligations imposed on parties to an M&A deal, it is important to understand how the FCCPA has classified mergers. The FCCPA classifies mergers in Nigeria into 2- small mergers and large mergers. This classification is determined by the financial value of the merger based on the threshold stipulated by the FCPPC under the provisions of the FCCPA Notice of Threshold for Merger Notification, 2019 ("Notice of Threshold"). In the Notice of Threshold a merger shall be considered a large merger where-
- Combined annual turnover of the acquiring undertaking and the target undertaking (combined figure) in, into or from Nigeria equals or exceed One Billion Naira (#1,000,000,000); or
- The annual turnover of the target undertaking (alone) in, into or from Nigeria equals of exceeds Five Hundred Million Naira (#500,000,000).
While the Notice of Threshold makes no provision for what constitutes a small merger, it is safe to infer that a merger will be considered a small merger where the financial value of the merger falls below the amounts stated above.
- Notification Requirement
The Merger Review Regulations provide that where an undertaking is involved in a large merger, it must make an application to the FCCPC for prior approval. The FCCPA expressly provides that a proposed merger shall not be implemented unless it has first been notified to and approved by the FCCPC. While it is mandatory for parties to a large merger to notify the FCCPC of such merger, this mandatory obligation is not imposed on parties to a small merger. Participants of small mergers are however, encouraged to notify the FCCPC of their merger transactions.
Notwithstanding the classification of a merger, the FCCPC may also compel notification where it considers that the merger may substantially prevent or lessen competition. Parties are also encouraged to request for pre-notification consultations with the FCCPC to assist in determining the course of a case, at least 2 weeks before the submission of a formal notification is contemplated by parties. The pre-notification consultation will enable the parties and the FCCPC to clarify matters such as-
- Whether or not the notification of the merger is required;
- The calculation of annual turnover, value of assets, market shares, etc;
- Whether a simplified or expedited procedure may be required;
- Whether notifications have been made to other jurisdictions, including other member countries of ECOWAS or AFCFTA, etc.
Pending the approval (or otherwise) of the merger following notification to the FCCPC, parties are required to suspend implementation of the merger.
It is also important to note that the obligation to notify the FCCPC rests on both parties to the merger transaction, and both parties shall be liable to any penalties imposed for failure to notify the FCCPC as required. Where a party to a merger transaction is not a Nigerian entity, it is required to appoint a local representative to make the notifications on its behalf.
Notification to the FCCPC shall be by way of an application for a detailed review (Phase 1 and 2) of the merger to determine whether or not the merger is likely to significantly prevent or lessen competition. The parties shall also be required to pay the appropriate merger filing fees for the different reviews as may be prescribed by the FCCPC from time to time.
- Merger Review by the FCCPC
Following the receipt of the notification/application by the parties to a merger transaction, the FCCPC shall conduct a review.
In conducting a review and assessments, the FCCPC may call for witness interviews, conduct surveys, site visits, etc. The time frame varies for small mergers and large mergers, and is also dependent on the activity being conducted at each stage.
Upon conclusion of review and assessment, the FCCPC will issue a report signifying the disposition of the notification process. The report shall convey the decision of the FCCPC either approving the merger, approving the merger subject to conditions, or prohibiting the implementation of the merger. Where parties are not satisfied with the outcome of the reviews, they can appeal to the Competition and Consumer Protection Tribunal for a review.
In this publication, we have provided a simplified approach to understanding merger controls, and obligations of parties to a merger transaction. To comply with all relevant requirements of the law in relation to M&As, we strongly recommend that parties seek legal assistance for adequate guidance.
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.