Recent regulatory developments and impact on M&A landscape in Nigeria (I)


The regulatory landscape in Nigeria has changed remarkably in the past few years as the country seeks to increase the ease of doing business, generate revenue for the government and catch up with global development standards.

With the passage of the Companies and Allied Matters Act 2020, the Federal Competition and Consumer Protection Act, 2018 and the plethora of regulations made further to the Act, and other sectoral laws and regulations issued by regulatory authorities, transaction advisers have their hands full dealing with regulatory compliance issues and structural considerations for parties contemplating M&A transactions.

In this article, we will examine the very recent regulatory developments which impacts M&A activities in 2022 and in the near future.

The Finance Act 2021

The Finance Act 2021 was signed into law on 31 December 2021 and became effective on 1 January 2022. The statute’s effect will be seen in 2022 and beyond.

The Act abolished the exemption of taxation on gains from the disposal of shares. In contrast to the previous regime, the Act now provides that capital gains tax at the rate of 10% will be applicable on the disposal of shares in a Nigerian company except where:

a. the sale proceeds are reinvested in the purchase shares of the same company or another Nigerian company within the same year of assessment, while partial re-investment will attract tax proportionately;

b. the sale proceeds in any 12 consecutive months total less than N100,000,000;

c. the shares are transferred between an approved borrower and lender in a regulated securities lending transaction.

Parties proposing to divest of their shares will need to factor this into their transaction costs and we envisage that this will affect the way in which deals are structured going forward. Parties will also require more tax advisory on the most tax efficient structures, applicable taxes and gross up provisions that enable sellers to retain the full benefit of the sale of their shares.

Developments introduced by the FCCPC

Electronic merger notifications and pre-notification consultation

In a bid to ease merger notifications, the FCCPC launched its online merger notification portal on 14 October 2021. The portal automates the process of filling merger notifications as well as calculation and payment of fees.

Another feature of the portal is the online pre-notification consultation where parties who are unsure on whether their transactions require FCCPC approval can fill in required information and upload documents in situations where they seek clarification from the Commission.

The portal is a welcome innovation and demonstrates the FCCPC’s proactivity in discharging its responsibilities to the market.

Issuance of the Merger Review (Amended) Regulations (Amended MRR)

In August 2021, the FCCPC issued the Amended MRR which amended the Merger Review Regulations (MRR), for the purpose of revising the processing fees applicable to merger notifications.

The regulation also provides clarifications on the merger fees payable where the merger involves foreign entities with a Nigerian component. The fees payable will be calculated based on the turnover attributable to the business of or in the local component(s) in Nigeria.

Where the merger involves private investment entities (such as private equity firms), the relevant turnover for the purpose of calculating the applicable fees will be the combined turnover of the relevant fund and the target in Nigeria.

The filing fee for merger notifications in the Amended MRR is on a graduated scale and is expressed as a percentage of the purchase consideration or annual turnover (whichever is higher).

For the first NGN500 million threshold; the filing fee is now 0.45% as against 0.30% of the transaction consideration or the last annual turnover payable under the 2020 MRR.

For the next N500 million threshold; the fees payable is now 0.40% as against 0.225% of the transaction consideration or the last annual turnover payable under the 2020 MRR.

For any sum after that, 0.35% of the transaction consideration or the last annual turnover is now payable as against 0.15% of transaction consideration or 0.75% of the last annual turnover payable under the 2020 MRR.

Read also: More mergers seen in manufacturing as productivity aches persist

It is the market’s expectation that the FCCPC will continue in its strides to be deal enablers by moderating downwards, fee payable in respect of merger filings.

Amended SEC regulations

Clarity on SEC’s Role in reviewing M&A transactions

Further to the changes introduced by the FCCPA, the Securities and Exchange Commission (SEC) has clarified its role with respect to M&A transactions and provided a clearer guide on the scope of its review of M&A transactions in its 2021 Amendment (to the SEC Rules and Regulations 2013) on Mergers, Take-overs and Acquisitions (the Rules).

The Rules clarify that the approval of the SEC must be obtained prior to any transaction relating to: (x) the conversion of a public company or the reconstruction of its shares; (y) a carve-out, spin-off, split-off or other form of restructuring of the operations of a public company; (z) the acquisition or disposal of the assets, business, subsidiaries, shares or other significant property of a public company which results in a significant change in the business direction or policy of a public company or any other listed entity; or (xx) an amalgamation, merger or business combination involving a public company.

In such transactions, the obligation to obtain the approval of the SEC lies with the public company involved in the transaction. Further, the Rules provide that the SEC may approve a merger, acquisition or corporate restructuring if it is satisfied that all shareholders are fairly, equitably and similarly treated and given sufficient information regarding the transaction.

However, the Rules exempts the following from the ambit of the SEC’s review with respect to M&A transactions (i) the acquisition by a public company of a business or asset(s) which does not involve the issuance of shares of the public company as consideration for the acquisition; and (ii) divestments by public companies of assets which constitute less than 15% of the total assets, or which do not constitute a business line of the company.

Comfort is a senior associate with the Firm’s Mergers, Acquisitions and Private Equity Practice

Alao is an Associate in the Mergers, Acquisitions and Private Equity practice

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