In our previous issue, we had introduced some of the regulatory changes in 2021 and 2022, which have impacted mergers and acquisitions (M&A) in 2022 and may continue into the future. This second part of the series continues to highlight the regulatory changes as well as expected regulatory developments in 2022.
Regulatory changes impacting M&A in 2022
FCCPC Rule on Investigative Assistance
The Investigative Cooperation/Assistance Rules and Procedures 2021 (the Investigative Rules) was made by the Federal Competition and Consumer Protection Commission (FCCPC) pursuant to its powers under sections 17, 18, 68(4) and 163(2) of the Federal Competition and Consumer Protection Act (FCCPA) and embodies the policy of the FCCPC as it relates to receiving cooperation or assistance during its investigation of an infringement of the FCCPA. The Investigative Rules apply generally to every area of the FCCPC’s jurisdiction except cartel investigations.
Laudably, the Investigative Rules adopt a “quid pro quo mechanism” to stimulate the volunteering of information by an individual or entity (the Candidate) in exchange for leniency in the penalty meted out on the Candidate. A Candidate may offer cooperation to the FCCPC by volunteering additional information or evidence to strengthen the Commission’s knowledge and ability to prove an infringement, revealing an infringement which the FCCPC is unaware of, or proposing or implementing remedies to terminate the infringement.
To take advantage of the benefits under the Investigative Rules, a candidate is required to make full and frank disclosures of all information and facts within the candidate’s knowledge about the subject(s) of investigation and other individuals, undertakings or entities involved. Also, where the conduct is continuing, the candidate should cease to engage and or participate in the prohibited conduct. Further, cooperation/assistance must be timely and continuous through the investigative process and any further procedural progression or enforcement; and a candidate must not conceal, destroy, manipulate or remove information relevant to the investigation.
Clarity on the procedure for migrating into the Payment Service Holding Company structure
By a circular on New Licence Categorisations for the Nigerian Payments System (the Circular), the Central Bank of Nigeria (the CBN) required companies desirous of offering switching and processing services and mobile money services to set up a Payment Service Holding Company (PSHC) structure to ensure that the switching and processing operations and the mobile money services are clearly demarcated.
However, the Circular did not provide clarity on the process for the restructuring. The CBN in August 2021 issued the Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria (the PSHC Guidelines), which provides clarity on the procedure for migrating into a PSHC.
The PHSC Guidelines provide that only entities that provide payment services in mobile money operations (MMO), switching and processing (Switch) or payment solution services are eligible to migrate in to a PSHC. The PSHC must be licensed by the CBN and cannot commence operations until: (a) the final licence has been granted by the CBN and (b) CBN has been notified of the PSHC’s intent to commence operations.
Interestingly, the PSHC is required to be non-operational and uninvolved in the day-to-day management and operations of the subsidiaries. The PSHC exists solely to bolster the financial strength of its subsidiaries by making available, in the event of financial stress or other adverse condition, resources to augment the capital of the subsidiaries and also carry out investments in its subsidiaries.
Anticipated regulations in 2022
The NSE SPAC Listing Rules and SEC’s SPAC Rules
In December 2021, the Securities and Exchange Commission (SEC) exposed its draft rules on Special Purpose Acquisition Companies (SPACs) in furtherance of its objective of deepening the Nigerian capital market. In other climes, SPACs have served as an alternative to traditional sources of acquisition finance. The SEC draft rules covers the constitution, operation, governance, raising funds of the SPACs. The SEC’s draft exposure rules came after the Nigerian Exchange Limited’s (NGX) Listing rules on SPACs which makes provisions on the listing and operational requirements for SPACs. The NGX SPAC Listing Rules include provisions on minimum offering size, operational requirements, capital structure, use of proceeds and escrow requirements, minimum shareholding requirement by sponsors, corporate governance, sanctions, etc.
We expect that the SEC draft rules and the NGX listing rules be finalised and published to the market and a few SPACs floated on SEC-registered securities exchange in 2022. The NSE’s draft listing rules will require some amendments to bring it in consonance with the SEC Rules. Consequently, the market will witness increasing merger activities with SPACs’ IPOs launched by their sponsors.
Read also: Recent regulatory developments and impact on M&A landscape in Nigeria (I)
The CBN’s regulations on M&As
The Banks and Other Financial Institutions Act 2020 (BOFIA) provides that the approval of the Governor of the CBN must be obtained prior to the implementation of any M&A transaction involving banks or other financial institutions. Interestingly and by virtue of section 65(1) of BOFIA, the FCCPC’s approval is not required for M&A transactions where the parties to the transaction are banks and/or other financial institutions.
However, the provisions of the Federal Competition and Consumer Protection Act 2019 which regulate merger control continue to apply to M&A transactions where one of the parties is not a bank or other financial institution. Consequently, there exists some uncertainty on the competition approvals required where parties to an M&A transaction include banks and other financial institutions on one hand and non-CBN regulated entities. Accordingly, we envisage that the CBN may issue a regulation, pursuant to its powers in section 65(4) of BOFIA, clarifying the conflict or may enter into inter-agency cooperation agreement with the FCCPC on competition clearance for M&A transactions involving banks, other financial institutions and non-CBN regulated entities.
Explanatory memorandum and guidance notes from the FIRS
In light of the amendments to the existing tax laws by the Finance Act 2021, we expect that in 2022, the FIRS will issue more explanatory memoranda to clarify the provisions of the Finance Act.
Agboola is a senior associate with the Firm’s Mergers, Acquisitions and Private Equity Practice, and Alao is an associate in the Mergers, Acquisitions and Private Equity practice
