Understanding Mergers and Acquisitions in Kenya: A Complete Legal Guide”
CR Advocates LLP is a Kenyan law firm that advises clients on mergers and acquisitions in Kenya, including compliance with the regulations of the competition authority. A merger refers to the acquisition of shares, business, or other assets whether inside or outside Kenya resulting in the change of control of a business, part of a business, or an asset of a business in Kenya in any manner and includes a takeover. The Competition Authority in Kenya is the regulatory body that is mandated to deal with mergers.
Legal Framework for Mergers and Acquisitions in Kenya
The following laws play an important role in providing for and regulating mergers and acquisitions in Kenya:
- The Competition Act (Chapter 504 of the laws of Kenya). This is the key statute that regulates mergers and acquisitions in Kenya. It requires that for all mergers and acquisitions to be consummated, there must be authorization from the Competition Authority. It provides the penalties for the offense of failing to obtain authorization during a merger or acquisition process including penalties and imprisonment if one is convicted.
- The Companies Act (No. 17 of 2015, laws of Kenya). This act regulates the formation, conduct, and winding up of companies in Kenya. It does not directly regulate mergers and acquisitions in Kenya. However, it has an impact on the financing of the acquisition during a merger.
- The COMESA Competition Regulations and related rules (applicable to Kenya under Treaty). Kenya being a member state in COMESA is obligated by the regulations to notify the COMESA Competition Commission of a merger where both the acquiring firm and the target firm operate in two or more member states.
- The Capital Markets Act (Chapter 485A of the Laws of Kenya) and Capital Markets (Takeovers and Mergers) Regulations, 2002. They provide the steps and approvals required to be followed and secured for one to effect a takeover or acquire controlling interest in a company listed in Kenya. The approvals here are sought at the Capital Markets Authority and they are not a replacement to the ones provided by the Competition Authority.
- The Kenya Information and Communications Act (Chapter 411A of the Laws of Kenya). This act applies to companies that are licensed under it. It requires the approval of the Communication Authority prior to the change of control in a licensee which can occur in amongst other ways through mergers and acquisitions in Kenya.
- The Banking Act (Chapter 488 of the Laws of Kenya). The act provides for the regulation and licensing of banks and other financial institutions. Banks and financial institutions are forbidden to amalgamate in whichever way including mergers and acquisitions without the approval of the Cabinet Secretary of finance by the Act. Further, the Act also forbids the transfer of more than 5% of its share capital to an individual or an entity without written consent from the Central Bank of Kenya.
- The Insurance Act (Chapter 487 of the Laws of Kenya). The Act provides that consent must be obtained from the Insurance Regulatory Authority prior to two or more insurers amalgamating or transferring insurance business to another insurance.
Registration of Mergers Process in Kenya
Once an application for a merger has been forwarded to the Competition Authority, Mergers, and Acquisitions department, the following steps are followed.
- The Authority acknowledges receipt of a merger application or complaints within 3 days, upon receipt of the same in the Authority’s Offices.
- The Authority considers and determines a merger proposal, within 60 days after receipt of complete information;
- If the Authority requests (where necessary) further information within 30 days after receipt of merger notification, it shall make a determination within 60 days after receipt of such information; and
- If the Authority requires to convene a hearing conference, it shall make a determination within 30 days after the date of the conclusion of the conference.
Upon receipt of an application and Subsequent acknowledgment, the Authority carries out the preliminary review by:
- Checking for completeness of information, If it is determined that the application is incomplete, it would then request additional information from the transacting parties. The Authority may seek further clarification of any information submitted through meetings, phone calls, official letters, emails, conference hearings, etc. if it deems it necessary;
- Determine whether the transaction is a relevant merger situation;
- Determine if the transaction meets the threshold for mandatory notification as provided for in the merger Threshold Guidelines; and
- Assess the nature of confidentiality sought if any, as provided for under the law and subsequently grant such confidentiality through a letter.
The Authority, upon receipt of the complete filling, would then asses the proposed transaction and subsequently, generate a report with recommendations to the Board. Upon completion of the process, the transacting parties are informed of the determination as set out in the Act.
Exemptions to the Requirement to register Merger in Kenya
It was then thought better when the question was asked, who qualifies to ‘Notify the Authority’ of their Merger? and are there any exemptions? Two categories qualified for the Exemptions. These are:
- Mergers where the combined turnover or assets (whichever is higher) of the merging parties does not exceed 500 million Kenyan shillings;
- Mergers where the transactions meet the COMESA (Common Market for East and Southern Africa) Competition Commission Merger Notification threshold, and at least two-thirds of the turnover or the assets (whichever is higher) is not generated in Kenya; and
- Where the combined turnover or assets (whichever is higher) of the merging parties is between 500 million – 1 billion Kenya shillings, the entities can make an application for exclusion from notifying the Authority, but only after notifying the Authority first.
What does this therefore mean? If the companies intending to merge have less than Kshs. 500 million in assets, then CR Advocates is able to formally process the merger on behalf of the companies at a reasonable fee.
The Mergers that need to be Notified to the Authority need to meet the following threshold:
- Where the undertakings have a minimum combined turnover or assets (whichever is higher) of 1 billion shillings and the turnover or assets (whichever is higher) of the target undertaking is above 500 million Kenya shillings;
- Where the turnover or assets (whichever is higher) of the target undertaking is above 10 billion Kenya shillings and the merging parties are in the same market or can be vertically integrated unless the transactions meet the COMESA Competition Merger Notification Threshold;
- In the carbon-based mineral and extractives sector, if the value of the reserves, the rights, and associated assets to be held as a result of the merger exceed 10 billion Kenya shillings; and
- Where the undertakings operate in the COMESA, their combined turnover or assets (whichever is higher) does not exceed 500 million Kenya shillings and two-thirds or more of their turnover or assets (whichever is higher) is generated or located in Kenya.
Mergers between Foreign –to- Foreign Entities
The Competition Act has extraterritorial application with respect and will apply to the company activities within or outside Kenya, or a business incorporated in Kenya, or carrying on business in Kenya, or any person in relation to the acquisition of shares or assets outside Kenya resulting in the change of control of a business.
The Authority while dealing with Foreign-to-Foreign merging entities that have met the threshold highlighted above in relation to Notification, will consider the following factors in approving the Merger within 14 days of notifying the regional competition bodies for instance COMESA.
- Whether an undertaking party to the merger has a significant presence in Kenya, as evidenced by turnover or assets in or into Kenya;
- Whether revenue is generated in Kenya by an undertaking party to the Merger;
- Whether an undertaking party to the Merger acquires direct or indirect control over the strategic commercial affairs of the other undertaking party to the merger and such strategic commercial decision will have an effect on trade in or into Kenya.
The strategic approach to Merger Processes requires a good deal of legal advice on the processes and requirements. CR Advocates has a transaction lawyering department dedicated to handling mergers and acquisition processes and the attendant requirements and outcomes of a merger process, including restructuring the new entity. The Firm has a 360 Degrees approach to the handling of Mergers and Acquisitions and is able to handle transactions of this nature for domestic and international clients.
Conclusion
One of the main benefits of mergers and acquisitions in Kenya is that it enables businesses to achieve economies of scale and increase their efficiency. This is especially important in industries that require significant capital investment, such as infrastructure development and technology. Mergers and acquisitions activity in Kenya is expected to continue, driven by factors such as increased foreign investment, economic growth, and a favorable business environment.
The information provided in this article is intended for general legal advice and does not constitute legal advice for any specific transaction or case. Since each transaction presents a unique legal context, it is advisable to retain a legal adviser for specific transactions.
To contact CR Advocates LLP, send us an email at info@cradvocatesllp.com or call +254 714887777 or Book a strategy call HERE or direct message us HERE on WhatsApp at your convenience. Our legal team will be happy to help you.
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