DEVELOPMENTS IN THE MERGERS AND ACQUISITIONS SECTOR IN KENYA

Mergers and Acquisition activity, like any other business activity in Kenya, has been negatively affected by the decline of the global economy, and the after effects of the COVID-19 pandemic. There is a reduction of investment in the sector by international investors, leading to a rise in venture capital investment and local investments in the sector.

This has prompted noteworthy developments in the sector over the past few years, as outlined herein:

a) The Competition Authority of Kenya released Joint Venture Guidelines in 2021, which define what qualifies as a full-function joint venture and a greenfield joint venture. These guidelines also outline the steps for informing the Authority and submitting a joint venture, as well as the criteria that a proposed joint venture must meet to be approved by the Authority.

b) The Capital Markets Authority issued Guidelines on Share Buybacks for Listed Companies. These guidelines set out disclosure requirements and prescribe the conditions for undertaking a share buyback, including a limit on the listed company to purchase no more than 25% of the average daily trading volume for the four calendar weeks preceding the date of purchase.

c) The Competition Authority of Kenya recently analyzed the acquisition of Century Microfinance Bank Limited (“Century”) by Branch International Limited (“Branch”), which transaction would have qualified for an exemption as a full merger on the basis of public interest concerns. The Authority noted that, after the transaction, Branch would have access to Century's list of defaulters with credit reference bureaus, which is a privilege not available to digital lenders. The Authority raised concerns that the acquisition could lead to the existing borrowers being given new loan terms, which could put them at a disadvantage. However, the Authority approved the acquisition on two conditions. Firstly, both companies had to maintain the existing loan terms agreed upon with borrowers in their loan books at the time of the acquisition. Secondly, both companies were required to keep their current performing and non-performing loans in accordance with their original terms until such loans expire.

d) The Business Laws (Amendment) Act 2020 amended the Takeover Regulations to allow the purchaser to squeeze out dissenting shareholders where the purchaser acquires 90% of the share capital of the target. The threshold for squeeze-out had momentarily been reduced to 50%, down from 90% previously.

e) The Takeover Regulations also provide for change of shareholding in public companies in a year by providing that an existing shareholder holding 25% but less than 50% of the voting shares of a listed company can acquire up to 5% additional shares in a calendar year. In addition, certain actions may trigger mandatory takeover obligations. Such actions include:
i) an existing shareholder holding 50% or more of the voting shares of a listed company acquiring any additional voting shares;
ii) a person acquiring a company that holds effective control in a listed company;
iii) a person acquiring 25% or more of the shares in a subsidiary of a listed company that has contributed 50% or more to the average annual turnover of the listed company in the last three years.

f) The Companies (Beneficial Ownership Information) Regulations, 2020 introduced a requirement for companies incorporated in Kenya to file a register of beneficial owners. The Regulations do not provide clear instructions on how to show the beneficial interest of companies with multiple shareholders, such as public companies, where no shareholder beneficially owns 10% of the shares. This has caused practical difficulties for such companies in meeting compliance requirements.


Conclusion:

These developments are an indication of the growth of the Merger and Acquisition sector in Kenya. They are welcome developments since the sector is ever-growing requiring consistent regulation and protection of consumers who are affected by the transactions and activity in the sector.


Written by: T. Kehonji – kehonji@alakonyalaw.co.ke
29th February 2024