M&A is a very important part of the investment climate – Shasore
As one of the fastest emerging areas of law, Mergers & Acquisition (M&A) continues to trend with a steady increase in M&A activity around the globe. As businesses open to a new year, key players in the legal industry and investment market continue to predict that the Mergermarket will stay vibrant for a very long time.
PwC Global Network Chairman, Dennis Nally, who shared the company’s findings at Davos, notes that the fundamentals for strong M&A activity remain in place, as buyers remain extremely active in identifying, evaluating and competing to acquire assets in the market. While dealmakers are placing a premium on deal certainty, speed and agility to ensure successful deal outcomes that deliver long-term value.
The general overview is that several sectors are ripe for deals, and those driven by technology, would make significant breaks into the juiciest transactions in the m arket.
BUSINESSDAY caught up with Transactional Lawyer and Partner at Ajumogobia & Okeke,
OLASUPO SHASORE, SAN, who takes an inward look at investments, dispute resolution mechanisms, Mergers and Acquisitions and legal services in Nigeria.
ON AFRICA
Africa is now the fastest growing region in the world, and has also emerged as a destination for investments.
MERGERS & ACQUISITIONS (M&A)
Mergers and Acquisitions (M&As) are a very important part of the investment climate in this region. It shouldn’t be viewed only from the point of view of a takeover or an amalgamation of two companies. Many issues are interconnected to these two. Issues like regulation, banking, company law, corporate commercial, tax, arbitration and ADR are all involved in any Merger and Acquisition transaction.
To complete an M&A deal, you must understand the regulatory environment where this merger or acquisition is taking place; you must understand the limitations of company law, as well as the tax regime that is applicable between the parties.
LEGAL FRAMEWORK?
International investment is a key part of economic growth. The Nigerian economy has experienced double digit growth in the last two, three years in a row; which is remarkable, given the sort of statistics that we’re used to, but the legal framework supporting investment- the ground work for that has been set more than twenty years ago. We had those laws without attracting the right kind of investment- The Nigerian Investment Promotion Council (NIPC) Act, The Companies and Allied Matters Act (CAMA), etc. Many of the legislations passed in the nineties were designed to attract international investors.
To answer the question, we have a legal framework to support Mergers and Acquisition in Nigeria. We have the statutes and we have the dispute resolution mechanisms that should give investors the confidence to come to Nigeria and avail themselves of the several opportunities that exist here.
NATURE OF DISPUTES
Most disputes arise where there are differing views or opinions. You and I can take a look at the same picture and see different things. While you may focus on the graph, I may focus on the horse. So if someone asked either of us what the picture was about, you’d probably say it’s about a graph, while I would say it’s about a horse. So disputes arise where there is a difference of opinions. It doesn’t always mean somebody has deliberately breached an agreement. It could be an innocent misunderstanding of what your obligation is or what mine may be. There is nothing inherently untoward about disputes.
RESOLUTION OF COMMERCIAL
DISPUTES
We do have good legal framework. However, there are areas we need to work on and this includes, security and the enforcement of contracts – the ability for parties to enforce obligations.
Disputes arising from commercial transactions are inevitable, be it a Merger, an acquisition, or a takeover. Investors must have confidence that they can enforce obligations in a safe, efficient and equitable manner. It is in this regard that, arbitration and other dispute resolution mechanisms have become quite relevant.
In cross border transactions, the more complex the agreement, the more likely it is that there will be an arbitration and dispute resolution clause that takes it out of the conventional litigation, as a core.
Our courts have improved, but the truth remains that, this sort of agreements generally go into dispute resolution outside the court system. So if you notice, Nigeria has really climbed up the ladder in reputation and resources. We are in the top order of League of Nations, as far as dispute resolution (outside the court system) is concerned.
LITIGATION v. ARBITRATION IN COMMERCIAL DISPUTES
It is not out of the ordinary to have a difference of opinions, as to who, where and what is to be done. It is only where we are unable to resolve these differences that we can either go into this mechanism called ADR or we can go into litigation by submitting the issue to court, depending on what the initial agreement was.
If you look at disputes generally, breaking them into commercial and civil matters, it is not often that you find the Nigerian community taken to ADR or even arbitration particularly in civil disputes.
However, I’d like to say that well over a majority of the disputes in commercial transactions in this country, or related to this country, are resolved by Arbitration or other Alternative Dispute Resolution (ADR) mechanisms.
M&A IN AFRICA
Most M&A deals are leveraged transactions and in some cases originated in far away jurisdictions.
This is usually because the deal driver or the person giving out the mandate is headquartered outside Africa; or more often, the international lender has the prerogative, particularly where there is a significant lending by the equity holder.
Also notable is the fact that these international lenders often gravitate towards global law firms whom they probably have relationships with over the years. The local lawyer (within the region) in this case, plays the role of the local adviser who advises on jurisdictional issues, such as local regulations, local compliance issues, etc.
However in recent years, we find African lawyers, particularly Nigerian law firms have increasingly gained recognition as to their expertise; in actually being headline legal advisers in some of these international deals; either as co-advisers or drivers themselves, depending on the jurisdiction. What I find exciting is the fact that African companies are now leading African Mergers & Acquisitions, not M&A originating in Europe or United States. This way, you find the local lawyer playing a lot more prominent role, and in that regard, the powerhouse Nigerian legal services provides Africa, will mean a lot more for the legal businesses in this country.
LABOUR ISSUES ARISING FROM M&As
I must say that the subject of labour bears a significant consideration in the decision to either merge or acquire another business, for no other reason than its relevance to cost.
The cost of takeover is deeply embedded inside human capital costs, and significant considerations at the time of merging would be, whether staff will be continuing, are there employments to be terminated, financial consequences, pensions, legal regime that governs how this will be done, contractual issues such as notice periods, etc. Quite a huge audit is carried out just before the decision of a merger and acquisition is undertaken.
The audit allows you understand the labour issues involved in the takeover. These decisions are usually made with the support of legal advisers and transactional lawyers who will give quality legal advice as the transaction progresses.
INADEQUATE LABOUR LAWS?
I disagree. Labour law, like most commercial subjects of law in this country, suffers only from a lack of judicial precedence.
The legislations that we have in this country need to be reformed and updated; nonetheless, you will find that legislations in Nigeria perform a lot better than judicial precedence.
I think what we need right now, is more Case Law on some of the significant issues that fall out of labour law. The National Industrial Court (NIC) provides a very unique platform for presenting some of these issues. As we get on with more specialized learning, it will cover any of the lapses that exist. However, the most important part of the labour issues in M & A transactions is the ‘contract.’
Many of theses services are either in the general conditions of service, a general service contract, or individual contract of employment. It is how to audit the length and breadth of that, that the legal advisers need to have in mind as they advice decision-makers.
ON LAW FIRMS MERGING AND ACQUIRING
Well, it’s a trend that was totally non-existent in the Nigerian legal industry say 20 years ago, but I know several that have happened in very recent times. Nonetheless, it doesn’t happen as often as it does in other jurisdictions, particularly in Europe and the United States.
Having said that, I think it boils down to economics, the market, as well as how the legal business in Nigeria is organised.
I refer to the market, in the sense that it is a very competitive market we are in now. People are concerned more about overheads than capacity. This, I believe is an error, as capacity is more important than overhead. This is the boom time.
I say Economics because in every Merger and Acquisition, there are strategic personal decisions to be made, and these are usually economic decisions, and you cannot legislate for that. It depends on the key actors themselves. For Nigerian legal businesses, if the actors themselves do not see the economics, then they probably would have no reason to merge.
Most important, until lawyers begin to embrace ‘Partnerships’ as a preferred business unit of a legal service business, there won’t be Mergers and Acquisitions, as we would like to see. Where organisations are run to look like partnerships, but are not, or run as ‘one-man businesses,’ there will be nothing to merge, neither can anyone acquire a business that is personal to you. However, businesses that exist as a third party and can survive the founders’ absence are the sort of businesses that come together to form mergers.
Lawyers should be open to partnerships and embrace this business model in a more robust manner.