When people hear “mergers and acquisitions” (M&A), they often think of large corporations and billion-naira transactions. But M&A can also be relevant to small and medium-sized businesses looking to expand, enter new markets, acquire valuable assets or combine resources with another business.

So, what does M&A actually mean, and what should a Nigerian SME know before entering one?

What Are Mergers and Acquisitions?

A merger generally involves two or more businesses combining to operate as one, while an acquisition occurs when one business acquires another business, its shares or particular assets.

For example, an SME that wants to expand into another part of Nigeria could acquire an existing business that already has customers, employees, equipment and a presence in that market instead of building everything from scratch.

An M&A transaction can therefore be a growth strategy, but it should be approached carefully.

Why Would an SME Consider M&A?

Businesses may consider mergers or acquisitions for different reasons, including:

  • Expanding into a new market or location;
  • Acquiring an established customer base;
  • Obtaining valuable assets, technology or intellectual property;
  • Increasing production or distribution capacity;
  • Accessing new skills and expertise; or
  • Combining resources and reducing certain operating costs.

However, the fact that a business is available for acquisition does not automatically make it a good investment. The buyer needs to understand exactly what it is acquiring and whether the transaction supports its business objectives.

Share Acquisition or Asset Acquisition?

An acquisition can be structured in different ways.

In a share acquisition, the buyer purchases shares in the target company and may acquire control of the company. This means the buyer is generally stepping into an existing business with its assets, contracts, obligations and liabilities.

In an asset acquisition, the buyer acquires specific assets or parts of the business rather than purchasing the company itself.

The distinction is important because each structure can have different legal, financial, tax and regulatory implications.

 

Due Diligence: Know What You Are Buying

One of the most important parts of an M&A transaction is due diligence. Simply put, due diligence means investigating the business before completing the transaction.

A buyer may need to review:

  • Corporate records: shareholders, directors, statutory filings and corporate documents;
  • Financial records: debts, tax obligations and the general financial position of the business;
  • Contracts: important agreements with customers, suppliers, landlords and other parties;
  • Assets: ownership of property, equipment and other business assets;
  • Intellectual property: trademarks, copyrights, software and other IP rights;
  • Employees: employment obligations and potential disputes; and
  • Litigation and regulatory matters: pending claims, licenses and compliance issues.

Due diligence may reveal liabilities or problems that could affect the purchase price, transaction structure or decision to proceed.

You should know what you are buying before you agree to buy it.

What About Regulatory Approval?

Not every M&A transaction follows the same regulatory process. The requirements can depend on factors such as the size and structure of the transaction, the businesses involved and the sector in which they operate.

The Federal Competition and Consumer Protection Commission (FCCPC) has a role in reviewing mergers from a competition perspective, while the Securities and Exchange Commission (SEC) has specific responsibilities in transactions involving public companies and certain capital-market operators.

Sector-specific regulators may also be relevant where the target operates in a regulated industry.

This means an SME should determine the applicable regulatory requirements before completing the transaction, rather than assuming that every acquisition follows the same process.

What Should an SME Consider Before an M&A?

Before proceeding, ask:

  • Why are we doing this transaction?
  • What exactly are we acquiring?
  • What liabilities are we taking on?
  • Have we properly investigated the business?
  • Are there regulatory approvals or notifications required?
  • What will happen to the employees, contracts and customers?
  • How will the ownership and management structure change?
  • How will the transaction be funded?

These questions help an SME look beyond the excitement of expansion and consider whether the transaction actually makes commercial and legal sense.

The Bottom Line

Mergers and acquisitions are not only for large corporations. For Nigerian SMEs, they can provide a route to growth, expansion and access to new resources. An M&A transaction should not be approached as simply buying another company or signing a few documents. The structure, value, liabilities, regulatory requirements and future of the combined business all need to be considered.

With proper due diligence, careful structuring and appropriate professional advice, an SME can approach an M&A transaction with a much clearer understanding of what it is getting into.

Considering a Merger or Acquisition?

618 Bees can assist with the legal aspects of mergers, acquisitions and other corporate transactions, including due diligence, transaction documentation and regulatory considerations.

Get in touch with us to discuss your proposed transaction.

Team 618 Bees.

 

 

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