Mergers and acquisitions – an effective rescue process



The Nigerian corporate environment is no stranger to mergers and acquisitions (M&A), as it is one of the most effective means of salvaging or improving a corporation’s debt-to-equity ratio. There are numerous reasons as to why corporations or business enterprises opt for this process, all of which are invariably linked to risk and returns. Principal among the reasons are diversification, operating economies of scale, skills and management enhancement, technological drive, averting business failure, leverage, desire for growth and seeking a stock exchange quotation.

M&A is the most preferred way for foreign investors to gain entry to the Nigerian business market. This is because M&A provides access to existing structures, possibly with any required permits and assets in place.

This article intends to identify, in detail, the rationale behind embarking upon an M&A transaction in Nigeria, the value of such decisions with related examples, as well as an overview of the requirements to assure a successful transaction.

Valuable consideration

M&A has become one of the key strategies used by organisations hoping to penetrate new or emerging markets. By pursuing M&A, firms are able to acquire modern technical skills and knowledge, develop new managerial expertise and increase their capital base. Despite its success in several nations and organisations, M&A has been less successful in Nigeria. Indeed, according to some commentators, around 50 percent of attempted M&A transactions launched in Nigeria end up in failure. Nevertheless, despite these failures, companies from various sectors still find the motivation required to pursue a deal.

Primarily, corporate raiders are concerned with the potential financial benefits of M&A. They look for undervalued companies and attempt to acquire them cheaply and unlock the value quickly, by breaking up the acquired company into smaller divisions and then selling those units off at a profit. More generally, motivation for takeovers and mergers may arise from the fact that cost of production would be less in a larger, combined entity with greater operational capacity and less duplication. M&A may enable a company to acquire a competitor which poses a substantial threat to it, or a company which supplies raw materials or provides it with market outlets. An acquiring firm will be interested in purchasing firms of this type due to a desire to improve the range of services on offer, or to ensure that these companies are not taken over by a competitor.

Again, the motivation for M&A activity may be the diversification of an enterprise with a view to ensuring stability of earnings. Or it may be to acquire the much-needed technology or managerial expertise of another company. Large companies have more obvious financial advantages than small companies, such as an enlarged capital base, loan capacity, accelerated growth and increased earnings.

Although all the reasons outlined above may not be present in all merger situations, this article intends to consider M&A from a defensive perspective, motivated by the desire to survive in an ailing economy, where survival is paramount.

The survival strategy

During times of economic difficulty, there is always pressure exerted on companies attempting to survive. Further, organisations must attempt to generate growth and develop wherever possible. A company faced with the threat of business failure and possible liquidation may turn to M&A as an investment decision, which can serve as an effective means of reducing this possibility.

The most striking M&A survival transactions in Nigeria were undoubtedly the 2005 mergers that took place in the banking sector. These mergers were driven by the Central Bank of Nigeria’s 2004 directive to all Nigerian banks to increase their shareholders’ fund to a minimum N25bn, from the previous minimum of N2bn. The deadline for this increase was 31 December 2005. Few Nigerian banks had this new minimum capital base; as a result, several banks were forced to engage in M&A transactions. Accordingly, only 25 out of the pre-existing group of 89 banks survived the imposition of the conditions and continued to operate after 2005. Some of the banks formed as a result are Unity Bank Plc, Fin Bank Plc, Sterling Bank Plc, Fidelity Bank Plc, IBTC Chartered Bank Plc, Skye Bank Plc, Bank PHB Plc and the United Bank for Africa.

Assurance of a successful M&A transaction

Most M&A pitfalls occur as a result of the lack of proper procedures being followed when executing specific mergers. In Nigeria, merger procedures are regulated by the Investments and Securities Act 2007. The Act establishes the Securities and Exchange Commission as the highest regulatory authority for the Nigerian capital market, with the aim of ensuring that investors are protected as well as maintaining a fair, efficient and transparent market. Merger provisions with step by step procedures are contained in part XII of the Act. It is worth noting the provisions of the new Act were a result of the various recapitalisation processes in the banking and insurance sectors, which signalled some of the inefficiencies that existed under the 1999 Act.

In addition to following the procedures laid out in the Act as indicated above, it is prudent to perform due diligence before the execution of any merger or acquisition. Due diligence is the set of investigative procedures which precede an acquisition or a merger. It is the process of identifying and confirming or dispelling the business reasons for a proposed capital transaction. The purpose of due diligence investigation is to enable the purchaser to gain sufficient familiarity with the target’s affairs to assess the risks involved in the purchase.


M&A has long been recognised as one of the leading options for addressing business problems and enhancing efficiency and profitability of a business organisation. This has indeed become relevant in both the national and international contemporary business environment, which have been characterised by business failures, distress and slow corporate growth. Current global economic realities, which were derived from the financial crisis, have compelled companies to embrace M&A as a genuine survival strategy. It is not, therefore, surprising that corporate entities are venturing into this corporate technique with increased regularity.


James Okoh is the deputy head of the dispute resolution practice and Adanna Nosiri is a lawyer at Fidelis Oditah & Co. Mr Okoh can be contacted on +234 1 271 0290 or by email:

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James Okoh and Adanna Nosiri

Fidelis Oditah & Co. 

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