One of the most exciting activities in corporate finance is the merger and acquisition of one firm by another in Nigeria. It is referred to as the two types of corporate marriages.
A merger is when two or more corporations, in most cases of the same market value combine to form a new corporation. On the other hand, an acquisition is when one corporation takes over another corporation completely. The purchase of one firm by the other is always an investment made under uncertainties. Hence, a company should only takeover another company if it generates a positive net present value to the shareholders of the acquiring firm.
What are Mergers and Acquisitions?
A firm can effectively acquire another firm by buying most or all of its assets. This is the same as buying the company. However, the target firm will not necessarily cease to exist, but it would have sold off its assets.
What Are The Types of Mergers and Acquisitions
There are three necessary procedures for firms to merge or acquire each other. They include the following;
1. Merger or Consolidation
A merger refers to the taking in of one firm by another. In some cases, the firms involved in the merger retain their names and identities. In other cases, the acquiring firm retains its name and identity.
Consolidation is the same as merger except that an entirely new firm is created. In a consolidation, all firms involved terminate their previous legal firm and become part of a new firm.
2. Acquisition of Stock
Another way to acquire another firm is to purchase the firm’s stock in exchange for cash, shares of stock or other securities. The following are features of acquiring a company by its stocks
- The bidding firm can deal directly with the shareholders. This means no shareholders’ meetings or votes will have to hold to approve the acquisition
- Acquisition by stock can sometimes be unfriendly. In such cases, a stock acquisition circumvents the target’s firm management
- Some minority shareholders can hold out their shares in a sale. This means the firm cannot be wholly acquired when this happens.
- Many acquisitions by stock end up in a merger later.
3. Acquisition of Assets
The Investments and Security Act has defined a Merger as an amalgamation of agreements or interests of two or more companies. The acquisition means the takeover by one corporate organization of sufficient and superior shares in another corporate organization to give the acquiring company control over that other company.
What are the procedures for Mergers and Acquisitions?
Mergers, Acquisitions and Takeovers in Nigeria are under the control of the Investments and Securities Act (ISA), Securities and Exchange Rules and Regulations (SERR) and the Companies and Allied Matters Act (CAMA).
The Securities and Exchange Commission (SEC) is the institution in charge of implementing the stipulation of investments and security act, together with sanctioning Mergers, Acquisitions and Takeovers in Nigeria.
What are the Thresholds and Categories of Mergers?
By the provision of ISA, the Commission has the power to advise a lower or an upper limit of combined annual turnover or assets, or a lower and upper limit of combinations of turnover and assets in Nigeria. This could be in general or concerning specific industries, for purposes of determining various types of mergers. Here are the thresholds below:
- Small Mergers
The lower limit for a small merger is below N1m of all assets or turnover of the merging companies.
- Intermediate Merger
The intermediate threshold is between N1m and N5m of assets or turnover of the companies merging.
- Large Mergers
The upper limit for a large merger is above N5m of either all assets or turnover of the merging companies.
Every Merger and Acquisition in Nigeria is subject to the review and approval of the Securities and Exchange Commission (SEC).
Finally, a takeover is also worthy of mention. It is a general term referring to the transfer and control of a firm from one group of shareholders to another. It can occur either by acquisition, proxy contests or going private. As a result, takeovers encompass a broader set of activities than just acquisitions.