Mergers in Africa require focus on detail

• Multijurisdictional mergers bring unique challenges from conducting a risk analysis, to regulatory hurdles

The changing regulatory environment across Africa’s markets poses fresh challenges and opportunities to firms wishing to pursue multijurisdictional mergers.

Navigating these challenges requires a deep understanding of the authorities that regulate mergers in their local markets, exceptional preparation, an eye for the most minute detail, patience, agility and humility.

Having recently advised on two multijurisdictional mergers involving more than 20 jurisdictions, each spanning more than 18 months, Webber Wentzel and RBB Economics’ experience with various African competition authorities makes for a worthy case study for companies that require merger filing across Africa.

The first transaction involved Dutch brewer Heineken, Namibia Breweries and Distell, and the second involved Dutch coatings manufacturer, Akzo Nobel, seeking to acquire the two African entities of Japan’s Kansai Paint.

What makes the regulatory environment across Africa’s markets so interesting is the growing intentionality among regulators to learn and conduct more substantive investigations, with public interest issues (such as job losses and localisation) never far from the conversation. African mergers can no longer be viewed as a “tick box” exercise. The environment and the approach to merger regulation in Africa’s markets is evolving and dynamic. Successfully navigating it requires a strategic understanding of several factors, from the order of the merger filings and understanding a regulator’s appetite for objective economic analysis, to consistency in submissions with different authorities speaking to one another, to negotiating possible remedies.

Advisers on multijurisdictional mergers need to have a detailed understanding of the process to be followed to achieve merger approval. The filing process involves several phases, beginning with the risk assessment (RA) and then notifying the relevant regulators of the transaction, followed by those regulators conducting substantive economic and public interest assessments, and the relevant decision-making bodies of the authorities concluding the process.

The RA aims to consider all potential risks that may impede a proposed merger. An important part of the RA is requesting and harmonising financial and organisational data provided by each participant in the transaction.

In Europe, it is fairly simple to obtain this information

— company head offices and their subsidiaries generally provide the same numbers with systemisation institutionalised across large conglomerates.

However, there is far more variance in companies operating in Africa. Head office may provide one set of data about a subsidiary, but the subsidiary’s own data on the same substantive facts may differ. Also, the information needed to perform a RA is often not easily accessible due to confidentiality and other factors, making the process more time-consuming than a risk assessment in a mature market.

Yet, harmonising data to present a single, unified view of an interested party to a regulator is paramount. First, if even subtle differences exist, they be scrutinised 18 to 24 months later at the tribunal stage when the stakes are significantly higher.

Second, from the regulator’s point of view, greater scrutiny is being applied when evaluating and testing evidence provided by firms. That is why it is critical to dedicate significant time to understanding the concerns, context and interests of the regulators in question. For example, the Federal Trade Commission in the US has been regulating competition for more than a century. It can dip into decades of precedent, process, and experience when dealing with parties seeking their approval for a merger. In African markets, several regulatory bodies that play the deciding role in approving a merger have only been established since 2010.

While these bodies may still be in the process of developing institutional knowledge and experience, this is balanced by the deepening thoroughness that drives their investigations. African regulators and the professionals that staff them are keen to test parties’ submissions robustly. The onus is on the applicant parties to prove why a multijurisdictional merger does not harm competition and economic development, with a burgeoning area of concern in recent years being the effect on public interest factors such as employment and local procurement. Public interest is an increasingly pivotal feature of competition law in most of Africa and it is important for international firms to be aware of this.

As a result, while much of the filing process occurs electronically and through documentation, it is important to establish a rapport with regulators when meeting in person. A regulator may officially respond to a query using compressed language, but speaking to the same officials face-to-face can provide additional key insights into the reasons for their response, which can aid future interactions and potentially alter the outcome of their deliberations.

These interactions and managing the filing process as a whole require a highly prepared team, with an understanding of local markets that can pivot quickly as required. As we have encountered in the past, a regulator’s sentiments can change suddenly, with new requirements raised or questions asked in the middle of a meeting. Preparation and mastering the details are key.

It’s up to the advisory team to always maintain a collaborative and empathetic posture while being able to simplify and distil complex issues for the regulator. If you understand what a regulator needs and why, chances of success are markedly better.

HARMONISING DATA TO PRESENT A SINGLE, UNIFIED VIEW OF AN INTERESTED PARTY TO A REGULATOR IS PARAMOUNT