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Mergers and acquisitions popularly known as (“M&A”) refers to the legal and financial processes through which companies combine or transfer ownership interests to achieve strategic, commercial, or operational goals. These transactions allow businesses to expand, diversify, restructure, or improve their market competitiveness.
Under Ghanaian law, the principal legislation governing M&A transactions is the Companies Act, 2019 (“Act 992”)[1] which provides the definition of a merger as when two or more companies come together and continue as one company., Act 992[2] further provides that a merger may take the form of, an integration of two or more companies into one of the existing companies, or the combination of two or more companies to form a completely new entity.
Upon the taking effect of a merger, the merging companies cease to exist as separate legal entities, and all property, rights, liabilities, and obligations of the merging companies automatically vest in the surviving or newly formed company.
An acquisition, on the other hand, is the purchase by one company (the acquiring company) of the shares or assets of another company (the acquired company), resulting in the acquiring company obtaining control or ownership of the target company. The acquired company may continue to exist as a separate legal entity or transfer its assets and liabilities to the acquiring company.
M&A’s are among the most significant business transactions companies undertake. They provide opportunities for growth, diversification, and increased market presence to companies. Despite the many benefits of M&A’s, they also carry substantial legal risks; as such, careful legal planning and compliance are critical to ensure that the transaction is both successful and enforceable. To achieve a successful M&A transaction, the following key legal considerations must be tackled:
Due Diligence
The foundation of every M&A transaction is a thorough due diligence review. The parties must assess each other’s company corporate structure, material contracts, liabilities, intellectual property, employment relationships, tax obligations, and regulatory compliance status, to name a few. This can be done by conducting legal and financial due diligence, amongst others.
Legal due diligence involves a thorough review of a company’s corporate records, contracts, licenses, litigation history, employment obligations, intellectual property rights, and environmental compliance. The purpose of this is to identify potential legal and regulatory risks that may affect the valuation or viability of the transaction as well as the liabilities that the buyer will take on once the transaction is completed.
Financial and tax due diligence must also be conducted to complement the legal review by uncovering hidden liabilities, contingent obligations, or tax exposures. The findings of the due diligence process often inform the negotiation of warranties, indemnities, and pricing adjustments in the transaction documents.
Regulatory & Compliance Issues
M&A transactions always require regulatory review by the parties. Thus, the parties must assess whether the transaction triggers competition or antitrust review to ensure it does not substantially lessen competition within the relevant market. In addition, sector-specific laws, particularly in regulated industries such as banking, telecommunications and energy, may require prior approval from the appropriate authorities.
For cross-border transactions, knowledge of and compliance with foreign investment laws is paramount because these laws may impose restrictions on foreign ownership and require ministerial or presidential consent before closing. Failure to obtain the necessary approvals may render the transaction void or attract significant penalties.
Corporate Governance and Approvals
Under Act 992[3], a merger or acquisition transaction must be properly authorised by the board of directors and shareholders of the companies involved. Directors have a fiduciary duty to act in the best interests of the company, exercise due care and avoid conflicts of interest during the process. It is also essential to ensure compliance with constitutional provisions of the company and statutory requirements governing the transaction and the disposal of substantial assets. It is important to note that the failure to comply with governance rules can invalidate the transaction.
Structuring the Transaction
The structure of an M&A transaction determines how ownership, assets, and liabilities are transferred and has significant legal, tax, and regulatory implications. In Ghana, the transactions commonly take the form of share acquisitions, asset acquisitions, or statutory mergers under Act 992. In a share acquisition, the buyer acquires ownership and control of the target company, inheriting both its assets and liabilities.
In an asset acquisition, the buyer selects specific assets and liabilities to purchase, allowing flexibility but often requiring third-party consents. A statutory merger combines two or more companies into one, with all rights and obligations automatically vesting in the new or surviving company.
Based on this, parties must consider factors such as regulatory approvals, tax efficiency, liability exposure, business continuity, and ease of integration to ensure the transaction achieves its intended commercial objectives while remaining legally compliant when choosing the structure of the transaction.
Contracts and Third-Party Rights
Another key consideration in M&A transactions is the impact of change of control provisions and assignment restrictions in the target’s contracts. Many material agreements such as leases, financing arrangements, or supply contracts may automatically terminate or require the consent of the counterparty upon a change in ownership of the company. It is therefore advisable for parties to identify such provisions early and obtain necessary consents prior to the completion of the transaction to avoid business disruption.
Employment & Labour Matters
The treatment of employees is also one of the key considerations to focus on in every M&A transaction. Depending on the transaction structure, employees may automatically transfer to the acquirer on existing terms, or the acquirer may need to enter into new employment agreements with the employees and they must assess their employment contracts, benefit schemes, and labor liabilities before the transaction is completed. Employment legislation may also impose obligations to consult or notify affected employees or trade unions before the transaction is completed and this must be complied with by the buyers. Where redundancies are contemplated post-merger, statutory termination and severance requirements must be observed to avoid liability.
Intellectual Property and Technology
Intellectual property often represents a substantial portion of the value in modern transactions and a buyer must verify ownership of trademarks, patents, and software to ensure that the licensing agreements are transferable. Technology agreements must also be reviewed to ensure they are transferable and remain enforceable after completion of the transaction.
Tax Considerations
The tax implications of an M&A transaction influence its structure and pricing. Parties to an M&A transaction must assess potential exposure to capital gains tax, value added tax (VAT), stamp duty, and other transactional taxes.
Dispute Resolution and Governing Law
Due to the cross-border nature of many M&A transactions, the governing law and dispute resolution clauses in transaction documents are of great and strategic importance. Arbitration is usually preferred by parties due to its confidentiality and enforceability advantages. It is therefore necessary for the dispute resolution and governing law clause to be carefully drafted to ensure that any future disputes can be resolved efficiently.
Post-Closing & Integration
It is important to note that the completion of an M&A transaction does not mark the end of the process. Post-closing actions such as filing the necessary statutory notices, updating corporate records, and ensuring compliance with ongoing regulatory obligations are also key considerations in an M&A transaction and must be adhered to by the parties. The integration of the acquired business into the buyer’s corporate governance framework, systems, and culture is equally vital to achieving the intended purpose after the transaction has been closed.
Conclusion
Mergers and acquisitions are complex undertakings that demand meticulous legal and strategic planning. From due diligence and regulatory compliance to post-closing integration, every stage of the process carries legal consequences that can determine the success or failure of the transaction. Engaging legal counsel early in the process ensures that risks are identified, approvals secured, and value preserved. Ultimately, a well-structured and legally compliant transaction not only achieves commercial objectives but also lays a solid foundation for sustainable growth.
[1] The Companies Act 2019 (Act 992)
[2] Ibid, first schedule
[3] Section 243 of The Companies Act 2019 (Act 992)