Listed On

corporate law firms in Egypt - corporate law firms in Egypt
The Legal 500 EMEA

Egypt’s Scintillation in Merger and Acquisition

merger and acquisition

With a transaction value of 202.8 billion dollars as of February 2022, Vodafone Air Touch PLC’s 1999 acquisition of Mannesmann AG was the largest merger and acquisition (M&A) ever. Additionally, it is one of the oldest transactions on the record.

Strategic and financial acquirers are the two main categories in M&A transactions. Strategic acquirers are businesses that would seamlessly integrate the target company into their main operations. These businesses are frequently direct competitors or those in related industries.

Financial purchasers are institutional buyers seeking to acquire the acquisition target but not operate it personally, such as private equity firms. Leveraged buyouts, which are frequently carried out by financial purchasers, use debt to finance the acquisition (LBO).

Between 2019 and 2020, the size of merger and acquisition (M&A) deals completed in the Middle East rose. In 2020, M&A deals completed in the Middle East amounted to 114.7 billion U.S. dollars, which was a 126 percent increase over 2019.

However, Egypt ranked second most attractive country for merger and acquisitions (M&A) deals in 2021, after the US, growing by 486 percent to post $9.9 billion over 233 deals, according to an info graph from the cabinet’s Information and Decision Support Centre (IDSC).

Merge and Acquisition definition:

Holistically in Egyptian corporate law, “Acquisitions” is the simplest way for a business to join a foreign market if it wishes to grow its operations is by purchasing an existing business there.

The acquired business will already have its own employees, a brand identity, and other intangible assets, which could help to assure that the acquiring company would be born in the new market with a strong foundation.

Basally In a “Merger”, the absorption of one corporation into another All the financial assets of the corporation that is being absorbed are acquired by the surviving corporation. Sometimes a merger is also the uniting of non-corporate entities, such as associations.

Merger and Acquisition framework:

Considering that Mergers and Acquisitions are governed by The Egyptian Companies Law and its Executive Regulations, as modified, the Capital Market Law No. 92 of 1995 and its Executive Regulations, as amended, and the Listing and De-listing Rules No. 11 of 2014, as amended, issued by the Financial Regulatory Authority (“FRA”) (“Listing Rules”).

The Egyptian Stock Exchange (EGX), the Financial Regulatory Authority (FRA), and the General Authority for Investment and Free Zones all emit decisions and regulations that are an essential component of the regulatory framework.

Other regulatory organizations, such as the CBE and several important ministries, may be involved depending on the target client’s specific activities.

Generally speaking, the most prevalent purchase structures in Egypt involve the transfer of title of shares of joint stock companies and quotas of limited liability companies.

Unlisted shares are transferred over the counter (OTC) through a qualified broker who has been designated for the purpose and is registered with the EGX. As opposed to public transactions, OTC transactions are not as tightly controlled.

Any transaction that is over 20 million Egyptian pounds must receive pre-approval from the FRA and the EGX Pricing Committee, who meet once a week to discuss and decide on each proposed transaction.

What Are the Types of Acquisition?

Often, a business combination like an acquisition or merger can be categorized in one of four ways:

  • Vertical:

The parent company acquires a company that is somewhere along its supply chain, either upstream (such as a vendor/supplier) or downstream (a processor or retailer).

  • Horizontal:

The parent company buys a competitor or other firm in their own industry sector, and at the same point in the supply chain.

  • Conglomerate:

The parent company buys a company in a different industry or sector entirely, in a peripheral or unrelated business.

  • Congeneric:

Also known as a market expansion, this occurs when the parent buys a firm that is in the same or a closely-related industry, but which has different business lines or products.

The process of merger and acquisition:

Further, Let’s have a comprehensive look at the process of merger and acquisition in 10 steps:

1- Acquisitions fostering

A successful acquisition strategy depends on the acquirer having a clear understanding of what they hope to achieve from the transaction and why they are acquiring the target company (e.g., expand product lines or gain access to new markets).

2- Configure the M&A search parameters

Identifying the crucial factors to consider when selecting possible target businesses (e.g., profit margins, geographic location, or customer base).

3- Identify possible acquisition targets

The acquirer seeks for and assesses potential target businesses using the search parameters they have established.

4- Commence the acquisition planning process

The acquirer contacts one or more enterprises that fit its criteria and seem to be a good bargain. The goal of the early discussions is to learn more and gauge the target business’s amenability to a merger or purchase.

5- Run valuation analysis

Assuming initial contact and discussions go well, the acquirer requests the target company to give detailed information (current financials, etc.) that will permit the acquirer to further evaluate the target, both as a business on its own and as a possible acquisition nominee.

6- Negotiations

Following the creation of various target business valuation models, the acquirer must have adequate knowledge to be able to put together a reasonable offer; The two businesses can discuss terms in greater depth once the initial offer is made.

7- M&A due diligence

After the offer is accepted, an arduous procedure called due diligence gets started. Its goal is to confirm or challenge the acquirer’s estimation of the worth of the target company by meticulously reviewing and analyzing every area of that company’s operations, including its financial metrics, assets, and liabilities, customers, human resources, etc.

8- Purchase and sale contract

Executing a final contract for sale is the next phase, and the parties decide on the form of the purchase agreement to be executed, whether it is an asset purchase or a share purchase, assuming due diligence is completed without any significant issues or concerns surfacing.

9- The acquisition’s financing methodology

Albeit the acquirer will have looked to financing options for the transaction earlier, financing arrangements are usually finalized after the purchase and sale agreement has been signed.

10- Closing and integration of the acquisition

The target and acquirer management teams collaborate on the process of merging the two businesses once an acquisition deal closes.

Why Companies refuge at Merger and Acquisition?

  • Growth

M&A is a strategy that many businesses utilize to expand and surpass competitors. On the other hand, organic growth takes time and may take years or even decades to double the size of a company.

  • Competition

The main driver behind M&A activity’s periodic cyclicity is this strong motivation. A feeding frenzy typically occurs in hot markets as a result of the desire to purchase a company with an alluring portfolio of assets before a competitor does.

Dot-coms and telecoms in the late 1990s, producers of commodities and energy in 2006–07, and biotechnology firms in 2012–14 are a few instances of industries with frenzied M&A activity.

  • Synergies

Economies of scale and synergies are further reasons why businesses join. When two enterprises with related businesses join forces, they can consolidate (or remove) redundant resources like branch and regional offices, manufacturing facilities, research projects, etc., creating synergies.

Every million dollars or fraction thereof thus saved flows directly to the bottom line, increasing earnings per share and designating the M&A transaction as “accretive”.

M&A milieu in Egypt & MENA

The Egyptian market and foreign corporations have been watching closely the government’s economic and social development plan’s implementation over the last year in light of the US$12 billion loan deal between Egypt and the International Monetary Fund (IMF).

This loan agreement was tied to a number of significant measures, including modifications to the deposit and lending interest rate announced by the Central Bank of Egypt (CBE) and, most importantly, the liberalization of all FX. Egyptian assets and securities lost more than 50% of their value due to the steep devaluation of the pound, and the government’s success in repaying the IMF loan was also a factor.

“Numerous transactions have either been put on hold, aborted, or slowed down. However, strategic mergers and acquisitions are less impacted as the rationale for such transactions is usually driven by financial as well as non-financial factors” by Chambers and Partners.

Egypt was the third-largest target nation for domestic M&A in MENA in H1 2020 in terms of value. On top of that, the North African country ranked the second most popular target country for outbound cross-regional M&A by volume and value with 10 deals valued at $2.640 billion in the first half of 2020.

In the same category, the US ranked first, while the UK came in third place.