Introduction
Cross-border transactions in Africa present unique opportunities and challenges. With 54 countries, multiple legal systems, diverse regulatory frameworks, and varying currency regimes, successful deal execution requires careful planning and local expertise.
This guide outlines the key considerations for parties contemplating cross-border acquisitions, joint ventures, or strategic investments across African jurisdictions.
Pre-Transaction Planning
Jurisdiction Selection
The choice of holding jurisdiction significantly impacts:
- Tax efficiency: Withholding taxes, capital gains treatment
- Treaty networks: Double taxation agreements
- Legal framework: Dispute resolution, corporate governance
- Currency convertibility: Repatriation of dividends and capital
Common holding jurisdictions for African investments include:
- Mauritius: Extensive treaty network, established financial centre
- South Africa: Gateway to Southern Africa, sophisticated legal system
- Kenya: East African hub, improving business environment
- UAE: Growing African investment bridge
- Netherlands/UK: Traditional holding structures
Regulatory Pre-Clearance
Many African jurisdictions require advance notification or approval for:
- Foreign investment in strategic sectors
- Acquisitions above monetary thresholds
- Transactions involving listed entities
- Transfers of mining or petroleum rights
Early engagement with regulators can prevent costly delays.
Due Diligence Considerations
Legal Due Diligence
African due diligence must cover areas often overlooked in developed markets:
Land and Property Rights
- Verification of title (often complex in markets with customary land tenure)
- Environmental permits and compliance
- Community agreements and surface rights
- Historical claims or disputes
Labour Matters
- Localisation requirements
- Union agreements and labour relations history
- Pension and benefit obligations
- Retrenchment restrictions
Regulatory Compliance
- Sector-specific licences and permits
- Tax compliance history
- Foreign exchange compliance
- Anti-corruption compliance
Financial Due Diligence
Additional focus areas for African targets:
- Foreign exchange exposure: Functional currency vs. reporting currency
- Transfer pricing: Documentation and compliance
- Tax losses: Utilisation restrictions
- Related party transactions: Particularly for family-owned businesses
Operational Due Diligence
Critical in markets with infrastructure challenges:
- Power supply reliability and backup arrangements
- Supply chain vulnerabilities
- IT infrastructure and cybersecurity
- Key personnel retention risks
Transaction Structuring
Asset vs. Share Deals
The optimal structure depends on multiple factors:
| Factor | Asset Deal | Share Deal | |--------|------------|------------| | Tax efficiency | Often less efficient | Generally preferred | | Liability assumption | Selective | All liabilities transfer | | Regulatory simplicity | May require new licences | Existing licences continue | | Transaction costs | Higher (multiple transfers) | Lower |
Joint Ventures
Common in sectors requiring local participation:
Key Provisions
- Board composition and reserved matters
- Deadlock resolution mechanisms
- Transfer restrictions and pre-emption rights
- Exit provisions (put/call options, drag/tag along)
B-BBEE/Localisation Structures South Africa and increasingly other markets require local ownership. Common structures include:
- Vendor financing with dividend flow-through
- Share trusts with employee participation
- Notional vendor financing structures
Minority Investments
Protective provisions are essential:
- Information rights
- Observer board seats
- Anti-dilution protection
- Exit rights (put options, co-sale rights)
- Dividend policy commitments
Financing Considerations
Currency of Financing
Matching the currency of financing to revenue streams where possible reduces currency risk:
- Local currency debt for local currency earnings
- Export credit finance for equipment imports
- DFI facilities (often USD but with local currency options)
Security Packages
Lenders typically require:
- Share pledges (potentially at multiple holding levels)
- Assignment of key contracts
- Account pledges
- Sponsor support (guarantees, equity support)
Note: Security perfection requirements vary significantly by jurisdiction.
Typical Debt Structures
| Source | Typical Tenors | Key Considerations | |--------|----------------|-------------------| | Local banks | 3-7 years | Currency matching, relationship | | DFIs (IFC, DEG, FMO) | 7-15 years | ESG requirements, longer process | | Export credit agencies | 7-12 years | Equipment tied | | International banks | 5-10 years | Larger tickets, syndication |
Tax Planning
Withholding Taxes
Common rates on cross-border payments:
| Payment Type | Typical Range | Mitigation | |--------------|---------------|------------| | Dividends | 5-20% | Treaty relief, reinvestment | | Interest | 10-20% | Treaty relief, DFI exemptions | | Royalties | 10-20% | Transfer pricing defence | | Management fees | 10-25% | Careful structuring |
Capital Gains
Treatment varies significantly:
- South Africa: CGT applicable, with participation exemption
- Kenya: CGT reintroduced in 2015
- Nigeria: CGT on shares, exemptions for listed securities
- Mauritius: Generally no CGT
Transfer Pricing
Most African jurisdictions have adopted OECD-style transfer pricing rules. Documentation requirements are increasing across the continent.
Closing Mechanics
Condition Precedent Management
Common CPs in African deals:
- Regulatory approvals (competition, sector-specific)
- Foreign exchange approvals (where applicable)
- Third-party consents
- No material adverse change
Payment Mechanisms
Escrow Arrangements Often appropriate given:
- Warranty and indemnity periods
- Earn-out structures
- Regulatory approvals obtained post-completion
Currency Considerations
- Offshore payment in hard currency (preferred by vendors)
- Onshore payment with immediate conversion
- Deferred payment in local currency (buyer preference)
Post-Acquisition Integration
Governance Transition
- Board and management changes
- Reporting line integration
- Policy harmonisation
- Culture alignment
Operational Integration
- Systems integration
- Procurement consolidation
- Shared services implementation
- Workforce optimisation
Compliance Enhancement
Often a priority post-acquisition:
- Financial controls upgrade
- Anti-corruption programme implementation
- ESG framework deployment
- Internal audit function establishment
Key Success Factors
- Engage local advisors early: Legal, tax, and financial advisors with genuine local presence
- Build regulatory relationships: Proactive engagement reduces surprises
- Plan for delays: African transactions typically take longer than anticipated
- Maintain flexibility: Be prepared to adapt structures as issues emerge
- Invest in relationships: Personal relationships remain important in African business
Conclusion
Cross-border transactions in Africa require careful navigation of complex regulatory, tax, and operational landscapes. With proper planning, experienced advisors, and realistic expectations, these transactions can deliver attractive returns and strategic positioning in high-growth markets.
Roven Capital's transaction advisory team has extensive experience guiding clients through cross-border deals across the continent. Contact us to discuss your transaction requirements.
This guide is for informational purposes only and does not constitute legal, tax, or investment advice. Specific transactions require tailored advice from qualified professionals.