Once the commercial terms have been agreed, it can feel as though the difficult part of a company acquisition is over. The purchase price has been negotiated, the parties have reached an agreement, and the transaction appears ready to move forward.
The legal process that follows often determines whether the acquisition is completed on the agreed terms and without unexpected legal complications. Before ownership changes hands, the buyer needs to confirm that the company can legally be sold and identify any legal risks that could affect the transaction. The parties involved must also ensure that the necessary documents and approvals are in place before the acquisition can proceed to completion.
This guide explains the legal stages of company acquisitions in Kenya, from negotiation to closing, and how each stage helps protect the interests of both buyers and sellers before the transaction is completed.
What Should Be Agreed Before the Legal Process Begins?
A company acquisition can become complicated when the buyer and seller have different expectations about what was actually agreed.
Before the legal documents are prepared, both parties need a clear understanding of the basis of the transaction. This means agreeing on what is being bought, how the transaction will take place, the purchase price, and any important requirements that must be met before completion.
These details provide the foundation for the legal documents that follow. If important terms are unclear at this stage, disagreements may arise later when the parties are working towards completion.
When the commercial terms are clear from the outset, the legal work can focus on documenting the agreement rather than resolving misunderstandings between the parties.
How Do You Confirm What You Are Buying?
Before completing a company acquisition, a buyer needs to know that the company can legally be transferred and that the people selling it have the authority to do so.
This involves confirming who owns the company and whether any shareholder approvals or internal company steps are required before ownership changes hands. These issues are particularly important where a company has multiple shareholders or specific requirements for approving major transactions.
Legal advisers review company records, including information maintained by the Business Registration Service, shareholding details, and relevant company approvals to confirm ownership and identify any steps that need to be completed before the transaction proceeds.
Addressing these issues early helps prevent delays or complications after the parties have already committed to the transaction.
Could Anything Change the Deal Before Completion?
Even after the buyer and seller have agreed the terms of an acquisition, new information may affect how the transaction proceeds.
Before closing, buyers will often carry out legal due diligence to confirm the legal position of the company and identify any issues that could affect the transaction. This review may reveal issues that were not fully considered during the initial negotiations and that could affect the value or future operation of the business.
The purpose of legal due diligence is not necessarily to stop the transaction. It helps the parties understand whether the agreed terms still reflect the position of the company and whether any changes are needed before completion.
If legal due diligence identifies significant issues, the parties may continue on the agreed terms, renegotiate parts of the transaction, or agree additional contractual protections before completion.
For a detailed explanation of how legal due diligence helps investors identify risks before completing an acquisition, see our guide on Uncovering Hidden Liabilities: How Legal Due Diligence Protects Investors in Kenya.
How Is the Buyer Protected Before Completion?
Not every issue identified during a company acquisition means the transaction should come to an end. In most cases, the focus shifts from deciding whether to proceed to deciding how the identified risks should be managed.
This is where the parties decide how those risks will be dealt with in the transaction documents. Depending on the circumstances, the parties may agree that the seller will provide warranties about the business, indemnities for identified risks, or agree to deal with particular issues before or after completion.
The protections agreed will depend on the risks that have been identified and the terms on which they are prepared to complete the transaction. Their purpose is to allocate responsibility for identified risks in accordance with the agreed terms of the transaction.
For a detailed explanation of how warranties, indemnities, and other contractual protections are used in business acquisitions, read our article on Share Purchase Agreements in Kenya: Key Legal Clauses That Protect Investors and Founders.
What Happens Between Signing and Closing?
Signing the transaction documents does not always mean the acquisition is complete. In most transactions, there is a period between signing and closing during which certain agreed steps still need to be completed.
During this period, the parties complete any remaining requirements that must be satisfied before the transaction can proceed to closing. Depending on the acquisition, this may involve obtaining approvals or completing other agreed steps.
Once those requirements have been satisfied, the transaction can move to closing, when ownership is transferred and the acquisition is completed.
What Happens at Closing?
Closing is the point at which the acquisition takes effect. Once all agreed requirements have been satisfied, the parties complete the final steps needed to transfer ownership of the company.
From that point, the buyer becomes the owner of the company on the agreed terms set out in the transaction documents. Any obligations that continue after closing, such as warranties, indemnities, or other agreed commitments, remain governed by those documents.
Although closing marks the end of the acquisition process, it also marks the beginning of the buyer’s ownership of the business.
Navigating Company Acquisitions with Legal Advice
Every stage of a company acquisition builds on the one before it. Decisions made during the early stages of the transaction can influence everything that follows, from legal due diligence and contractual protections to signing and closing.
Legal advice helps buyers and sellers identify potential issues while there is still an opportunity to address them, negotiate appropriate contractual protections, and complete the transaction with a clear understanding of their rights and obligations.
If you are considering a company acquisition in Kenya, our Corporate & Commercial team at FM Muteti & Co. Advocates advises buyers and sellers throughout the transaction, from structuring transactions and carrying out legal due diligence to preparing transaction documents and guiding acquisitions through to successful completion.
Frequently Asked Questions
How Long Does a Company Acquisition Usually Take in Kenya?
There is no standard timeframe. The duration depends on the size and complexity of the transaction, how quickly the buyer and seller agree on the commercial terms, the time needed for legal due diligence, and whether any approvals or conditions must be satisfied before closing.
What Is the Difference Between a Share Acquisition and an Asset Acquisition?
In a share acquisition, the buyer acquires ownership of the company by purchasing its shares. In an asset acquisition, the buyer purchases selected business assets rather than the company itself. The most appropriate structure depends on the commercial objectives of the transaction and the legal issues involved.
Can a Company Acquisition Be Cancelled After the Parties Have Signed?
It depends on the terms of the transaction documents. In some cases, the buyer and seller may still be waiting for agreed conditions to be satisfied before closing. If those conditions are not met, or if the transaction documents allow termination in particular circumstances, the acquisition may not proceed.
Does Every Company Acquisition Require Regulatory Approval?
Not necessarily. Whether regulatory approval is required depends on the nature of the transaction, the industry in which the business operates, and the applicable legal and regulatory requirements. Identifying any required approvals early helps reduce the risk of delays before closing.
Who Usually Prepares the Acquisition Documents?
The responsibility for preparing the transaction documents depends on the agreement between the buyer and seller and the nature of the transaction. Each party will usually obtain independent legal advice to ensure the documents accurately reflect the agreed terms and protect their respective interests.