Mergers and acquisitions (M&A) in the oil and gas industry involves buying and selling of a business at a more complex and sophisticated level because of the hydra-headed concerns such as the sale of a whole business including the means of products production and services as well as the infrastructure that goes with it. The oil and gas sector in Nigeria has in recent times witnessed significant M&A transactions amongst indigenous oil companies, to a large extent, driven by the disposal of assets by a number of international oil companies (IOCs).

While it is settled that the most essential element of any merger & acquisition transaction is the agreement of the parties on the price to be paid, however, there remains other fundamental issues which must be settled before a deal can be effectively struck.  Also, notwithstanding each deal is unique, there is an acceptable sequence of events that most deals follow, at least to some extent. This paper will attempt a bird’s eye view of the key threshold issues involved.

Due Diligence

As it is expected, purchasers will always want to test-drive the ride before finalizing a price. While the outlines of a deal can sometimes advance quite far before due diligence is complete, at minimum “confirmatory due diligence” will be necessary at some point before money changes hands.

Some of the principal issues as far as due diligence is concerned include:

  • Confidentiality or non-disclosure agreements: Potential purchasers are usually required to agree to keep confidential any information disclosed to them. These agreements may include provisions prohibiting the purchaser from buying securities of the seller, and/or provisions preventing the poaching of employees.
  • Contracts: This begs the question: Is the seller bound by other contracts which, from a legal or business perspective, require consent before the transaction is concluded? Or which will affect the business negatively, after the conclusion of the sale?
  • Title: This covers the question, whether the seller have good ownership to its assets, especially as it concerns real estate and Intellectual Property assets? Are there assets subject to mortgages with lenders or any sort of security arrangement?
  • Employees: This in turn inquires whether the key employees can be retained by the buyer. The question centre on the following: Do they have the right to leave and be paid large settlements? Are there challenges (like different work cultures) in combining the purchaser’s work force with the buyer’s?
  • Environmental: Given the nature of the assets to be acquired, are there environmental concerns, i.e., pollution, contamination etc.
  • Litigation/Potential Liabilities: This examines whether the seller does have outstanding litigation which could lead to liability and in turn affect the business under sale? Are there other potential liabilities for, by way of example, regulatory breaches, warranties, negligence, accounting or financial misstatement or product liability?

Antitrust/regulatory approvals

M & A transactions in the oil and gas sector routinely require approvals, such as:

  • Investment and Securities Act 2007 and Securities and Exchange Commission Rules and Regulations, 2013 (“SEC Rules”): Under these laws, a determination is made whether any merger or acquisition is likely to lessen competition. Pre-merger filings and approvals are required for transactions meeting certain size thresholds.
  • The Local Content Act, 2010: This law is designed to increase indigenous participation in the oil and gas sector by prescribing a minimum threshold for the use of local services and materials and to promote transfer of technology and skill to Nigerians in the industry.
  • Regulatory: Acquisitions in the oil and gas industry requires licensing, permits and approvals for a change in ownership.


Depending on the nature of the seller’s assets and the buyer’s financial resources, financing can be a very significant element to an M&A transaction. For example, if the seller’s existing financing arrangements are to be assumed by the purchaser, the purchaser may need to negotiate with the seller’s financing parties.

On the other hand, the purchaser can explore other loan facilities with proper guidance by advisors/consultants.

Time Schedule

An M&A transaction involves a number of recognizable stages. Most of the stages may have more or less prominence depending on the way a particular deal is structured, the relationship of the parties, the financial position of the seller or any number of external factors.

From a seller’s viewpoint, the following standout:

  • Retaining advisors and consultants: This requires the retention of Legal, financial, environmental, engineering/structural and/or valuation experts.
  • Offering the target company for sale: This may possibly include steps such as soliciting bids, drafting and circulating a confidential information memorandum, as well as creating a data room to allow prospective purchasers to carry out due diligence.
  • Negotiating the deal: This includes ensuring that certain basic terms are fixed at the time of accepting a particular bid, afterwards, fleshing this out in a letter of intent or term sheet, and then finally documenting the agreed upon terms in great detail in a definitive purchase agreement.
  • Announcement: This gives the parties the opportunity to learn what the market thinks of their deal and to whether their shareholders are likely to approve the deal. It also gives the seller the opportunity to manage employee expectations.
  • Shareholder approval: This must be obtained either by way of the purchaser making a take-over bid which shareholders may accept or reject, or the target business holding a shareholder meeting at which shareholders vote upon the transaction. Depending on applicable stock exchange rules (where the purchaser is a listed company), if the purchaser is issuing shares as part of the purchase consideration, the purchaser may also need its shareholders to approve the deal. In all cases, a disclosure document, either a proxy circular for a shareholder meeting, or a take-over bid circular or directors’ circular, must be prepared and sent to the relevant shareholders.
  • Regulatory approvals: Regulatory approval applications are usually commenced following the announcement, while the applicable shareholder approval process is underway.
  • Third party consents/financing: Also at the same time, third party consents and financing arrangements, if necessary, are secured.
  • Closing: Once the above are in place, the transaction closes and the purchase price can be paid.


As noted at the beginning, M&A transactions can be complex and the timeline for a transaction is dependent on so many factors as outlined above and even more. A proper consultation with the relevant advisors will ensure that the deal is cost and time effiecient.


Written by Chinedu Aralu LLM (Aberdeen)

WHY the Acting President’s Executive Order on the Promotion of Transparency and Efficiency in the Business Environment is a welcomed development.

Executive Order on Transparency in doing business
Prof. Yemi Osinbajo


I am sure that by now you may have heard of the three executive orders signed by the Acting President, Prof. Yemi Osinbajo. I have had the opportunity of going through the text of the executive orders and for the very first time, I have the feeling that the Federal Government is directly addressing the core problems afflicting Nigeria rather than running around in circles.

The three executive orders are very important and timely but for the purpose of this post I will be commenting on the executive order in respect of doing business in Nigeria. It is no secret that one of the problems hindering the development of the Nigerian economy is the difficulty in doing business in Nigeria. The world bank has over the years consistently ranked Nigeria very low on the ease of doing business index.

One of the major constraints in the Nigerian business environment, which the executive order seeks to remedy,  is the uncertainty in dealing with Ministries, Departments and Agencies (MDAs) of the Nigerian Government. There is a lack of predictability with regards to the procedures, requirements and timelines for obtaining services (usually approvals, licenses, consents etc) from the MDAs. There is also the problem of lack of competence on the part of some officials of MDAs and the issue of lackadaisical approach towards work.

Often the stipulated procedures, requirements and timelines for obtaining services (where they exist) are usually different from what is obtainable in practice. In fact, there are situations where officers of the same agency would give different requirements and timelines for the same service. There are also instances where officers would just refuse or neglect to do their job for no reason at all. This state of confusion makes it impossible for lawyers to advise clients who require services from these MDAs with accuracy and also makes it difficult for businesses to adequately make plans and/or projections.

The executive order is very instructive and a giant step in the right direction if implemented fully. With the issuance of the new executive order, we hope to see a remarkable improvement in dealing with the MDAs.  It is expected that the issuance of this executive order will make MDAs and their officials to wake up from their slumber and realise that their actions and inactions directly affects the development of the Nigerian economy to a very large extent. There is no doubt the Acting President made the executive order from an informed standpoint being a distinguished lawyer and having actively practiced law before his election as the Vice President.

Whilst the entire content of the executive order is revolutionary when put side by side with the current business environment, I find the provision on Default Approvals very interesting. The provision is to the effect that where an agency fails to communicate approval or rejection of an application within the stipulated timeline, such an application would be deemed approved and granted. When implemented, this provision in a nutshell would ensure that the officers of MDAs would take stipulated timelines very seriously and nobody would be made to wait for approvals endlessly.

In conclusion, the importance of this executive order to the Nigerian business environment and the economy by extension cannot be over emphasized. The importance was in fact aptly summarized by the Acting President himself in his tweet on the 18th day of May, 2017 10:41 pm which states and I quote “Every time, a public servant is an obstacle to anyone seeking approvals or licenses, he/she attacks the Nigerian economy and our future”.

I do hope that the State Governors will take a cue from the Acting President and replicate the executive order at the state level.


The full text of the executive order can be found here:




Meaning of a joint venture:

A joint venture is a term that describes a commercial arrangement between two or more economically independent entities for the purposes of executing a particular business or undertaking. The commercial and legal issues that may arise in the setting up of a joint venture are vast and may differ on a case by case basis. This post will not attempt to identify all the commercial and legal issues that may arise, rather the objective here is to try and highlight some of the key commercial and legal issues that may be considered before going into a joint venture relationship.

Purposes of Joint Ventures:

There are different reasons why companies and come together to form joint ventures. Generally speaking, joint ventures are formed usually because each participant on its own lacks one or more of the resources required for the successful establishment of the business.  The participants involved therefore come together to compliment the resources of each other for the successful establishment of the business. A joint venture may also be established for the purposes of expansion of existing business or for the sharing of risks.

Legal Structure:

There are different legal structures a joint venture might take. It can be argued that some of the legal structures to be listed here are not joint ventures in the strictest sense of the word but rather alternatives to joint venture. Nonetheless, they are joint ventures in a broader sense of the word because they involve one form of collaboration or the other which results in the sharing of the resulting profits. Some of these legal structures (which are by no means exhaustive) are:

(1)  Agency Agreement

(2)  Distribution Agreement

(3)  Intellectual Property License

(4)  Franchise

(5)  Collaboration Agreement

(6)  Consortium Agreement

(7)  Partnership

(8)  Limited Liability Company

Out of all the legal structures listed above, the Limited Liability Company is by far, the most popular joint venture vehicle in Nigeria especially when the participants involved are thinking of a joint venture in the strictest sense of the word. The reasons for this are not unconnected with the inherent benefits of a limited liability company which are discussed below.

Choosing a Legal Structure:

The basic issues to be considered in choosing a legal structure are:

(i)Why? Why set up a joint venture? What are the underlying objectives?

(ii) What? What type of structure is best suitable for achieving the objectives?

(iii) Where? Where will be the physical location of the joint venture?

(iv) When? When will the joint venture be set up and will it be for a definite or an indefinite period.

(v) Who? Who are the participants to be involved? Will the legal structure of any of the participants be a hindrance to the joint venture or require particular considerations?

Notwithstanding the foregoing, there is broader spectrum of issues which must be considered especially in the planning, structure and preparation of the documentations to the joint venture.

Joint Venture Company:

As stated earlier, the limited liability company is by far the most popular joint venture vehicle in Nigeria and all over the world and as such this is the only legal structure that will be discussed in details here. The corporate structure of a limited liability company has been tried and tested all over the world and in Nigeria we have a detailed body of law and practice governing private limited liability companies. Added to this fact is that corporate participants will usually prefer to be shareholders in a company, because this is a form of business organization with which they are familiar and therefore understand.

Some of the basic features of a limited liability company which makes it very attractive as a vehicle for a joint venture are as follows:

(a)  Limited liability:

The most significant advantage of a limited liability company is the ability of the participants to limit their liabilities and losses of the joint venture business. However, the limitation of the liabilities of the participants is not always complete at the early stages of the joint venture business. This is because the participants may need to support the business at its early stage by providing guarantees and assurances to third parties.

(b)  Financial Flexibility:

In terms of general financial and tax planning, the corporate structure presents considerable flexibility through the creation of different types and classes of shares, loan capitals and different types of debentures that makes it easier for the joint venture to raise external finance.

(c)   Relationship between the Participants and Control of the Company:

The relationship between the participants and the control of the joint venture company is usually governed by the Articles of Association and usually a separate Shareholders’ Agreement which they enter into together with other related agreements like Trademark License Agreements etc. Detailed provisions relating to the control of the joint venture and its management   are usually set out in the Shareholders’ Agreement or the Articles of Association. This will cover the obligations of the participants, how the directors are appointed and removed, the powers and duties of the directors etc.

(d)  Realization of the interest of an outgoing Participant:

The goodwill of the joint venture company will belong to the company and each participant’s interest can be realized by transferring its shares which may not affect the business of the joint venture company. In practice however, there are usually restrictions to the transfer of shares and its success largely depends on the cooperation of the other participants.  The outgoing participant will have to follow the procedures stipulated in the Shareholders’ Agreement or Articles of Association in transferring its shares. This may include offering the shares first to the existing shareholders and where the existing shareholders fails or are unable to acquire the shares, the outgoing participant can then offer the shares to outsiders.


Importance of adequate Documentation:

Having decided to establish a joint venture company, the participants would be advised to spend quality time, money and effort in ensuring that the joint venture is adequately documented. This is very important to avoid misunderstandings which may ultimately lead to the premature termination of the joint venture.

A non exhaustive list of why adequate documentation should be insisted on is as follows:

(1)  To ensure that each participants obligation to each other and to the joint venture are clear;

(2)  To ensure, as far as possible, that the participants are clear as to their respective aspirations and objectives in relation to the joint venture;

(3)  To provide protection for minorities and to attempt to avoid deadlock;

(4)  To define in what circumstances the venture may be terminated and as far as practicable to provide an exit route for the participants;

(5)  To ensure the chosen structure works; etc

It is advisable to engage the services of a corporate/commercial lawyer for the purposes of drafting the documentations.