Mergers & Acquisitions in Kenya: A Practical Due Diligence Guide

At a glance

The legal framework

Two regimes govern most Kenyan deals. The Companies Act 2015 governs the corporate mechanics — share transfers, directors’ duties, capital and registers. The Competition Act, No. 12 of 2010, governs merger control. The Act defines a merger broadly as the direct or indirect acquisition of control over the whole or part of a business, or its assets, whether the transaction is concluded inside or outside Kenya, where it affects a business in Kenya. Crucially, the test is control, not a fixed shareholding: control can arise from a majority stake, from board appointment rights, or from the ability to materially influence strategic decisions. The Act also catches joint ventures, which are treated as mergers where the joint venture will perform the functions of an autonomous economic entity on a lasting basis.

Structuring the deal: share purchase or asset purchase

The first strategic decision is structure, because it determines what liabilities the buyer inherits.

In a share purchase, the buyer acquires the company and everything in it — its contracts, licences, employees and, importantly, its historic liabilities, including tax and litigation. Continuity is the advantage: licences and contracts generally survive, subject to any change-of-control clauses.

In an asset purchase, the buyer cherry-picks defined assets and usually leaves historic liabilities behind. The trade-off is friction: contracts and licences often have to be novated or re-applied for, and the transfer of employees raises continuity-of-service questions under the Employment Act 2007.

The choice flows through everything that follows — the diligence focus, the tax bill and the consents required. In our view it should be settled at term-sheet stage, not left to drift into the definitive agreement.

The four due diligence workstreams

Legal. Confirm incorporation and good standing; the share capital and the full ownership chain; beneficial ownership filings under section 93A of the Companies Act; the constitutional documents and any shareholders’ agreement; material contracts and their change-of-control and assignment clauses; real property and leases; licences and regulatory permissions; employment and pension arrangements; data protection registration and compliance; intellectual property ownership and registration; and litigation, both pending and threatened. The recurring failure is assuming the seller owns what it is selling — verify title to shares, land and key IP independently.

Financial. Test the accounts, working capital, debt and the quality of earnings against the data room. Hunt specifically for contingent and off-balance-sheet exposure: guarantees, indemnities given to third parties, and disputed liabilities.

Tax. Review the target’s KRA position — open assessments, objections and appeals, transfer pricing arrangements, VAT and PAYE compliance, and withholding tax. In a share deal these liabilities travel with the company, so they must be quantified and either priced into the consideration or covered by a tax indemnity.

Regulatory. Map every approval the deal needs. Competition clearance is the headline, but sector approvals frequently sit alongside it.

Merger clearance: the threshold analysis

Whether a deal must be notified turns on the 2019 merger thresholds, measured by the parties’ turnover or assets (whichever is higher) in Kenya:

• Combined turnover or assets of KES 500 million or less: excluded — no notification required.
• Combined between KES 500 million and KES 1 billion: the merger may be eligible for exclusion, but the parties must still apply to the CAK to confirm it before closing.
• Combined KES 1 billion or more, with the target’s turnover or assets above KES 500 million: full notification is mandatory.
• Mergers in the carbon-based mineral sector carry their own notification rule regardless of value.

A regional layer sits on top. Where the parties operate in two or more COMESA member States and meet the COMESA Competition Commission thresholds — broadly, combined regional turnover or assets of at least USD 50 million, with each of two parties at USD 10 million or more — the deal must be filed with the COMESA Commission. Where that threshold is met and at least two-thirds of the turnover or assets are in Kenya, the CAK must also be notified; where less than two-thirds is in Kenya, the CAK filing falls away and COMESA takes it.

Two points are non-negotiable. First, an unnotified notifiable merger is void and has no legal effect. Second, implementing a merger before clearance — “gun-jumping,” including premature integration or exchange of competitively sensitive information — exposes the parties to penalties of up to 10% of annual turnover. In our view the threshold analysis belongs at the very start of a deal, because it dictates the timetable and the standstill obligations the parties must observe.

On process, once a merger is notified the CAK may request further information within 30 days and is generally expected to decide within 60 days, with extensions for complex cases. Straightforward, non-overlapping transactions can be regularised quickly; deals raising competition or public-interest concerns — employment, local participation, market access — move to a fuller review, and the CAK can approve, approve with conditions, or prohibit. Decisions are appealable to the Competition Tribunal and then the High Court.

Sector and foreign-investment approvals

Kenya does not operate a general foreign-investment screening regime, and a foreigner can generally own 100% of a Kenyan company outside a handful of restricted sectors. But sector regulators impose their own change-of-control approvals that run in parallel with competition clearance — the Central Bank of Kenya for banks, the Capital Markets Authority for listed companies and licensees, the Insurance Regulatory Authority for insurers, the Communications Authority for telecommunications and broadcasting, and EPRA in energy. Each has its own timetable, and missing one can be as fatal to completion as missing the CAK. Identify them in the regulatory workstream and sequence them deliberately.

Tax in the deal

Tax is where value quietly leaks. A disposal of shares or property generally attracts capital gains tax on the net gain (currently at 15%), which bears on the consideration and on who carries it. Stamp duty can arise on certain transfers. A change of control can also trigger contractual and regulatory consequences — accelerated debt, re-tendered licences, or the loss of incentives. These should be modelled before signing, not discovered at completion.

From diligence to the contract

Diligence is only useful if it changes the deal. The findings should feed four levers in the sale and purchase agreement. Conditions precedent capture the approvals — CAK or COMESA clearance, sector consents, third-party change-of-control waivers — that must be satisfied before completion. Warranties allocate the risk of the unknown, supported by a disclosure letter that qualifies them against what diligence revealed. Indemnities address identified, quantifiable risks — a specific tax exposure or live dispute — on a pound-for-pound basis. And escrow or a retention, together with a material adverse change clause, protects the buyer between signing and completion. A well-run diligence exercise is, in the end, the evidence base for every one of these terms.

What you should do now

• Settle the structure early — share or asset purchase — because it drives diligence, tax and consents.
• Run the threshold test first to confirm whether CAK and/or COMESA clearance is required, and observe a standstill until cleared.
• Scope diligence across all four workstreams and brief advisers on what matters commercially, not just legally.
• Map every approval — competition plus sector — and build a realistic clearance timetable into the deal calendar.
• Translate findings into terms — conditions precedent, warranties, a disclosure letter, indemnities and escrow.

Frequently asked questions

What counts as a “merger” under Kenyan competition law?

Any acquisition of direct or indirect control over the whole or part of a business or its assets, including certain joint ventures. The test is control — the ability to materially influence strategic decisions — not a fixed shareholding percentage.

When must a merger be notified to the CAK?

Notification is mandatory where the parties’ combined turnover or assets in Kenya are KES 1 billion or more and the target’s turnover or assets exceed KES 500 million. Smaller deals may be excluded or eligible for exclusion on application.

What is “gun-jumping” and why does it matter?

Implementing a merger — through premature integration or exchanging competitively sensitive information — before clearance. It can attract penalties of up to 10% of turnover, on top of the merger being void.

Do we need COMESA clearance as well?

A deal meeting the COMESA thresholds must be filed with the COMESA Competition Commission, and where two-thirds or more of the turnover or assets are in Kenya, the CAK must also be notified.

Should we structure as a share or asset purchase?

A share purchase carries continuity but inherits historic liabilities; an asset purchase limits inherited liability but requires contracts and licences to be transferred or re-applied for. The right answer depends on the target’s liability profile, tax and the consents involved.

Disclaimer: This article has been prepared for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship. Nothing in this article is intended to guarantee, warranty, or predict the outcome of a particular case and should not be construed as such a guarantee, warranty, or prediction. The authors are not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. Readers should take specific advice from a qualified professional when dealing with specific situations.