Mergers & Acquisitions (M&A) Success Fee: Structuring Deals for Success in Nigeria

Get started

Call-to-action

Tel: (+234) 802 320 0801, (+234) 807 576 5799)

E-Mail: enquiry@mocaccountants.com

Office Address: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria.

Introduction

Analysis of M&A Activities Worst Practices in Nigeria Mergers and acquisitions are great business transformer in the diverse economy of Nigeria as they offer opportunities for firms. They are able to scale their systems, acquire new revenue streams or enter new markets. Nigeria has a variety of M & A activities that include, Energy & Oil Sector: Mergers aimed at the consolidation of assets and exploration of new lodes for the enhancement of operational efficacy.

Financial Services: Mergers to satisfy the requirements of regulatory capital thresholds or to gain additional revenue within new territories.

Telecommunications: Mergers and acquisitions of the smaller participants in the business by big companies in a bid to enlarge the market share of the bigger companies.

Technology and Fintech: Merger or acquisition by well-established companies that are incurred as a result of the growing digital economy of Nigeria and the need for continual innovations in the economy.

M&A transactions in Nigeria are characterized by sophisticated negotiations, compliance with regulatory issues, and due diligence. These bargains require expertise in order to overcome such challenges as regulatory approvals, and the intricacies of the local environment the market and international relations. The Nature of Success Fees and Its Application in Nigerian M&A Transactions Success fees: these are essential aspects of M & A advisory in Nigeria and serve the purpose of encouraging advisors to work towards maximizing the results for their clients. Such payments are based on the adage; no sale no money; hence the fees are payable only once the transaction has been consummated.

According to our interviewees, success fees in Nigerian M&A are used for the following purposes:

Facilitating the Completion of Disputes: Advisors are compelled to ensure disputes are resolved, whether these are due diligence, valuation disagreements or meeting regulatory requirements.

Encouraging Focus: Success fees help in establishing goals to be achieved by a client and advisor so that both work towards gaining the maximum deal value and favorable deal terms.

Absorbing Risk by Clients: Clients are able to lower their total initial costs, paying a significant amount of fees only when actual value is achieved.

Fostering Creativity: Advisors are motivated to solve deal challenges with local issues, such as local governance or how to expand the deals across borders.

Why Does the Success Fee for Advisors in Nigerian M&A Needs to Be There?

Success fees in Nigeria should be structured in a way that is suitable for the various conditions prevailing in the economy, the regulatory framework, and the business system. Some important factors are:

Favorable Fees in Relation to Sectors: Sectors such as oil & gas, telecom, and FinTech that are prone to complex regulations should have the fee setting mechanism that captures the complexity of issues and the technical valuations required.

Regulatory Constraints: The case of Nigeria has laws such as the securities and exchange commissions (SEC), which imposes restrictions ensuring that properly defined fee arrangements are both explicit and comply with local operations.

Underlying Strength of the Local Currency: Due to the high level of instability of exchange rates in the Nigeria economy, it may be necessary for the success fees, especially in the case of cross border transactions, to have mechanisms in place to protect vulnerable currencies.

Complexity of the Deal Size: In Nigeria, for instance, the percentage of success fees related to deals involving local SMEs acquisitions would be relatively smaller than towards larger deals that involve foreign multinationals.

Cultural Context: It is important to concur on a success fee in a manner that does not offend the local customs and business practices and relationships.

Definition and Application in the Nigerian Business Environment Entity in Hill and Jones 2004 links success fees to paying advisors for their effort on a transaction, only if the transaction was completed.

Business practice has defined and tilted success fees towards transactions in merger and acquisitions practice in Nigeria based on regulatory requirements perspective.

Success fees in the Nigerian context would apply in situations of unique challenges such as regulatory complexities and economic instability. On the basis of the foregoing, success fees must be paid as incentives to advisors to overcome such hurdles and realizable targets.

In Nigeria this has become a norm. Most fees charged by the domestic M&A advisors are based on the total value of the transaction, with success being very much the ‘goal’, or central to the concept of a fee or the reward with regard to the size impact and scale of the effort.

Most financial advisors, investment banks and consulting firms do incorporate success fees into their structures for a result-oriented approach to their assignments.

Advisors now charge a success fee for transactions especially in lateral mergers and acquisitions in Nigeria in order to perform their work effectively and demonstrably well.

Aligning success fees chargeable in the practice on international and local mergers and acquisitions transactions include: they guarantee hope for a Successful Conclusion

Encouraging Results-Driven Efforts The performance-based nature of success fees makes it possible for advisors to exert more effort in overcoming challenges like securing regulatory approval, resolving market valuations, and addressing due diligence issues which are often present in Nigeria.

Facilitating Trust in Cross-Border Deals In cross-border transactions, success fees provide assurance to foreign investors of the advisor’s ability and willingness to work through understanding the Nigerian regulations and culture.

Reducing Upfront Costs Success fees, in effect, reallocate a large percentage of advisors’ remuneration to post-deal closure, thereby enabling businesses not to fully finance while the deal is being closed.

Differences Between Retainers and Success Fees in Nigerian Practices In Nigerian M&A, there is always a retainer (some upfront payment) and the success fee attached to the fee arrangement. Awareness of these differentiations aids businesses’ decision-making processes.

Retainer Fees Purpose: To provide for early-stage advisory expenses like investigations, value addition and pre-transaction negotiations.

Timing: Paid in advance or in parts with the conduct of the advisory services.

Risk: Clients are expected to pay this amount even in situations where the deal does not go through, this is a form of commitment to receiving advisory services.

Success Fees Purpose: It is aimed at compensating those who made an effort to secure the transaction.

Timing: Only when the transaction is completed can those be paid, more often than not, they are calculated as a percentage of the total value of the deal.

Risk: Advisors are in danger of being compensated in a case where the transaction was not completed, which is what makes them action oriented and focused on execution.

How Success Fees are Settled and Contracted

However, in Nigeria, success fees can be freely negotiated and are determined by the following:

Transaction Size: The percentage of success fees usually decrease for larger transactions since they are worth more in terms of value.

Complexity: Such complex and tailored deals would be negotiated in case a lot of regulations need to be complied with, many jurisdictions need to be involved or its structuring is highly complex.

Advisory Role: The advisors who are responsible for managing layoffs of the deal, its negotiations and diligence are therefore if such a fee is earned likely to have depend on a greater success fee.

Complete and well signed documentation of how success fees are to be shared is important in resolving disagreements. Agreements can specify:

The conditions to be satisfied before payment, which will identify the trigger: Phases of closing the deal (for example, conclusion of a detailed review, conclusion of ownership transfer, etc.).

Rules of the mathematics associated with fee division and the value of the deal: Such as how the business will apply the percentage fee to the total value of the transaction.

Incidence or time frame of payment: When and how determination of settlement of the success fee takes place.

Determinants of Success Fees in Nigeria

While success fees are customary in any mergers and acquisitions (M&A) deal, it is advisable to begin with an ordinary fee and the rest of the fees on a success basis dependent on the transaction, the advisor in charge of the business and the circumstances of that period, however, this isn’t universal in every country. Such aspects in Nigeria have been defined within the context of the country’s peculiar regulatory, economic and cultural environment. The following are success fee determinants in Nigeria:

The Scope and Structure of the Transaction

The amount earned as a fee depended mainly on the scope of the transaction and its structure as shown below.

Large-Scale Transactions: In parts of Western offshore energy resources or businesses, or Telecommunication companies, these businesses clients charge very low success fee percentages as the returns are quite huge.

Small and Medium-Sized Transactions: In other sectors such as retail or agriculture smaller businesses or lower deals could even go as high as making a commission of higher percentages.

Simplicity: Involves simple transactions that usually include complicated deal structures as well as long negotiation periods, these justify charging a higher fee that others earn.

Industries within the Country & the Market Forces

The structure of the fees is also influenced by other industries within the country and the forces of the market including all the competition that exists. There is a high level of sophistication in the following industries

Oil & Gas: Oil and Gas is one of those industries that involve a lot of capital and risk. Highly competitive industries will also warrant specialists and therefore also specialty fees for the services offered.

Financial Services: Banking or fintech’s’ activities that fall under the ambit of the CBN may complicate transactions even further due to the limitations that they impose on them.

Technology and FinTech: Fast budding sectors where advisors justify high success fees due to their knowledge in valuation, scalability, and other resources.

Agriculture And Manufacturing: These may attract some form of government subsidies or incentives thereby necessitating regulatory competence that bears on tariffs applicable.

Regulatory Environment

The regulatory environment in Nigeria is a major factor in determining success fees:

Compliance with the Local Laws: The need to comply with the SEC guidelines, FCCPC, and industry regulations places an extra burden on the advisor.

Regulatory Risks: Loss and the likelihood of unrealistic timeframes within which approvals will be issued or permanent shifts in policy can escalate advisor efforts and risks leading to high success fees.

Cross-Border Transactions: In instances where a foreign investor is involved, compliance with the foreign investment and foreign exchange laws of Nigeria can add difficulties and therefore lead to increased success fees.

Advisor’s level of participation

The success fee is also determined by the extent to which the advisor participated in the transaction:

Full-Service Advisory: High fees are charged by Advisors who provide end-to-end services such as valuation, due diligence, structuring, and negotiating the deal.

Specialized Roles: In the deal, more specific and specialized advisors such as those helping with taxes or those ensuring the deal is legal may still receive some form of payment dependent on their contribution to the success of the deal.

Risk and Contingent measures

Success fees in Nigeria, like elsewhere, are proportionate to the risks that any transaction is expected to generate:

Market Risks: Changes in the Nigerian currency or even the market trends create risky opportunities and success in payments earned is increased due to such considerations.

Political risks: They consider political risk or delay taking place due to any change in the political environment, particularly in areas which are more dependent on the government.

Risk in deal making: In transactions that have high risks due to disputes on valuation or because of approval delays, the providers of consultancy services charge higher fees in order to cater for such risks.

Risk of exchange rate fluctuations

Particularly, currency exchange risks are very important when cross borders:

Foreign Exchange (FX) Risk: Just as the transaction advisors take into account the risk of the Nigerian Naira depreciating against the USD, such depreciation will impact the deal and even the advisory fees.

Domestic and Foreign: In the case of foreign investors investing in the deals, the fees do not try and hedge against any currency exchange fluctuations because they are in stable foreign currencies such as the US dollar or the euro.

The Power of Negotiation and the Demand in the Market

The advisor’s fame, skills, experiences, and even leverage can impact the success fees:

Advisory Firms’ Market Reputation: Wiping their records clean, is a no go amongst Mergers and Acquisitions in Nigeria due to their fee building experience.

Advisors’ Market Demand: In a rapidly developing industry, it is not surprising for the technology or energy sectors to be pricey with economists in high demand for advisors.

Cross-Cultural and Cross-Regional Aspects

The success fees are also affected by the cultural and regional factors in Nigeria;

Beliefs: Deals among Nigerians are significantly built on trust and relationships which may influence fee disbursement.

Economic Differences: Terms of the fee may differ in the case of the transaction taking place in a more developed region like Lagos or Abuja in comparison to less developed regions.

Common Success Fee Models in Nigeria Situations

The success fee models used in Nigeria Mergers and Acquisitions (M&A) business is meant to suit the varying expectations of the clients as well as the peculiarities of the transaction. The following are the major success fee models used in Nigeria, their structure and benefits as well as the industries in which they are frequently applications:

Flat Fee Structure Model

Success fee is determined by charging a certain percentage of the value of the transaction. As an illustration, should an advisor charge 2 percent of the sale price that was achieved due to advisor’s activities, this is the percentage of value of the deal that should be paid to him.

Applications in Nigeria:

Typical of simple transactions such as the acquisition of small and medium enterprises.

Common in industries with stable deal patterns like retail and manufacturing

Advantages:

Straightforwardness: All calculations are made easy to understand by both parties.

Clarity: The cost associated with the services is explained beforehand in detail.

Challenges:

It may not take into account intricate issues or the amount of work needed to complete more involved projects.

Percentage Tiered Model Structure

Applications in Nigeria:

There is a reliable and high usage frequency in some high-value transactions, particularly in the oil & gas, telecommunications, and banking industries.

Fit for transactions within which the advisor to earn a higher fee for a higher deal size.

Advantages country risk:

Justice: It affects the smaller and the larger portions of the transaction in the ratio.

Stimulates Great Transactions: There is a great incentive to those who are able to close the deal for great amounts.

Challenges: It is harder to calculate it, and tougher to come up with an agreement on it.

A Fixed Flat Fee Added with a Percentage Model

Description:

Description:

In this model, the success fee is calculated on a sliding scale, with different percentages applied to portions of the transaction value. For example:

2% for the first ₦1 billion of deal value.

1.5% for the next ₦2 billion.

1% for any amount above ₦3 billion. Applications in Nigeria:

These are suitable for large contracts that necessitate high performance efforts, such as heavy due prices or long regulatory elements.

This Model is Very Common: This approach is often followed in cross ballistics M&A transactions that require foreign investors.

Advantages:

Covers Early Crush Work: In this case, difficult solutions of flat fees and more affordable recovery expenses.

Balances strategy: They focus on the stage of the contract being signed rather than the preferential stage over the contract timeframe.

Challenges:

Some clients may be put off by the higher upfront charge.

Fee Dependent on Success in Percentage Model

Description:

In Proportion to Achievement, the payment’s success ratio is earned through completing certain portions or attaining certain deal values. E.g., If the worth of the transaction is greater than three billion no one, two thousand and eighty-one. If the worth of the transaction is less than five billion. But two you.

Applications in Nigeria:

Ideal for engaging in contracts with an uncertain outcome like tenders or sudden variations in value.

Prevalent in industries such as the technology and real estate ones which recommend broad ranges in their valuation.

Advantages:

Performance-oriented: Remunerates the deal makers based on higher deal values.

Versatility: Fit for many circumstances with different outcomes in any transactions.

Challenges:

Such scenarios tend to resolve in disputes about when some defined actions warrant payment.

Retainer Plus Success Fee Model

Description:

It is a model where the client pays a retainer at the beginning of the transaction, and the advisor is rewarded based on the successful completion of the deal. For instance, ₦2 million retainer + 2 percent on the total value of the deal.

Applications in Nigeria:

Common in transactions that require significant valuation activities, appropriate approvals, and discussions.

Commonly found in intricate areas such as energy, financial services, and telecom transactions.

Advantages:

Captures Initial Costs: It guarantees that the first expenses of the advisor, irrespective of whether the deal wraps, are reimbursed.

Fosters deal Making: The principal fee depends on the successful closure of the required transaction.

Challenges:

Can be un-attractive for clients that do not prefer paying before the transactions are complete phase.

Success Fee with Milestone Payments

Description:

This model allows for the payment of the success fee in parts during various key points of the transaction namely, upon signing of the term sheet, twenty five percent of the success fee will be paid. Fifty percent of the fee will be paid another twenty five percent will be paid upon finalization of the transaction.

Nigerian application: Active when such deals would require host of regulatory or procedural clearances. Common in areas like infrastructure development, construction, energy and communication industries. Advantages: Minimizes Payment Risks: Advisors’ fees are settled in respect to the amount of work performed. Cheapens the cost of patience: Achieves commitment from both sides by providing a reason to reach certain temporary targets. Challenges: Complicated to administer and manage, thus require extensive contracts and legal documents.

Success Fee Plus Equity Model Description

This specialized strategy enables advisors to receive part of their success fee in the form of shares in the acquirer company or the newly formed merged entity.

Applications in Nigeria: Characteristics of many tech and startup environments where there may be low cash flow but there is ample equity growth potential.

Advantages: Offers Long-term’s benefits: Advisors gain from the company’s future expansion. Satisfies Startups’ Needs: Alleviates the expenses on cash outflow while at the same time compensating the advisors based on their skills.

Challenges: Concerns over HTML Embed This document provides the user-generated feedback templates for beginning and seasoned youths. Equity component valuation fights are bound to exist. Advisors are put to increased risk since the value of equity is determined at the future times.

What Are Mergers and Acquisitions (M&A)?

Mergers and acquisitions (M&As) are the different ways companies are combined. Entire companies or their major business assets are consolidated through financial transactions between two or more companies. A company may:

• Purchase and absorb another company outright
• Merge with it to create a new company
• Acquire some or all of its major assets
• Make a tender offer for its stock
• Stage a hostile takeover876

All of these ways of combining or consolidating assets are M&A activities. The term M&A also is used to describe the divisions of financial institutions that facilitate or manage such activities.

Key Takeaways

• Mergers and acquisitions (M&A) refer to the ways businesses, or their assets, are consolidated or combined.
• In an acquisition, one company purchases another outright.
• A merger is the combination of two firms, which subsequently form a new legal entity under the banner of one corporate name.
• Mergers and acquisitions require the valuation of a company or its assets to decide how much to pay for those assets.
• M&A can be financed through a combination of debt, cash, and stock.

What’s an Acquisition?

Understanding Mergers vs. Acquisitions

The terms mergers and acquisitions are often used interchangeably, however, they have slightly different meanings.

When one company takes over another and establishes itself as the new owner, the purchase is called an acquisition. Unfriendly or hostile takeover deals, in which target companies do not wish to be purchased, are always regarded as acquisitions. However, an acquisition can also be done with the willing participation of both companies.

On the other hand, a merger describes two firms that join forces to move forward as a single new entity, rather than remain separately owned and operated. In general, the two firms are of approximately the same size, and this action is known as a merger of equals.

For example, when Daimler-Benz and Chrysler merged, the two separate companies ceased to exist. Instead, the new company DaimlerChrysler was created. Both companies’ stocks were surrendered, and new company stock was issued in its place.1 In a brand refresh, the company underwent another name and ticker change to the Mercedes-Benz Group AG (MBG) in February 2022

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies.

A deal can be classified as a merger or an acquisition based on whether the acquisition is friendly or hostile and how it is announced. In other words, the difference lies in how the deal is communicated to the target company’s board of directors, employees, and shareholders.

Lara Antal/Investopedia MEGER

M&A deals generate sizable profits for the investment banking industry, but not all mergers or acquisition deals close.

Types of Mergers and Acquisitions

The following are some common transactions that fall under the M&A umbrella.

Mergers

In a merger, the boards of directors for two companies approve the combination and seek shareholders’ approval. This type of M&A activity is designed to boost both brands, allowing each to bring their existing strengths to a new company and create a bigger piece of the industry pie for the new company that is formed.

For example, in 2024, HBC announced that it was acquiring the Neiman Marcus Group and merging it with another brand that it owned, Saks Fifth Avenue. Both NMG (which owns Neiman Marcus and Bergdorf Goodman) and Saks are luxury retailers, but their share of retail sales has declined with the rise of online shopping and the reduction of brick-and-mortar retail. The merger will consolidate the three existing brands (Saks, Neiman Marcus, and Bergdorf Goodman) into a single luxury retail brand known as Saks Global. This consolidation is intended to make it easier to compete with online retail giants.

Acquisitions

In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its organizational structure. In some cases, the target company may require the buyers to promise that the target business remains solvent for a period after acquisition through the use of a whitewash resolution. An acquisition often allows the acquiring company to move into a new or related industry, expanding its offerings by tapping into the acquired company’s existing customer base and services.

An example of this type of transaction was Amazon’s acquisition of Whole Foods in 2017. The acquisition allowed Amazon to expand into grocery delivery services (groceries make up a large portion of many people’s budgets) as well as tap into the market for health-conscious customers.5 Whole Foods, which had been losing market share to customers who could find similar products at lower prices in other grocery chains, benefitted from Amazon’s broad customer base and ease of connecting with consumers.

Consolidations

Corporate consolidation happens when two or more companies combine to increase their market share and eliminate competition. For example, Facebook consolidated its dominance in the social media industry by acquiring other social media companies that had promising business models and could have become competitive with Facebook.

An example of this is when it acquired Instagram in 2012 for $1 billion.6 Instagram continued to operate as a separate company under the parent Facebook company (now Meta Platforms). However, other instances of consolidation under Facebook resulted in acquired social media companies being integrated into the Facebook platform. For example, the messaging service Beluga was acquired by Facebook, then rebranded as Facebook Messenger.7

Tender Offers

In a tender offer, one company offers to purchase the outstanding stock of the other firm at a specific price rather than the market price. The acquiring company communicates the offer directly to the other company’s shareholders, bypassing the management and board of directors. For example, in 2008, Johnson & Johnson made a tender offer to acquire Omrix Biopharmaceuticals for $438 million.9 The company agreed to the tender offer and the deal was settled by the end of December 2008.

Acquisition of Assets

In an acquisition of assets, one company directly acquires the assets of another company. The company whose assets are being acquired must obtain approval from its shareholders. The purchase of assets is typical during bankruptcy proceedings, wherein other companies bid for various assets of the bankrupt company, which is liquidated upon the final transfer of assets to the acquiring firms.

Management Acquisitions

In a management acquisition, also known as a management-led buyout (MBO), a company’s executives purchase a controlling stake in another company, taking it private. These former executives often partner with a financier or former corporate officers in an effort to help fund a transaction.

This type of M&A transaction is typically financed disproportionately with debt, and the majority of shareholders must approve it. For example, in 2022, Tesla Motors CEO Elon Musk purchased Twitter, Inc. for $44 billion, taking the company private. The deal included $25.5 billion of margin loan and debt financing.

How Mergers Are Structured

Mergers can be structured in different ways, based on the relationship between the two companies involved in the deal:

• Horizontal merger: Two companies that are in direct competition and share the same product lines and markets
• Vertical merger: A customer and company or a supplier and company, such as an ice cream maker merging with a cone supplier
• Congeneric mergers: Two businesses that serve the same consumer base in different ways, such as a TV manufacturer and a cable company
• Market-extension merger: Two companies that sell the same products in different markets
• Product-extension merger: Two companies selling different but related products in the same market
• Conglomeration: Two companies that have no common business areas

Mergers may also be distinguished by following two financing methods, each with its own ramifications for investors.

Purchase Mergers

As the name suggests, this kind of merger occurs when one company purchases another company. The purchase is made with cash or through the issue of some kind of debt instrument. The sale is taxable, which attracts the acquiring companies, who enjoy the tax benefits. Acquired assets can be written up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company.

Consolidation Mergers

With this merger, a brand-new company is formed, and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

Vertical vs. Horizontal Acquisitions

Horizontal integration and vertical integration are competitive strategies that companies use to consolidate their position among competitors. Horizontal integration is the acquisition of a related business. A company that opts for horizontal integration will take over another company that operates at the same level of the value chain in an industry—for instance when Marriott International, Inc. acquired Starwood Hotels & Resorts Worldwide, Inc.

Vertical integration refers to the process of acquiring business operations within the same production vertical. A company that opts for vertical integration takes complete control over one or more stages in the production or distribution of a product. Apple, for example, acquired Authentic, which makes the touch-ID fingerprint sensor technology that goes into its iPhones.

How Acquisitions Are Financed

A company can buy another company with cash, stock, assumption of debt, or a combination of some or all of the three. At times, the investment bank involved in the sale of one company might offer financing to the buying company. This is known as staple financing and is done to produce larger and timely bids.

In smaller deals, it is also common for one company to acquire all of another company’s assets. Company X buys all of Company Y’s assets for cash, which means that Company Y will have only cash (and debt, if any). Of course, Company Y becomes merely a shell and will eventually liquidate or enter other areas of business.

Another acquisition deal known as a reverse merger enables a private company to become publicly listed in a relatively short time period. Reverse mergers occur when a private company that has strong prospects and is eager to acquire financing buys a publicly listed shell company with no legitimate business operations and limited assets. The private company reverses merges into the public company, and together they become an entirely new public corporation with tradable shares.

How Mergers and Acquisitions Are Valued

Both companies involved on either side of an M&A deal will value the target company differently. The seller will obviously value the company at the highest price possible, while the buyer will attempt to buy it for the lowest price possible. Fortunately, a company can be objectively valued by studying comparable companies in an industry, and by relying on the following metrics.

Price-to-Earnings Ratio (P/E Ratio)

With the use of a price-to-earnings ratio (P/E ratio), an acquiring company makes an offer that is a multiple of the earnings of the target company. Examining the P/E for all the stocks within the same industry group will give the acquiring company good guidance for what the target’s P/E multiple should be.

Enterprise-Value-to-Sales Ratio (EV/Sales)

With an enterprise-value-to-sales ratio (EV/sales), the acquiring company makes an offer as a multiple of the revenues while being aware of the price-to-sales (P/S ratio) of other companies in the industry.

Discounted Cash Flow (DCF)

A key valuation tool in M&A, a discounted cash flow (DFC) analysis determines a company’s current value, according to its estimated future cash flows. Forecasted free cash flows (net income + depreciation/amortization (capital expenditures) change in working capital) are discounted to a present value using the company’s weighted average cost of capital (WACC). Admittedly, DCF is tricky to get right, but few tools can rival this valuation method.

Replacement Cost

In a few cases, acquisitions are based on the cost of replacing the target company. For simplicity’s sake, suppose the value of a company is simply the sum of all its equipment and staffing costs. The acquiring company can literally order the target to sell at that price, or it will create a competitor for the same cost.

Naturally, it takes a long time to assemble good management, acquire property, and purchase the right equipment. This method of establishing a price certainly wouldn’t make much sense in a service industry wherein the key assets (people and ideas) are hard to value and develop.

Impact on Shareholders

Generally speaking, in the days leading up to a merger or acquisition, shareholders of the acquiring firm will see a temporary drop in share value. At the same time, shares in the target firm typically experience a rise in value. This is often because the acquiring firm will need to spend capital to acquire the target firm at a premium to the pre-takeover share prices.

After a merger or acquisition officially takes effect, the stock price usually exceeds the value of each underlying company during its pre-takeover stage. In the absence of unfavorable economic conditions, shareholders of the merged company usually experience favorable long-term performance and dividends.

The shareholders of both companies may experience a dilution of voting power due to the increased number of shares released during the merger process. This phenomenon is prominent in stock-for-stock mergers, when the new company offers its shares in exchange for shares in the target company, at an agreed-upon conversion rate. Shareholders of the acquiring company experience a marginal loss of voting power, while shareholders of a smaller target company may see a significant erosion of their voting powers in the relatively larger pool of stakeholders.

Key Factors Influencing Success Fee Structure

In the perspective of an M&A success fee, the framework may vary significantly given the following considerations:

1. Transaction Size: There are lower percentage fees for larger transactions due to the size of the transaction but in smaller transactions, higher percentages can be attracted.
2. Industry Complexity: Industries that have more complex regulatory or operational environment like oil and gas or telecommunications in Nigeria will require in most cases higher fees because of the complexity of the advisory services offered.
3. Advisor Expertise: Advisors with a lot of experience coupled with a track record of accomplishment will have their success fee set at a high level as that is their ability to provide value.
4. Deal Risk and Likelihood of Closure: For such transactions which are highly unpredictable or those that involve legal and financial risks, higher fees are usually required for advisors for their engagement in such transactions.
5. Payment Timing: Success fees can be paid in one lump sum at the end of the deal or after a number of milestones like getting the required approvals or achieving the objectives of the merger post completion of the merger.
6. Local Regulatory Environment: In Nigeria, issues like compliance to the Companies and allied Matters Act (CAMA) and other relevant industry’s regulation may necessitate certain fees to be charged and other delays in time frames.

According to reports, with a clear picture of the success fee structure, the deal can be negotiated properly in the M&A dealings.

Key motivations include:

1. Aliening Awards: Now that there is a clear fee, it encourages the advisors to aim at accomplishing their client objectives whether it is increasing the deal or closing the deal faster.
2. Cost Containment: For companies especially small and medium sized companies (SMEs), understanding the fee structure helps in budgeting for consummation deal cost without any surprises.
3. Minimization of Conflicting Interests: Inevitably such conditions increase violation of strategic interests by the advisors who tend to focus on consummating the transaction rather than on creating its long-term value.
4. Creating Financial Clarity: Vertical clarifies the rules of business – how much you will pay for the advisor and how much the client can expect to pay the advisor if the transaction is successful.
5. Handling Tough Transactions: In Nigerian mergers and acquisitions, how applicable the success fee models are in negotiating such deals as Currency risks and Regulatory issues around M&A make the pieces that address these jigsaw puzzles to be intertwined. Any successful business M&A transaction does have a success fee attached and knowing this will help shield expectations and plan ahead. The Components of M&A Success Fee in Nigeria Economics, legislations, policies and practices have been the most important context shaping the components and the assessment of the success fees in Nigeria.

Understanding these factors is crucial for companies and advisors in order to draw up win-win contracts. The following are the main parameters which guide the amount of success fees payable for M&A in Nigeria.

How Do Mergers Differ from Acquisitions?

In general, “acquisition” describes a transaction, wherein one firm absorbs another firm via a takeover. The term “merger” is used when the purchasing and target companies mutually combine to form a completely new entity. Because each combination is a unique case with its own peculiarities and reasons for undertaking the transaction, the use of these terms tends to overlap.

Why Companies Acquire Other Companies

Two of the key drivers of capitalism are competition and growth. When a company faces competition, it must both cut costs and innovate at the same time. One solution is to acquire competitors so that they are no longer a threat. Companies also grow by acquiring new product lines, intellectual property, human capital, and customer bases. By combining business activities, overall performance efficiency tends to increase, and across-the-board costs tend to drop as each company leverages the other company’s strengths.

What Is a Hostile Takeover?

Friendly acquisitions are most common and occur when the target firm agrees to be acquired; its board of directors and shareholders approve of the acquisition, and these combinations often work for the mutual benefit of the acquiring and target companies.

Unfriendly acquisitions, commonly known as hostile takeovers, occur when the target company does not consent to the acquisition. Hostile acquisitions don’t have the same agreement from the target firm, and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest, which forces the acquisition.

Mergers and acquisitions, or M&A, are the different ways that businesses and their assets can be bought, consolidated, or combined with another business. An acquisition is usually the outright purchase of one company by another; in a merger, the two businesses generally combine to form a new company.

Both mergers and acquisitions can be financed through a combination of stock, debt, or cash. They may be friendly or unfriendly; an unfriendly acquisition is often known as a hostile takeover and is not desired by the acquired company.

Legal and Regulatory Considerations in the Payment of Success Fees on M&A Transactions in Nigeria

Considerations with respect to law and regulations are crucial when structuring, negotiating, and implementing success fee arrangements in Nigerian M&A transactions. When properly addressed, these concerns ensure compliance, the likelihood of dispute is greatly reduced and the clients build more confidence in their advisors. Ahead is a detailed discussion of these considerations:

Compliance with Nigerian Contract Law

Success fee agreements are success fee agreements because they are contracts under Nigerian law, which guarantees that the agreements are reasonable and realistic. The following are key principles:

Offer and acceptance: Both parties are under obligation to agree to the success fee provisions, in this case, when and how it shall be paid or computed.

Consideration: The amount is for services rendered for any advice given towards the close of the transaction or reaching some other agreed benchmarks.

Terms of the agreement: All terms should be in the form of a contract to be signed by both parties to avoid disputes.

There are however other obligations for the advisors, that is, a contractual obligation to observe the normal and general principles of fairness and good faith as recognized under Nigerian law.

Oversight, Supervision, and Regulation of the Securities and Exchange Commission (SEC)

In dealing with transactions with public companies or large private companies, the SEC has a significant role in fostering transparency and safeguarding the interest of the stakeholders. Certain considerations include, but are not limited to, the following:

Disclosed Incentive Fee: Success fee obligations shall be submitted as part of the M&A papers, so that all potential parties to the transaction understand the cost.

Valuation Measures: The SEC might evaluate and assess the dealt values that were arrived at particular stages in the deal since that inflates the success fee.

Regulatory Approval Procedures: As time goes in coordination with the advisors around fee provisions, the SEC timelines and requirements may affect the ways the agreements are structured.

Delocalized Management Options: Comparative-Regional Studies

Some sectors in Nigeria have particular provisions that affect M&A transactions and, by extension, success fee arrangements:

Banking and Finance: For mergers or acquisitions in the financial institution’s sector, the Central Bank of Nigeria (CBN) has drafted tough rules that require background checks and even detailed financial reports to be approved.

Oil and Gas: Endorsements by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) or the Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) may alter the times and payment schedule for advisers.

Telecommunications: Orders for transactions in the telecom sector are handled by the Nigerian Communications Commission (NCC) which also upholds licensing and ownership of spectrum per regulation.

Every single one of these regulators is likely to add costs, timelines or some compliance measures, that they need to account for while structuring success-based fees.

Taxation of Success Fees in Nigeria

By law, success fees are taxable in Nigeria and both advisors and clients need to be aware of tax considerations:

Withholding Tax (WHT): Clients must withhold tax (WHT) on payments of success fees, usually at a rate of ten percent

Value Added Tax (VAT): Success fees attract VAT at the rate fixed from time to time based on the advisory contracts.

Corporate Income Tax (CIT): CIT is due to advisors on the net amount of success fees earned, and this cost is essential for pricing.

The tax liabilities that accrue to the parties can also be minimized through a well designed and structured agreements.

Foreign Exchange Regulations

In the case of cross border Mergers & acquisition where foreign investors are involved CBN foreign exchange and capital importation regulations are applicable:

Repatriation of Fees: The advisors may have to repatriate up the success fees, the currency of which will be in foreign exchange and which the CBN has authorized its remittance.

Exchange Rate Risks: Owing to the fact that success fees will be generated for international transactions, cross currency exchange risks will impact on the negotiations and amount stated in the agreements.

Anti-money Laundering (AML) and Combating the Financing of Terrorism (CFT)

For success fees in Nigerian M&A deals to be legal and ethical, they must not be sourced or used for any illegal activities or purposes, hence the importance of the AML and CFT measures:

Client Identification and Verification: Advisors are required to verify the background of their clients and the other parties involved in the transaction.

Payments for success fees are reported to the appropriate authorities for monitoring. All the movements of funds are properly documented.

International Standards and Treaties

Where the M&A is several cross-border jurisdictions, there is a possibility that such fees would conform with international standards and treaties which Nigeria is a signatory:

Double Taxation Agreements (DTAs): Treaties for avoidance of double taxation between Nigeria and other countries of success fees can influence the tax dealing regard success fees.

International Financial Reporting Standards (IFRS): In a specific transaction, the parties should observe the relevancy that meets IFRS in order to prepare comprehensive financial reporting and valuation.

Arbitration and Dispute Resolution

There are cases when disputes can occur over success fee agreements and this normal in mergers and acquisition where the stakes are fairly high for each of the parties involved. In order to reduce risks:

Dispute Resolution Clauses: Whenever possible, disputed cases with these specified locations should include relevant clauses to the arbitration and mediation courts including the Lagos Court of Arbitration.

Applicable Laws: Whenever cross border contracts are signed between the parties of the contract, there should be a definite set of terms that say Nigerian law applies to the agreement or any other jurisdiction agreed on by mutual consent.

Ethical and Professional Standards  Acode of ethics and business conduct should be established in the Nigerian M&A market:

Advisors should not just charge a ‘success fee’ but should explain what factor value there was and the size or complexity of the transaction.

Disclosure has to be laid by the advisors on situations that may arise that can borderline their independence.

How Are Success Fees Computed in M&A in Nigeria

The calculation of success fees in recent mergers and acquisitions (M&A) transactions in Nigeria is multifactorial and dependent on legal pluralism, regulatory frameworks, and industry practices. These considerations are significant for the clients and the advisers so that appropriate practices are upheld in terms of fee compliance and fee fairness.

Compliance with the Nigerian Contract Law

Success fee agreements in Nigeria are contracts and as such are enforced by the Nigerian contract law provisions. These include:

Offer and Acceptance: For both of the parties, it should be clear the terms of the success fee such as how it is counted out.

Consideration: The fee is usually a certain fraction of the total value of the transactions as the compensation for the advisor’s service.

Clarity in Terms: Contracts should be unambiguous as to the events that prompt payment, the manner of calculating the payment and the time frames within which the payments should be made, in order to avoid wrangles.

For a contract to have legal standing, it must be in writing, executed and be within the provisions of the Nigerian statutes.

SEC Rule Handbook

For M&A transactions involving public companies in Nigeria, the rules of the Securities and Exchange Commission (SEC) are required by law. Relevant aspects include the following:

Fair Valuation Practices: The SEC is likely to pay attention to the valuation involved influencing the size of the deal since this is what leads to the calculation of success fee.

Fee The Limits: Although these have not been set by the SEC, in practice, fees will also have to be reasonable in order to not attract undue discrimination.

Regulations As To The Industry In Which One Operates

Some industries in Nigeria, for instance, banking, oil & gas and telecommunications, are further regulated. The following regulations might however have an indirect effect on the calculations of success fees:

Banking Sector: There are strict reporting and approvals procedures for M&A transactions involving financial institutions outlined by the central bank of Nigeria which affects the deal timing and fees.

Oil & Gas: Transactions in this sector normally have to go through approvals from the department of Petroleum Resource management (DPR) which modifies the advisors role as well as the fees involved.

Telecommunications: Transactions governed by the Nigerian Communications Commission (NCC) can also affect the value of the transaction and therefore the success fee.

Foreign Exchange and Tax Considerations

With regard to cross-border M&A transactions when foreign investors are involved, the following are eye matters:

Cross-Border Transactions And Foreign Currency Exchange: The Central Bank of Nigeria (CBN) limitations on the movement of funds could also affect when and the currency used in making success fee payments.

Taxation: In Nigeria, the success fee payments are subject to withholding tax under the Nigerian tax law. Consequently, the clients and the advisors should take such payment agreement into account to avoid unpleasant deductions. Working with Articles of Association and fee agreements this way would be more reasonable. Summary of relevant documents with a discussion of key details can be seen in Appendix 5.

Corporate Income Tax (CIT): The gross amounts stated in the contracts would remain the advisor’s fee income taxable, whereas agreements must reflect amounts net of tax or gross amounts accordingly.

Valuation and Deal Metrics One of the factors that are frequently used will also be the determination of success fees hence they are subject to legal or regulatory considerations: The meaning of total transaction value: Success fees are usually earned as a percentage of the value of transactions completed that are not defined somewhere else in the agreement. Examples are: ` Total purchase price Excluding or including assumed liabilities

Regulatory compliance cost: Significant costs involved may affect the amount agreed to eventually systematized to fee payable for success.

Structuring Agreements to Avoid-Controversies The conditions that should guide the determination of the amount of success fee payable in the agreements must include: Payments: Define the performance hob milestones limited to and when payments will be due under the agreement for the acquisition when certain regulatory permission, completion of financing, transfer, and management of the assets are done.

FMC structure: Describe how cross-border acquisition currency exchange rates and cross-border transaction backend fees net absorbed asset containing acquire standard acquisition investment calculator.

Termination pressure/factors M: Detailing threshold minimum amounts of extension of time that has elapsed etc. on regulatory permissions for the acquisition or even finality of the deal.

Professional Standards and Ethical Practices

In Nigeria, the Nigerian Bar Association (NBA) and the Chartered Institute of Stockbrokers (CIS) make it obligatory in their codes of ethics and professional conduct to observe ethical principles in the performance of M and A transactions. It is essential for the advisors to:

Refrain from overcharging: Fee prices should bear some industry standard and correspond to the amount of work and intricacy of the deal.

Avoid conflicts of interests: Parties performing more than one function in a particular transaction should be obliged to declare possible conflicts that may affect fee arrangements.

As long as those legal and regulatory considerations are taken into account, it is possible to structure success fees in Nigerian M&A transactions in a manner that meets standards of fairness and transparency in relation to local and international practices. Would you need for instance fee structure examples that address these issues?

Legal and Regulatory Considerations for Success Fees paid M & A Transactions in Nigeria

Legal and regulatory considerations are very vital when structuring, negotiating, and forming success fee arrangements in mergers and acquisitions within Nigerian M&A transactions. These frameworks, when understood, aid in compliance, reduce the occurrence of controversies and nurtures confidence amongst the clients and the advisors. Here is a good explanation of these considerations.

The Nigerian Contract Law

It is important to note that the success fee agreements are ultimately governed by Nigeria’s contract law, which guarantees that the agreements made will be binding and fair. Several key principles are essential in contractual agreements:

Furthermore, advisors should also ensure that the contract does not contravene any general principles of fairness and good faith as recognized by the Nigerian law.

Statutory Regulation and Supervision by the SEC

The SEC provides the essential level of oversight necessary to instill confidence while performing dealings with public companies or big private companies. Some relevant issues here include:

Fee Disclosure: It is a requirement for M&A documentation to include success fees which the parties are bound to know from the very beginning of the transaction.

Valuation Standards: The SEC might be interested in how the valuation methods were applied in order to get the size o fthe deal since it is very important with the success fee.

Approval Processes: It goes without saying that some covenants affecting the structure of success fee arrangement would necessarily be made to the SECs scheduling and its requirements.

Mergers and Acquisition Sectors Regulatory Frameworks

The following policies need revisiting due to the extent of mergers and acquisitions completed in Nigerian markets ‘institutions – industries’ – to comprise a smaller ratio of regulatory requirements to concern the success fee agreements:

Banking and Financial Services: The CBN has laid down various rules and regulations for the engagement, for merger or acquisition, that involve financial institutions to a point of a comprehensive FBS.

Oil & Gas Sector: Consent of NUPRC, and also NMDPRA to some degree, will affect not only the period taken in acquiring such consents but also the fees payable to advisers.

Telecommunications: The telecom sector is regulated by the Nigerian Communications Commission NCC who seeks to ensure that spectrum license and ownership requirements are adhered to.

Any of these regulators may introduce additional costs, timelines, or compliance requirements that the advisors will have to account for when structuring success fees.

Taxation of Success Fees in Nigeria.

Success fees are taxable in Nigeria and it is prudent for both the advisors and the clients to appreciate the tax risks that come with it:

Withholding Tax: WHT is applicable on success fee payments made by clients. A standard WHT of 10 percent is applicable.

Value Added Tax: VAT also applies to success fees at the applicable rate (currently 7.5 percent), which a client’s invoice must incorporate.

Corporate income tax: CIT is applicable to these earnings net of the success fees for the advisors, which is a critical aspect to consider in the pricing.

In each area, effective structuring of agreements should enable both parties to manage their tax obligations efficiently.

Foreign Exchange Regulations

For cross-border transactions on M&A transactions where foreign investors are involved, the regulations of the Central Bank of Nigeria CBN concerning foreign exchange and capital importation becomes relevant:

Repatriation of Fees: It might be necessary for advisors to repatriate earnings from CP success fees earned in foreign denominations through the CBN authorized channels.

Exchange Rate Risks: When it comes to negotiating fees for worldwide dealings, currency rate divergences can be significant.

Anti-Money Laundering and Combating the Financing of Terrorism

Taking into consideration the AML and CFT laws in place in Nigeria, it is essential to ensure that success fees are not generated from or applied for the advancement of illegal activities.

Know Your Client: All parties to the transaction and all clients must be thoroughly vetted by the advisors.

Transaction Monitoring: It should be ensured that every success fee is not only paid but also that all payments are accompanied by documentation that can be accounted for all.”

International Standards and Treaties

Australia’s participation in DTAs and international treaties may impose additional requirements on the design of success fee agreements within cross-border M&A transactions.

Double Taxation Agreements: Treaties with different contact nations can help mitigate taxes related to success fees.

International Financial Reporting Standards: Transactions should be in compliance with the given standards to be able to report and value information correctly.

Arbitration and Dispute Resolution

There is the potential for disagreements relating to success fees arising from the m&a agreement, particularly in substantial deal size markets. To prevent such occurrences. Resolution of academics’ disputes: Such arbitration clauses will be included in the agreements stating places like the Lagos Court of Arbitration where such mediation and arbitration will take place.

The Law Applicable to a Contract: In a contract, Nigerian law should be the applicable law; this can also be the case in other jurisdictions mutually agreed to for cross-border transactions.

Ethical and Professional Standards

To maintain credibility in the Nigerian M&A market, Advisors must follow ethical practices:

Justification of Fee: Advisory fees, which are success fees to be earned and not incurred, should reflect the level of activity performed in relation to the size and complexity of the transaction.

Mitigating Potential Conflict of Interest: Advisors are required to report to the clients any conflict of interest that is likely to impair their independence.

M&A advisors and clients in Nigeria would, however, be able to set up success fee proportions that are straightforward and comply with the law by addressing these legal and regulatory matters. Would you want more information about the case studies or best practices on success fees structure in Nigeria?

How Success Fees Are Calculated in Nigerian M&A

The calculation of success fees in Nigerian M&A transactions is a nuanced process that is informed by factors such as the size of the transaction, the complexity and nature of the industry, and other negotiated terms between the advisor and the client. Below is a more detailed exploration of how these fees are structured and how they are arrived at in the Nigerian context.

Percentage of the value of the transaction

The greatest proportion of success fees in Nigeria’s transactions is done through a percentage of the value of the deal. Such a value may eventually include:

Enterprise Value (EV): This is the value of the target company consisting of equity and liabilities that are promised to be assumed.

Equity Value: This refers to how much of the shareholders’ equities is worth when the liabilities are omitted from the deal.

Asset Value: In most cases, the amount of fee charged for asset acquisitions is calculated in relation to the value of the assets that are part of the deal.

The percentage rate is determined by the size of the deal:

Tiered Percentages: where the figure is high e.g. 5-10 percent on smaller transactions and where the figure is lower e.g 1-3 percent for the large scale transactions.

Base Fee + The Success Fee

There are some Nigerian M&A deals where the advisors will propose that their fee will be a base fee with a success premium added on it:

Base Fee: This is a type of fee that is paid for advisory services related to the deal without necessarily waiting for it to close.

Success Premium: This type of fee is paid only after certain predetermined success measures have been achieved.

Such a model prevents bidders from publishing final provisions in their documents that allow advisor fees where external issues may cause deals to be off the table.

Sliding Scale Approach A sliding scale approach charges the success fee depending on the degree of complexity or extra value obtained from the deal: Incremental Value Tiers: For instance, the client pays 3% of the first 1 billion deal value, 2% for another one up to 1 billion to 5 billion, and 1% for any figure above 5 billion. Performance-Based Scaling: More fees are charged where the advisors manage to get clients better than anticipated outcomes for instance selling the target at a better price or acquiring it at better terms.

Flat Fee Structures Flat success fee structures are appropriate for smaller and less complicated Nigerian M&A transactions although they are rare. In this structure: A certain amount which will be determined before completion of the deal is charged. Flat fee structures are usually agreed upon early when entering into the agreement and they are more manageable in the cases where the deal size is predictable. 5. Milestone-Based Payment For transactions that require a long time to obtain regulatory approval or involve several different stages of activity, one approach is to set fees according to major deliverables: Initial Deposit: The signatory of the engagement letter must pay a portion of the fee at this stage. Regulatory Approvals: This applies to most fees in exchange for authorization of securities from qualified Nigerian regulators like SEC or CBN, in most instances. Final Payment: The last payment for the fee is made once the transaction has successfully closed which is the final stage of the agreement.

Specific Characteristics of Different Industries

However, some sectors in Nigeria determine the calculation of success fees because of the regulatory and operational characteristics in the sector.

Oil & Gas: Success fees tend to be higher with regard to the worth of the underlying assets such as the proven reserves and may also include premiums for regulatory mismanagement.

Financial Services: Fees are likely to rise in complex transactions with banks/insurance as there would be a more equivalent due diligence and compliance work.

Real Estate: In cases of property transactions, fees may be proportionate to the values of the appraised assets.

The Costs of Others Not Explicitly Quoted

There are other costs which the Advisors may tend to factor in the fee calculation which includes other costs incurred during the transaction:

Due Diligence Expenses: Legal, financial or environmental assessments.

Regulatory Filing Fees: Compensation paid to the Nigerian officials for authorization or for registration.

Costs of Travel and Logistics: This is especially pertinent to cross border M&A transactions.

Terms of Engagement and Practice Standards

However, the determination of the success or completion fee involves a negotiation between the client and the advisor with respect to the following:

Strength of the Client: Big clients are in a position to dictate terms and can push for lower percentage measures in such type of transactions’ cases.

Strength of the Adviser: Clients that have established a strong presence in the industry and have a good number of deals can charge higher fees.

Market Standards: In Nigeria, success fees are said to average between 1% and 10%, depending on the particulars of the deal.

Set-Offs Due to Foreign Exchange (FX)

In cross-border M&A transactions, success fees may also be determined by the prevailing exchange rates:

Agreements in USD or EUR: Fees tend to be calculated in foreign currencies as a safeguard against depreciation of the Naira.

FX Risks: These can be substantial if there is no agreement on the rate at which currencies will be exchanged, as both parties will have to or will agree in principle to the terms of a benchmark rate for UK pounds as the standard.

Regulatory and Tax Adjustments

Such adjustments are necessary so as to avoid any legal problems and repercussions in Nigeria during the success fee/ success bonus calculation that involves the following perhaps:

Withholding Tax (WHT): Subsequent to payment of success fees, this amount is usually withheld at 10 percent

Value Added Tax (VAT): Based on the gross success fee, this amount is charged at the current percentage that is 7.5%

Regulatory Caps: In certain regulated industries, concerns of stakeholders may result in the authorities setting maximum rates on charging of fees.

Conclusion

Success fees are also important in the context of M&A transactions in Nigeria, as they motivate the advisors to perform the processes better. If these fees are set with regard to the specifics of the local markets, governing laws and peculiarities of the deals, all the participants in the transactions will benefit from transparency, fairness and value add factors. Success fees which can take the form of a percentage of transaction value, a flat fee or a tiered model, must also be properly negotiated so that the two sides; the advisors and the clients are satisfied.

In Nigeria’s fast evolving M&A framework, the importance of success fee arrangements in structuring the transactions cannot be understated. With proper planning, due diligence, and appropriate practices, both local and foreign investors have the scope of exploring M&A transactions confidently and without ambiguity.

Call-to-action

Tel: (+234) 802 320 0801, (+234) 807 576 5799

📞 Contact us today: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: enquiry@mocaccountants.com

🌐 Visit Us: 5, Ishola Bello Close, Iyalla Off Street, Alausa, Ikeja, Lagos, Nigeria

Enquiry Contact Form