Mergers and acquisitions (M&A) are processes that lead to the birth of new entities through the combination of two business entities into one, which is more effective and efficient than the two former companies that were independent. In these transactions, financial benefits are accrued to the owners of the original companies. M&A is a vital element of corporate expansion strategies, propelling growth. In Kenya, like other jurisdictions, M&A transactions are subject to specific legal frameworks designed to ensure fair competition, safeguard stakeholders’ interests, and foster economic development. One pivotal aspect of these regulations is the provision for exclusions and exemptions, which grant companies flexibility in their M&A pursuits. This article delves into the fundamental concepts of exclusions and exemptions in M&A transactions within the Kenyan context. Exclusions and exemptions in M&A transactions concern entities that evade the application of specific regulatory provisions. These mechanisms strive to strike a harmonious balance between promoting robust business activities and shielding the market from monopolistic practices. The Competition Act of 2010 and its associated regulations predominantly govern these concepts in Kenya. The Competition Authority of Kenya (CAK) enforces these laws and supervises M&A transactions to ensure adherence.
Exclusions predominantly encompass specific transactions or entities that receive exemptions from the application of certain competition regulations as per the Merger Threshold Guidelines from the Competition Authority of Kenya. In Kenya, certain M&As are excluded from the purview of the Competition Act. These exclusions hinge on factors such as the magnitude of the transaction, the nature of the businesses involved, and the potential impact on competition. The primary criterion for exclusion is often the threshold of combined turnover or assets. Transactions falling below this threshold generally enjoy exemption from competition assessment. This threshold for the combined turnover or assets (whichever is higher), according to The Competition (General) Rules, 2019 of Kenya, is between KES. 500,000,000 and KES. 1,000,000,000. This aims to facilitate smaller businesses and transactions that are unlikely to wield significant influence over competition. Additionally, the exclusion is granted to transactions that meet the threshold for Common Market for Eastern and Southern Africa (COMESA) Competition Commission Merger Notification, which is at least two-thirds of the turnover or assets (whichever is higher) and is not generated or located in Kenya.
Exemptions, on the other hand, involve certain entities or transactions that are granted relief from specific competition regulations due to their unique characteristics or public interest considerations. In M&A transactions, the CAK wields the power to confer exemptions, heeding the counsel of the Competition Tribunal. For instance, an exemption could be bestowed if the merging parties can demonstrate that the transaction will yield technological or efficiency enhancements that outweigh any prospective anti-competitive repercussions. Furthermore, considerations of public interest, like job preservation or national security, may necessitate an exemption in select instances.
Exclusions and exemptions serve as indispensable components of the regulatory framework governing mergers and acquisitions in Kenya. By accommodating flexibility in specific circumstances and addressing public interest considerations, these mechanisms contribute to a more balanced and dynamic business environment. As the Kenyan economy continues to evolve, the effective implementation of exclusions and exemptions will significantly influence the future of M&A transactions in the country.