Mergers & Acquisitions: Managing Regulatory Approvals in Tanzania

Mergers and acquisitions (M&A) play a critical role in the business landscape for several strategic, financial, and operational reasons. They constitute pivotal phases in a business's development, denoting expansion, diversification, or deliberate consolidation strategies. While M&A deals are often met with optimism, they come with intricate legal and regulatory hurdles.

Regulatory issues are pivotal in shaping whether M&A transactions succeed or fail in an increasingly complex landscape. Antitrust rules, ownership caps, and change of control regulations are among the top regulatory concerns. These regulations and approvals aim to promote fair competition, safeguard national interests, and preserve market stability. In this article we explore major regulatory challenges and offer practical structuring solutions to overcome them.

Identify Regulatory Approval and Challenges Critical to the Deal 

Most M&A transactions are contingent upon securing regulatory approvals or submitting required notifications prior to closing. To successfully close a transaction, it is crucial to first determine which regulatory approvals are required and understand the associated processes. A strategic and comprehensive due diligence on the target and its market will normally reveal potential regulatory risks and approvals and helps navigate approval processes efficiently. 

It is therefore advisable that parties to the transaction cooperate with each other during the due diligence exercise to ensure that they can understand and anticipate the regulatory landscape and what processes to implement. By anticipating applicable regulatory approvals, parties can effectively manage regulatory risks and achieve their transaction objectives.

Understand the Process and Sequence of Satisfying Regulatory Approvals

Identifying and understanding regulatory approvals required for the deal is key as understanding the process of meeting those approvals. This will help the parties to plan ahead of the transaction, set realistic targets and timelines in closing the transaction. In most deals some elements of the process to obtain the approval will be reflected in the transaction documents. For example, parties will be able to understand what approvals should be treated as condition precedent and which ones can be fulfilled post-closing. It also assists the parties in agreeing the risk profile of the transaction from a regulatory approval perspective.

As part of understanding the process, it is important to understand the sequence of filing the applications, where the transaction requires multiple approvals. For example, a transaction involving a regulated sector will normally require a sector specific approval as well as a competition approval where necessary thresholds are triggered.

In Tanzania, most regulatory authorities (such as TCRA, BoT and TIRA) may not issue their approvals until they have received a copy of the merger approval from the Fair Competition Commission (FCC) approval. Given this, and the timeline that is normally associated with obtaining a merger approval from the FCC, we normally advise parties to apply for the merger approval as soon as possible while other approvals can be sought later, or parties can file the applications concurrently.

Establishing Timelines to Procure Approvals

Time is always of essence for successful M&A transaction. Time can influence deal value, stakeholder dynamics, and operational efficiency. Therefore, delays can diminish deal value, disrupt key relationships, and escalate costs and integration hurdles. Regulatory hurdles can be complex and time-consuming. As such a well-timed approach which considers the market and regulatory conditions is essential for a successful M&A process.

Parties need to understand the timelines involved in obtaining the regulatory approvals so that they can be built into the deal structure and manage the expectations of the parties involved.

Regulatory Engagement 

Engaging with regulators i.e. actively providing necessary information and explaining the transaction benefits can be instrumental in managing regulatory complexities. Proactively meeting with regulators can help the parties foster trust through transparency, delivering comprehensive and useful information, and pre-emptively addressing potential concerns. Being able to establish trust and good rapport with the regulators can enhance the likelihood of timely approvals and mitigate the risk of unfavourable regulatory decisions.

However, we will normally recommend that caution is exercised when taking this approach to ensure parties are able to identify regulators who (i) are open to early engagement (i.e. before a formal application is made); (ii) prefer engagement to start after filing of the application; and (iii) prefer engagement when the regulator initiates it. It is advisable to also identify which party (the target or acquiring firm) the regulator is more likely to engage with and is open to meeting. The right advisors should be able to guide the parties on which approach to take due to their experience in dealing with the regulators.

How to deal with Sector-Specific Regulatory Approvals 

Regulatory approvals are often required when a change of control occurs, particularly in regulated industries like banking, insurance, mining, telecommunication and oil and gas. In most cases such sector specific approvals might involve extensive disclosures, compliance with specific conditions that might be imposed, and engagement with regulatory authorities. 

In most cases regulators will not issue their approvals if there are any pending or outstanding issues that have not been resolved between the regulated entity and the regulatory authority. Therefore, parties will need to ensure that the regulated entity is compliant as any pending issue can jeopardize the transaction or can cause delays. 

It is also important to understand and establish whether the sector specific authority should be the first authority to be approached or not and whether such approach should be made at the initial stages of the transaction or once the relevant documents have been signed. 

Engaging the Right Advisors and Team

For any deal to succeed, the parties need to ensure that they have advisors and a team that has the experts and the know how to navigate regulatory challenges. Your advisors are the ones who will be holding your hand through the process, from identifying what approvals are required, what is the process of procuring them, how long will it take etc. Given this, you need a team that has experience in what needs to be done and a team that you can work and can work with the other parties involved in the transaction. 

Securing regulatory approval for an M&A transaction hinges on a well-structured and meticulously prepared applications. These document serves as the cornerstone for the regulators assessment, shaping its initial view of the transaction and its implications to the market. Your advisors should be able to meet this standard and parties should not take this for granted. 

Further, from experience, it is always advantageous to use advisors who have good relationships and connections with regulators. This tends to facilitate the process, and it is always more useful when meetings need to be organised, or additional information needs to be provided to the regulator. 

Preparation of the Applications

Any success in securing regulatory approvals for an M&A transaction begins with a meticulously prepared filing. The application document is the one which the relevant regulator builds its initial understanding of the transaction and its potential impact on market or sector. The application should be prepared in such a way that it addresses the concerns that regulators may have, presents compelling arguments and rationale for the transaction, and sets the tone for the review process.

Here is where the experience and expertise of the advisor and the team involved comes in. You need to leverage on the know-how that they possess to ensure that enough and useful information is provided, and it is provided in a well-structured manner. The regulator should be able to understand the transaction and its rationale from the application. Parties also need to be prepared to address any concerns that might be raised by regulators once the filing is made.

Therefore, Navigating the regulatory landscape in M&A transactions in Tanzania requires a proactive, strategic, and well-coordinated approach. Regulatory approvals are not just formalities but essential elements that can determine the success or failure of a transaction. Identifying the necessary approvals early, understanding the timelines and sequence of filings, engaging with the right regulatory bodies, and preparing clear and comprehensive applications are all crucial steps. Equally important is the role of experienced advisors who can guide parties through the process, anticipate potential hurdles, and maintain effective communication with regulators. When these elements are properly managed, they help mitigate risks, reduce delays, and enhance the likelihood of a successful and legally compliant transaction within Tanzania’s dynamic regulatory environment. Ultimately, effective regulatory navigation is not just a procedural necessity, it is the backbone of a successful M&A Deal.