SECTION 1: Market overview
1.1 What have been the key trends in the M&A market in
your jurisdiction over the past 12 months and what have been
the most active sectors?
A significant number of private equity firms have been
seeking exits from their investments in Egypt and new ones
penetrated the Egyptian market for the first time (for example
The majority of M&A transactions tend to occur in
sectors such as food and beverage, retail, healthcare and
education. Also, heavy industry has been one of the most
attractive overall sectors for corporate M&A activity.
1.2 What M&A deal flow has your market experienced and
how does this compare to previous years?
There is no doubt that M&A deal flow in 2016 has been
adversely affected by the recent economic policies which the
government has embarked on and accordingly, the aggregate
transaction value has decreased compared to 2015. Q4 2016 was
impacted by the floating of the Egyptian pound, which hindered
the completion of a number of pre-arranged deals.
Nevertheless, 2016 ended strongly with several deals, the
biggest of which was the National Service Authority and Litat
Group's majority acquisition of Solb Misr. The transaction
value was $1.2 billion, which was the highest value deal
announced in 2016.
1.3 Is your market driven by private or public M&A
transactions, or both? What are the dynamics between the
The Egyptian market has a recent tendency towards public
M&A transactions for exit purposes of big scale businesses;
albeit the market focus was mainly towards private M&A
transactions in Q3 and Q4 of 2016.
SECTION 2: M&A structures
2.1 Please review some recent notable M&A transactions
in your market and outline any interesting aspects in their
structures and what they mean for the market.
Matouk Bassiouny acted as transaction counsel on the
majority acquisition of Solb Misr, advising both the National
Service Authority under the supervision of the Assistant
Minister of Defense General and Litat Group.
The pre-closing structure of the target included a publicly
subscribed company which was not part of the transaction. The
structure had to be altered for closing purposes, so the seller
divested from the undesired vehicle through an MTO process
prior to closing.
The parties also entered into various negotiations with the
creditors of the target company in relation to financial debts
and underlying securities, including pledge of the target's
shares and the impact of the change of shareholding structure
post-closing. The parties reached an arrangement with the
creditors to release the pledge of shares against other
securities to enable the buyer to conduct the purchase of
Furthermore, the parties faced a hindrance during the last
phase of the transaction due to the float of the Egyptian
pound, which required creativity to overcome. The parties opted
for financing strategies including assignment of debt and
adjusted the purchase price accordingly.
2.2 What have been the most significant trends or factors
impacting deal structures?
The most common factors that impact deal structures are
restrictions on direct foreign ownership in relation to certain
sectors, inter alia, higher education, importing
vehicles and commercial agents. Such restrictions are usually
overcome through restructuring and adding multiple SPVs.
Furthermore, financing can be a challenging factor for
acquisition finance. However, the constraints of securities and
restrictions adopted by financial institutions may prevent
closing the deal.
SECTION 3: Legislation and policy changes
3.1 Describe the key legislation and regulatory bodies that
govern M&A activity in your jurisdiction.
M&A is regulated in Egypt by diverse legislation, which
includes the Egyptian Companies Law 159 of 1981 and its
executive regulations governing, inter alia, corporate
governance issues, and the Capital Market Law 95 of 1992 and
its executive regulations (Capital Market Law) governing mainly
listed companies and publicly subscribed companies.
Particularly, M&A deals involving unlisted shares are
subject to the Egyptian Companies Law and EFSA decrees while
M&A for listed shares are regulated by the decrees
promulgated by the Egyptian Financial Supervisory Authority
(EFSA) and the Egyptian Exchange (EGX).
The regulatory bodies that govern M&A activity in Egypt
are the General Authority for Investment and Free Zones (GAFI),
EFSA and EGX.
3.2 Have there been any recent changes to regulations or
regulators that may impact M&A transactions or activity and
what impact do you expect them to have?
Towards mid last year, EGX introduced a key change in
relation to transacting over unlisted shares by virtue of
Decree 135 dated May 31 2016, whereby the parties to any
unlisted shares transaction, where the value exceeds
EGP£100,000 ($6,250) or which involves parties outside of
Egypt, must deliver evidence of depositing the purchase price
at a bank accredited by the Central Bank of Egypt (CBE).
Furthermore, the rules regulating the transfer of title of
unlisted securities over the counter have been recently changed
by virtue of Decree No. 17 of 2017 issued by EFSA. The decree
was issued after nullifying EFSA's Decree 54 of 2009, as
amended, by the Supreme Constitutional Court.
The head of EFSA announced that the new decree outlines the
conditions of transfer of unlisted securities and added that
the protection given to trading parties on listed securities
are not applicable to unlisted ones, as there is neither
calculated closing or opening price of any security, price
limits for dealing nor any indicators for prices, whether the
transfer was through the Orders Market or Deals Market.
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact M&A in your jurisdiction
in the near future?
There are certain amendments currently before the Egyptian
Parliament regarding Egyptian Competition Law No. 3 of 2005
(ECL), which allows the Egyptian Competition Authority (ECA) to
examine the impact of an envisaged M&A transaction on the
Egyptian market via a pre-merger/acquisition control. Such
examination before transactions' implementation would enable
the ECA to assess the competitive impact of a potential M&A
transaction to prevent any negative impact on the market.
The ECA announced in this context that it will only block
those transactions that present significant impediment to
effective competition and which negative effect cannot be
addressed through imposition of remedies. To this effect, the
ECA expects the amount of blocked transactions to range between
0.3% and 1% of the notified transactions, which matches the EU
In this regard, it is worth mentioning that ECL currently
provides merely for a post-merger/acquisition notification of
the M&A transaction served to ECA.
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the M&A market in your jurisdiction.
During legal due diligence, sellers are mainly the ones to
commit the common mistakes/misconceptions, as outlined
In this regard, it is very common for sellers not to have a
well-established virtual data room (VDR) prepared in advance.
In fact, a number of sellers prefer that, for confidentiality
reasons, the buyer physically review the documents of the
target company instead of reviewing the same on a VDR noting
that, typically, the VDR saves time and effort. In all events,
the buyer should sign a non-disclosure agreement (ie a
confidentiality agreement) that protects the sellers' rights
against any unlawful disclosure of confidential information by
In parallel, not all target companies hold complete books,
records and contracts of their company. To this effect, we note
that due diligence processes may take longer than usual because
it is common that the target companies are not in proper
compliance with the regulations of its industry and do not
follow proper corporate governance. This is likely demonstrated
in case of family owned businesses.
Further, in few cases, sellers tend to provide misleading
information or abstain from disclosing specific information
during the diligence process and disclose all accurate
information in the disclosure letter immediately before
executing the transaction documents.
It is also common that, while negotiating the deal and
before the due diligence phase, the parties do not conclude the
key terms of the said deal in a letter of intent.
4.2 Are there frequently asked questions or often
overlooked areas from parties involved in an M&A
Sellers may overlook to designate a financial advisor which
may give rise to commercial dispute. Furthermore, non-strategic
buyers may omit to appoint a technical advisor during the
Also, in the event the potential buyer is a foreign entity,
its main concern would usually be related to the market's
stability and growth, the payment mechanism of the purchase
price and, more importantly, repatriation of funds post
acquisition in relation to dividends distributions.
Furthermore, the sellers are always keen on the repatriation
of funds in relation to the purchase price, which was an issue
for the past period; however, the CBE announced recently that
it succeeded to cover all the delayed proceeds due to foreign
investors in hard currency, which reflects the current policy
implemented by the CBE.
4.3 What measures should be taken to best prepare for your
It is highly recommended to conduct a proper legal due
diligence over the target. More importantly is to conduct a
tax, commercial and technical diligence to avoid last-minute
findings that may hinder going further with the envisaged deal.
Selection of a tax advisor is crucial as the Tax Authority's
practice may vary from time to time.
SECTION 5(a): Public M&A
5.1 What are the key factors involved in obtaining control
of a public company in your jurisdiction?
Acquisition of at least one-third of the share capital of
the companies listed on the EGX or companies that are unlisted
but offer its shares to the public triggers a mandatory
takeover offer (MTO). Pursuant to the Capital Market Law, any
entity that acquired or wishes to acquire, whether individually
or through related parties, one-third or more of the issued
share capital or voting rights of a target company shall notify
EFSA and undertake an MTO to purchase 100% of the target
company's shares addressed to all shareholders of the
respective company. In case the offeror the entity launching
the MTO, has already acquired the stake, the MTO should be
launched within 30 days of the date of acquisition.
Pursuant to the Capital Market Law, if an entity acquired,
whether individually or through related parties, 90% or more of
the issued share capital or voting rights, other shareholders
who have at least three percent of the share capital may
request from EFSA within the next 12 months to the acquisition
to notify the majority to submit an MTO to buy the minority
5.2 What conditions are usually attached to a public
Pursuant to the Capital Market Law, the MTO should not be
unconditional. However, subject to EFSA's approval, the MTO may
be exceptionally conditional on the acquisition of at least
51%, to ensure control, or 75%, in case of acquisition with
ultimate purpose of merger of the target company's shares. In
such case, if the MTO does not result in the acquisition of at
least 51% or 75% (as the case may be) of the target company's
shares, the offeror may elect to not perfecting the purchase of
the offered shares, without the need to obtaining EFSA's prior
5.3 What are the current trends/market standards for break
fees in public M&A in your jurisdiction?
The offeror cannot revoke or amend the terms of the MTO
draft as approved by EFSA during its effective term. However,
pursuant to the Capital Market Law, the offeror may withdraw
the MTO draft only if a fundamental harmful incident occurs
after publishing the MTO draft, which adversely affects the
target company, its activities or the value of its shares,
provided EFSA approves the withdrawal or the amendment of the
terms of the MTO. No break fees should be involved in case of
withdrawal pursuant to the terms of the Capital Market Law.
However, in private M&A transactions, break fees are
commonly mutually agreed between the parties as a percentage of
the purchase price, which is usually covered in the transaction
documents. Though, under Egyptian law, there is room to claim
reduction in the case of excessive break fees. Based on the
principle of Egyptian Civil Code pacta sunt servanda,
break fees are applicable when and if there has been a
contractual arrangement to that end.
SECTION 5(b): Private M&A
5.4 What are the current trends with regards to
consideration mechanisms including the use of locked box
mechanisms, completion accounts, earn-outs and escrow?
The most commonly used pricing adjustment mechanism is
completion accounts, which is used on the basis of the
estimated accounts provided usually by the seller. Locked box
mechanisms are also used but not as commonly as completion
accounts, due to leakage indemnity claims. However, there has
been a tendency to deduct leakage from deferred payments
instead of resorting to an indemnity claim. The foregoing has
recently helped in growing an appetite for locked box
mechanisms. Nevertheless, some parties still prefer the
completion accounts mechanism as it covers any deviation from
agreed upon figures (for example net debt, net cash or
normalised working capital), as opposed to locked box which
protects the buyer only from leakage, which basically
encompasses money withdrawn by the seller or its related
Though resisted by sellers, deferred components are commonly
used in relation to the adjustment mechanisms so that the
purchase price is adjusted through deduction from said deferred
component. Such deferred component is usually deposited at an
escrow account to give the seller certainty and avoid any trust
issues. However, earn-outs are not commonly used.
5.5 What conditions are usually attached to a private
There is no constant practice in this regard, as conditions
are decided on a case-by-case basis.
However, it is customary that each transaction includes a
certain number of conditions that govern the sale of a private
entity and once satisfied the deal is deemed closed. Such
conditions depend on the share/asset subject to the said sale.
Typically, conditions may include prior governmental approvals,
payment of certain debts and non-competition restrictions,
5.6 Is it common practice to provide for a foreign
governing law and/or jurisdiction in private M&A share
Yes, it is very common. In fact, most of the share purchase
agreements concluded in Egypt are governed by English Law since
the latter is more flexible than Egyptian Law, and tends to
prevail the contractual intent/ agreement of the parties in
contrast to Egyptian law, which provides for a number of public
policy provisions which contracting parties cannot contract out
Consequently, the overwhelming majority of M&A share
purchase agreements refer any disputes arising thereof to
arbitration, which is a much faster and efficient process than
normal courts despite being more expensive.
5.7 How common is warranty and indemnity insurance on
private M&A transactions?
Insurance companies in Egypt do not provide their services
over warranties or indemnities, so the parties insisting on
having insurance in relation to warranty and indemnity coverage
would resort to offshore insurers, which is not a common trend.
SECTION 6: Outlook 2017
6.1 What are your predictions for the next 12 months in the
M&A market and how do you expect legal practice to
The lack of visibility on monetary policies and restrictions
on sourcing and repatriating currency will continue to have a
chilling effect on investments in Egypt. However, we predict
activity in private M&A deals given that an increasing
number of private equity firms will be seeking exits for their
investments. In addition, multinational companies are willing
to bet on the long-term future of Egypt as they see stability
improving, even if some industries may see a slight bump in
activity over the next 12 months, due to hard currency
The Egyptian government is growing in willingness and with
blatant attempts to attract international and local investments
that contribute to increasing employment opportunities and
economic growth. The foregoing approach is confirmed by the new
draft of investment law which is expected to soon be approved
by the parliament to help improve the rhythm of the economic
scene and enhance Egypt's investment climate and economic
Tamer El Hennawy
Managing partner, Matouk
T: 202 2796 2042
Tamer El Hennawy is the managing partner of Matouk
Bassiouny and co-head of the corporate/M&A and
capital markets groups. Tamer usually represents
Egyptian leading corporations and he has worked on most
of the public offerings that have occurred in the
country in the past five years.
In particular, El Hennawy has helped execute
high-value acquisitions, restructurings and
divestitures in Egypt for companies in the natural
resources, manufacturing, construction, real estate,
pharmaceutical and tourism industries. El Hennawy also
worked on the sale of operating fields that was carried
out by the Egyptian Petroleum Corporation.
El Hennawy has an LLM from University of London and
LLB from Cairo University. He speaks Arabic and
Nevine Abou Alam
Counsel, Matouk Bassiouny
T: 202 2796 2042
Nevine Abou Alam is a counsel at Matouk Bassiouny
and a member of the corporate and M&A group. Abou
Alam has over 11 years of experience in general
corporate, commercial, M&A and capital markets
transactions, including initial public offerings and
M&A transactions involving listed companies. Her
area of expertise focuses on handling acquisition
transactions and assisting the client throughout the
entire transaction, including conducting legal due
diligence, drafting and negotiating share purchase
agreements and shareholders agreements. In addition,
she advises on listings and initial public offerings,
including drafting the prospectus.
Her recent highlights include advising on the
acquisition of a group of educational institutions,
including a private university, with a value of over
$100 million, where she advised on the restructuring,
legal due diligence, drafting and negotiating of the
Abou Alam has a master's degree in business law from
Paris 1 Panthéon Sorbonne and an LLB from Cairo
University. She speaks Arabic, English and French.