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?
The Egyptian economy is currently seeing major M&A
activity mainly fuelled by regional, international and local
private equity and financial institutions. The general
expectation is that such activity is likely to increase during
the second part of 2018 after the completion of the upcoming
The renewable energy sector and consumer focused sectors,
such as food and beverage, healthcare and education, have been
the most active sectors during the last period.
1.2 What M&A deal flow has your market experienced and
how does this compare to previous years?
In 2017, the Egyptian market aimed to recover from factors
that have severely affected its conduct, such as the flotation
of the Egyptian pound, which translated into clearer market
outlooks, and consequently, more M&A deals.
Q4 2017 also saw a bit of a decrease in the rate of
inflation. Though a good sign for the people's purchasing
power, we shall wait and see how this may affect the financial
positions of companies and producers of different commodities,
and how, in turn, this may impact M&A activity.
Hence, we have seen a higher number of transactions in 2017,
especially in the renewable energy sector and consumer focused
sectors such as food and beverage, healthcare and education, as
mentioned above. However, the value of these transaction is
less than those of the previous year because of the devaluation
of the Egyptian pound.
1.3 Is your market driven by private or public M&A
transactions, or both? What are the dynamics between the
Private M&A transactions are more common in the Egyptian
market. However, in the past few years, the Egyptian market has
started to witness more IPOs, mainly for exit purposes.
1.4 Describe the relative influence of strategic and
financial investors on the M&A environment in your
This year we have seen a deal flow of 30% in favour of
strategic investors and 70% for private equity firms. Hence,
private equity firms still dominate the private M&A scene
in the Egyptian market.
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 has acted on a number of notable M&A
transactions over the past few months, including the
Representing Amazon.com – along with the
international counsel – in its acquisition of the
Middle East-based e-market platform Souq.com for $580 million.
This is an addition to Matouk Bassiouny's history of being
retained to act in transactions that are taking place
Representing Neptune Energy Group Holdings in its $3.9
billion acquisition of Engie S&P. Matouk Bassiouny has also
represented Alcazar Capital in the acquisition of two renewable
Moreover, the firm continues to represent clients in a
number of M&A transactions in the energy, oil & gas,
pharmaceuticals, and FMCGs.
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 acquisitions.
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 transactions are regulated in Egypt by diverse
legislations. Key rules pertaining to M&A can be found
under the Egyptian Companies Law No. 159 of 1981 and its
Executive Regulations, as amended, the Capital Market Law No.
95 of 1992 (Capital Markets Law) and its Executive Regulations,
as amended and the Egyptian Exchange Listing Rules, as
Concerned key regulatory authorities are:
- The Egyptian Exchange;
- The Financial Regulatory Authority (FRA); and
- The General Authority for Investment and Free Zones.
Other sector specific authorities might be involved
depending on the relevant target's activities.
Acquisitions involving transfer of shares of joint stock
companies and quotas of limited liability companies are the
most common acquisition structures in Egypt.
|NB: Values may exclude
certain transactions, for example asset
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?
Over the last year, some legislation has been amended,
including the Investment Guarantees and Investment Law by
virtue of law No. 72 of 2017. The Egyptian Companies' Law No.
159 of 1981 and its executive regulations were subject to few
amendments that included the introduction of sole shareholder
companies and more regulations in connection with preferential
The Capital Markets Law has recently been amended by virtue
of Law No. 17 of 2018 and the most distinct amendments are the
introduction of new provisions concerning issuance of bonds,
debentures and futures exchange. The Executive Regulations to
the Capital Markets Law was subject to amendment. It is worth
noting that investment fund provisions were significantly
amended as well as adding chapter 14 to the executive
regulation concerning financial auditors.
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact M&A in your jurisdiction
in the near future?
In February 2018, the law for restructuring and bankruptcy
was issued. The new Bankruptcy Law introduces a new approach to
dealing with persons and entities that are facing financial or
administrative trouble. For instance, the Law introduces, for
the first time in Egypt, the concept of mediation and
restructuring, giving both debtors and creditors a higher
degree of flexibility in dealing with debts. The Law states
that its executive regulations and other related implementing
decrees are to be issued within three months from the date of
its coming to effect (determined as thirty days following the
Laws publication); i.e. prior to June 21 2018.
It is also worth noting that the mandatory tender offer
chapter of the Executive Regulations to the Capital Market Law
is under discussion and the market is anticipating the issuance
of said amendment soon, following the publication of the Law
No. 17 of 2018 amendment to the Capital Markets Law.
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the M&A market in your jurisdiction.
Determination of governing law in shareholders' agreements
and share purchase agreements and its relation with the
applicable law on the target. Many clients think that in cases
where English law is the governing law for the documents,
parties may agree on some provisions which are contrary to the
mandatory provisions of the Egyptian law (e.g. in connection
with convention of general assemblies and Board meetings); but
this is not permissible in Egypt).
In due diligence exercises, sellers do not prepare all
required documents and the data rooms usually lack
organisation. Some sellers require that the lawyers review the
documents physically at the target for confidentiality reasons,
which causes delays in finalising the due diligence exercise
and closing the transaction.
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 designating a financial advisor, which
may give rise to commercial disputes. Furthermore,
non-strategic buyers may omit to appoint a technical advisor
during the diligence process. 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, the
repatriation of funds post acquisition in relation to dividends
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?
The acquisition of at least one-third of the share capital
of companies listed on the EGX or companies that are unlisted
but offer their 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
the FRA 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 3% of the share capital may request from the
FRA within the next 12 months to the acquisition to notify the
majority to submit an MTO to buy the minority shares.
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 the FRA'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 the FRA's
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 the FRA 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 the FRA 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
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 regard to
consideration mechanisms including the use of locked box
mechanisms, completion accounts, earn-outs and escrow?
The most commonly used pricing adjustment mechanism is the
completion account, 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 parties. 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
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, among others.
This being said, there is no constant practice in this
5.6 Is it common practice to provide for a foreign
governing law and/or jurisdiction in private M&A share
Yes, it is common to provide for a foreign governing law in
private M&A share purchase agreements. However, the share
purchase agreements shall not include any provision that is not
in compliance with the mandatory laws applicable on the target
to ensure smooth application of the share purchase
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
5.8 Discuss the exit environment in your jurisdiction,
including the market for IPOs, trade sales and sales to
Since private equity firms are still dominant in the
Egyptian M&A scene, we usually provide for a broad exit
provisions that include options for exit by sale of shares or
initiating IPOs. As mentioned, we are seeing more IPOs in the
last few years that means that investors are comfortable now to
use this way for exit.
SECTION 6: Outlook 2018
6.1 What are your predictions for the next 12 months in the
M&A market and how do you expect legal practice to
We predict that 2018 will be one of the best years in terms
of M&A transactions in Egypt. We can see that a lot of
transactions are on the way for the following reasons:
- The stabilisation of the Egyptian pound;
- The issuance of new laws with the aim of supporting
investment in Egypt; and
- The Egyptian demographic, with a population of is over
100 million, which makes the market more interesting for new
Further, 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.
Omar S Bassiouny
Founding partner & head of
corporate/M&A, Matouk Bassiouny
T: +202 2796 2042
F: +202 2795 4221
Omar S Bassiouny is the founding partner of Matouk
Bassiouny. He heads the firm's corporate/M&A group,
and is consistently ranked in top tiers and bands by
legal periodicals in the areas of corporate law and
mergers and acquisitions. He has considerable expertise
in setting up joint-ventures and new projects in Egypt,
as well as ensuring compliance with local laws and
Bassiouny is also recognised for his negotiations
skills and business sense.
Of counsel, Matouk Bassiouny
Dubai, United Arab Emirates
T: +971 566 010 440
F: +202 2795 4221
Sahar Badran's legal expertise includes providing
legal advice to multinational and national clients
across a range of industries including Emaar Properties
KSA, Emirates Integrated Telecommunications Company
(du) and to various local and international listed
companies and authorised persons on the UAE securities
laws and regulations.
Prior to joining the firm, Badran was with