M&A Report 2023: Angola
Nelson Raposo Bernardo and Ana Cláudia Rangel, Raposo Bernardo & Associados
The M&A market in Angola has gradually returned to the dynamics that existed in pre-pandemic times, registering significant growth, particularly in the oil and gas sector. The energy sector will lead M&A transactions in Angola in the near future, especially since they represented around 70% of the transactions registered in 2022. There is a very diversified portfolio of operators in the market, with local and international companies, as well as a vast set of investments planned for 2023, which give concrete indications of enormous deal flow this year.
The M&A operations will target shares of companies, assets and interests in certain exploration and joint venture contracts. As an example, deals involving important players in the oil and gas sector were registered in 2022. These included the creation of Azule Energy, which resulted from the integration of BP and Eni assets, and the acquisition of certain Sonangol assets by Somoil, Sirius Petroleum, Sequa Petroleum and Petrolog.
Between 2019 and 2020 an ambitious programme of privatisation was launched, which included privatising 195 companies. Due to the COVID crisis and recently due to the war in Ukraine, the programme was delayed, but it is expected that it will be resumed in 2023. It is predicted to include companies operating in the oil, gas, diamonds, aviation, insurance and agroindustry sectors, among others. Several tenders have already been launched and are ongoing, with a lot of activity expected in terms of M&A transactions.
The Angolan agricultural business market has also proved to be an interesting target for foreign investors, considering the huge productive potential of the country.
Public or private
The Angolan M&A market is essentially driven by private M&A transactions, considering the relatively small size of the capital markets. These are mainly transactions arising from private negotiations with operators in the oil and gas sector, as well as in the industrial sector.
However, there has been an increase in public M&A transactions through the Bolsa de Valores de Angola, especially involving companies in the financial, telecommunications and industrial sectors.
The main challenges identified in the Angolan market that have a special impact on M&A transactions concern regulatory issues. This is considering the requirements imposed by the new legal framework of competition law. The new regulatory framework enshrined in the Angolan legal system creates important concepts such as ‘dominant position’, the situation of ‘economic dependence’, ‘horizontal agreements’ and ‘vertical agreements’, just to name a few examples. These generated some debate regarding the best interpretation of the different situations addressed by such concepts.
With the stabilisation of the crisis caused by COVID, the economic situation in Angola improved significantly compared to 2021. Angola registered an excellent volume of M&A transactions, from the financial sector to information technologies and the oil and gas sector. M&A operations were mainly conducted by foreign entities, but there were also some deals at the level of the local business community. After COVID, which weakened the finances of many companies, several M&A transactions were carried out with a view to strengthening market position and ensuring survival. In other words, they were deals motivated by the need for consolidation. When comparing the deal flow in 2022 with 2021, the number of transactions increased significantly.
In the coming months, in addition to the current M&A transactions, the sector will be strongly driven by the privatisation of many companies and assets that are currently owned by the State of Angola. According to information released by the State of Angola, there are 82 assets to be privatised which will surely increase the volume of transactions over the next 12 months.
Overall, the factors most influencing deal structures in Angola are related to industry consolidation and bidding associated with the privatisation of public companies and assets.
Financial investors such as private equity and funds are also increasingly active in the Angola M&A environment.
The most relevant pieces of legislation for M&A in Angola are the following:
Law 1/04 of February 13 that approves the companies code and includes the rules applicable to each type of company;
Decree Law 42644 of November 14 1959 that introduces the commercial registry code;
Law 10/18 of June 26 that approves the private investment legal regime and foresees the rights, undertakings and guarantees of the investors and the benefits and incentives attributable to investors;
Law 22/15 of August 31 that approves the securities code;
Law 5/18, of 10 May that approves the competition law;
Presidential Decree 240/18 of October 12 that regulates the competition law;
Law 5/97 of June 27 on exchange operations;
Law 11/2019 of May 14 2019 related to public–private partnerships;
Regulation 316/19 of October 28 2019 also related to public–private partnerships;
Law 10/19 of May 14 that foresees the legal regime for the privatisation of state-owned companies; and
Presidential Decree 250/19 of August 5 2019 related to the privatisation programme.
These are the main legal acts, although there are others applicable depending on the company’s sector or activity.
Regarding the public entities responsible for M&A processes, the investor will need to contact the Angolan Investment and Export Promotion Agency, National Bank of Angola, the notary, the companies register, the competition authority and other regulatory authorities, depending on the business the targeted company operates.
ESG and data
The importance of ESG factors in M&A has grown exponentially worldwide in recent years and the Angolan market is not an exception. This is mainly because most M&A deals have taken place in the oil, gas and industrial sectors, where environmental, social, and corporate governance issues are critical aspects.
Personal data issues will be a matter to review by the country soon and will certainly impact M&A transactions in Angola, particularly in deals where investors have access to sensitive personal data. The issue of processing personal data is already being discussed in Angola and everything points to significant legislative changes occurring, in line with what happened in other jurisdictions.
Many investors do not consider the cultural, political, regulatory and technical complexity of the M&A market in Angola. Knowledge of the country's many facets greatly contributes to the success of transactions, thereby reducing the risk of misconceptions.
On the other hand, there are sometimes misunderstandings from international players due to the differences between the civil law system, to which the Angolan legal system belongs, and the practices of common law. Common law is of course typical in Anglosphere countries, and it is what many of the investors into Angola’s M&A market are familiar with. Many of the rules and practices applicable to M&A and to which UK and US companies are used to are not recognised in Angola.
One of the overlooked areas in M&A transactions in Angola concerns post-closing procedures, which often depend on the intervention of public entities and can impact the completion of the transaction.
Technology also plays an extremely important role, particularly in the due diligence of large-scale operations that require the analysis of a vast amount of data. There is frequent use of a digital data room, thus facilitating the due diligence processes.
There are several factors to consider when obtaining control of a public company in Angola. The main route is by way of a public offer, either as a voluntary public offer or a mandatory public offer. Both voluntary and mandatory public offers are subject to specific statutory procedures and other rules.
In addition to regulatory issues, the investor must also consider, among other aspects:
The necessary administrative approvals;
The level of investment required;
The legal framework applicable to the sector of activity;
The secrecy associated with the process;
The consideration offered; and
The information to be obligatorily disclosed to the market.
These factors also apply when you are in the presence of hostile bids, although these are rare in the Angolan market.
The conditions that are commonly attached to a public takeover offer are, among others:
No breach of the merger protocol;
No material adverse change;
No governmental actions prohibiting the public offer;
Compliance with employee consultation procedures;
No protective measures initiated against the public offer;
No suspension of trading of the target company's shares;
All regulatory approvals are obtained; and
A certain minimum acceptance threshold being met.
In Angola, the parties have full autonomy as regards consideration mechanisms. In the vast majority of private M&A, the consideration is solely cash. However, it is also possible to offer other considerations, such as a mix of cash and shares in the bidder or exclusively shares in the bidder.
In this type of M&A, price and payment terms are issues usually subject to thorough negotiation between the parties. It is not uncommon to find M&A deals in which there are fixed price mechanisms, variable price mechanisms and even a combination of both. The financial system also makes available several tools, such as escrow accounts, bank deposits and guaranties, to facilitate the completion of deals.
Private offers do not have to obey pre-established rules or a standard structure. Therefore, parties are free to negotiate conditions, except for the following:
Private offers made by listed companies that are obliged to report to the Organismo de supervisão do Mercado de Valores Mobiliários for statistical purposes; and
Private offers in which there is no need for distributing a prospectus must mandatorily be notified to the Organismo de supervisão do Mercado de Valores Mobiliários.
Apart from these restrictions foreseen in the securities code, other restrictions may arise from the articles of association of the targeted companies. For example, these can foresee the existence of different types of shares with different voting rights.
It is common to see M&A in which the laws from other jurisdictions are used, namely common law regimes, particularly those of the UK and USA. It is also common to have jurisdiction clauses that choose arbitration procedures governed by the laws of other countries or also by UNCITRAL regulations.
As for the exit environment, sales are usually made to strategic purchasers and/or commercial partners. In some cases there are sales to financial sponsors.
For 2023, the market is forecasting a substantial increase in M&A transactions, especially due to the privatisation programme, which aims to privatise 195 companies by 2022.
This programme represents a move towards a market opening and liberalisation of the Angolan economy, which would represent new ground for the country. It could lead to important transactions requiring an increasing need for lawyers and other consultants’ services. The sectors included in the programme include banking and insurance, real estate, gas, air or sea transportation services, agriculture, diamonds, oil, and hospitality.
Furthermore, M&A transactions projected for 2023 are expected to accelerate the implementation of large-scale projects that were, to a certain extent, side-lined by the war in Ukraine.
We expect cross-border transactions into Angola to continue to offer compelling opportunities in 2023.