KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Deborah Sese, Cliffe Dekker Hofmeyr
ESG compliance There have been no significant changes in ESG com - pliance in the past 12 months. However, ESG consid - erations remain an integral part of private equity trans - actions, as discussed in 4.1 General Information .
• an increase in the threshold for determining effec - tive control from 25% to 30%; and • an exemption for squeeze-out transactions (ie, a holder of 90% of issued shares of a listed company acquiring the remaining 10%) from its application – under the Takeover Regulations, if an acquirer purchases 90% of a company’s voting shares, they must make an offer to the remaining shareholders to buy their shares at a price higher than the cur - rent market value. The Draft Regulations provide for exemptions for complying with the subsequent takeover requirements in the following instances, subject to any conditions that may be imposed by the CAK: • acquisition for the purpose of a strategic invest - ment in a listed company that is tied up with man - agement or any other technical support relevant to the business of such company; • a management buyout involving a majority of the employees of the offeree; • a restructuring of the listed company’s share capital including acquisition, amalgamation, com - promises, arrangements, reconstructions and any other scheme approved by the CAK; • acquisition of a listed company in financial distress; • acquisition of effective control arising out of the disposal of pledged securities; • indirect acquisition where there is no transfer of shares in the listed entity and no impact on the listed company’s operations, governance, assets, market capitalisation, sales or earnings; • maintenance of domestic shareholding for strategic reason(s); or • any other circumstances that, in the opinion of the Authority, serve the public interest. The Draft Regulations are yet to be placed before Par - liament for discussion. Anti-bribery and sanctions On 1 September 2023, the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amend - ment) Act, 2023 was enacted into law and came into force on 15 September 2023.
4. Due Diligence 4.1 General Information
Red-flag or selective legal due diligence is an increas - ingly common form of due diligence in Kenya. Howev - er, it is not uncommon for private equity funds under - taking their first investment in the Kenyan market to also undertake comprehensive due diligence. The nature of the due diligence is usually tailored to meet the private equity fund’s interest and risk appetite, and according to the target’s business. Legal due diligence exercises usually cover the corpo - rate structure and related issues, material contracts, competition, financial arrangements and indebted - ness, employment, litigation, intellectual property, information technology, data protection, real estate, material assets, environmental, licences, insurance and tax. ESG compliance is now a consideration in the legal due diligence exercise and often includes a review of a target’s compliance with business ethics, corpo - rate governance, bribery and corruption laws, human rights legislation and international treaties, occupa - tional health and safety requirements, supply chain and waste management laws and inspections of environmental practices in relation to environmental licences, permits and legislation. 4.2 Vendor Due Diligence Vendor due diligence tends to be used in large private equity transactions or auctions in Kenya and allows private equity firms to address potential risk areas in the target, and to prepare for queries that a poten - tial buyer might have. Typically, vendor due diligence tends to be red-flag or selective due diligence. In addition, it is not unusual for sell-side advisers to rely on vendor due diligence reports by way of reliance letters provided to the relevant sell-side adviser.
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