KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Deborah Sese, Cliffe Dekker Hofmeyr
5. Structure of Transactions 5.1 Structure of the Acquisition
stringent conditions that are challenging to meet given the prevailing macroeconomic conditions. 5.4 Multiple Investors Deals involving a consortium of private equity spon - sors are common in Kenya. The authors have seen private equity firms invest in consortiums in a bid to spread the risk of large transactions, and to ensure a return on investment at the point of exit. In 2021, it was reported that a consortium of investors led by a major South African private equity fund manager had invested in a major mobile network in South Africa. This has been the recent trend, with private equity firms looking to spread risk. Co-investments by other investors alongside the lead private equity fund are also relatively common. Co-investors may include LPs of the fund who opt to invest directly in specific deals alongside the lead private equity fund, as well as external co-investors who are not part of the original fund. Co-investors can take either passive or active roles in the investment. Passive co-investors are more com - mon, especially among LPs of the fund, as they typi - cally have existing relationships with the lead private equity fund and may have access to co-investment opportunities as part of their overall investment strate - gy. However, external co-investors can also be active - ly involved if their expertise or resources are critical to the success of the acquisition. Consortia comprising a private equity fund and a corporate investor are not prevalent in Kenya. This will vary depending on the specific market conditions and investment opportunities. This type of consortium combines the financial expertise and resources of a private equity fund with the strategic advantages and industry knowledge of a corporate investor. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism In Kenya, the type of consideration mechanism used in private equity transactions is dependent on the transaction structure and what the parties negotiate.
Private equity acquisitions in Kenya are typically effected by way of subscription for new shares or a purchase of existing shares, with the latter being com - mon in private equity exits. The terms of acquisition do not differ materially between privately negotiated
transactions and auction sales. 5.2 Structure of the Buyer
In terms of deal structure, it is common in Africa, and therefore in Kenya, for private equity investments to be made into offshore holding companies of targets with subsidiaries in Kenya, rather than directly into operating entities in Kenya. Offshore holding com - panies are usually situated in areas that offer greater tax efficiency to the fund on exit, typically Mauritius or Delaware. Mauritius’s placement (and subsequent removal) on the “Grey List” has also opened the door for new offshore jurisdictions, such as Rwanda with its financial centre, offering tax incentives for investors. The offshore holding companies mostly invest directly in the target company and are also directly involved in the negotiation of the documentation. 5.3 Funding Structure of Private Equity Transactions Private equity deals are typically financed through either equity or debt, or a combination of both. A com - bination of equity and debt would be structured as a convertible loan agreement or a note purchase agree - ment, with agreed milestones on conversion to equity. Although Africa-focused private equity funds are cur - rently encountering fundraising difficulties, the prac - tice of securing committed debt funds at the signing stage of deals is less prevalent in Kenya compared to more developed financial markets. Private equity firms in Kenya typically do not rely on financing from third-party lenders like banks and financial institu - tions. Instead, they typically raise funds from existing investors to spread risk and ensure returns at the point of exit. Additionally, the use of equity or debt com - mitment letters in Kenya-based private equity trans - actions is uncommon. When such letters are used, they are often not disclosed publicly and may include
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