KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Deborah Sese, Cliffe Dekker Hofmeyr
• the material contracts contain change-of-control provisions that require parties to obtain consent or notify third parties of the proposed transaction. Lastly, material adverse change provisions are com - mon in Kenya, permitting the private equity fund to terminate the agreement on the occurrence thereof. The definition of “material adverse change” tends to be heavily negotiated. 6.5 “Hell or High Water” Undertakings In Kenya, it is not typical for a private equity-backed buyer to accept a hell or high water undertaking. Pri - vate equity-backed buyers typically exclude hell or high water provisions since merger control approval is considered mandatory when the merger meets the thresholds outlined in 3.1 Primary Regulators and Regulatory Issues . Further, in Kenya, merger control provisions are not typically distinguished from foreign investment con - ditions, similar to other jurisdictions such as South Africa. One can, however, distinguish between the two on the basis of the fact that merger control provisions cannot be waived, whilst foreign investment condi - tions, which include but are not limited to obtaining requisite consents, may be waived if they might result in a delay in the closing of the transaction. As outlined in 3.1 Primary Regulators and Regulatory Issues , the FSR are unlikely to impact Kenya-based transactions and are therefore not featured in foreign investment negotiations. 6.6 Break Fees Unlike private transactions, break fees are unusual in private equity transactions in Kenya. Private equity- backed buyers will strongly oppose the payment of a fee if the transaction does not close. 6.7 Termination Rights in Acquisition Documentation As termination rights reduce deal certainty, private equity sellers and buyers prefer to limit the circum - stances that can result in the deal being terminated. Therefore, these are usually reserved for specific sce - narios – ie, where the mandatory conditions (condi - tions precedent) stipulated in the agreement are not, or cannot be, fulfilled by the long-stop date, which is
usually set three to six months from the signature date if not extended by mutual agreement. 6.8 Allocation of Risk Private equity buyers usually demand comprehensive warranties regarding the target’s business and opera - tional affairs. Private equity sellers typically take on minimal risk concerning the target company’s opera - tions. The warranties they provide are usually limited to affirming their ownership and lack encumbrances on the securities being sold. Corporate sellers will typically provide broader war - ranties compared to private equity sellers, although it is typical for corporates to limit the time and quantum of damages arising from a breach. Corporate buyers will also seek greater indemnification rights as com - pared to private equity funds to guard against any liability upon making an acquisition. 6.9 Warranty and Indemnity Protection Please refer to 6.8 Allocation of Risk . It is not unusual for a private equity-backed seller to provide limited warranties to a buyer on exit so as to minimise its risk exposure. The private equity-backed seller typically provides warranties with respect to: • the ownership of the shares it is transferring; • the status of the shares it is transferring; and • its capacity to enter into the agreement and trans - fer its interest – the private equity-backed seller will usually decline to provide warranties and indemni - ties that are related to the commercial operations and tax status of the target company. As the private equity-backed seller has limited its exposure, the warranties and indemnities that relate to the operations of the target company are provided by the target company or the management thereof, where applicable. These include but are not limited to warranties and indemnities in relation to corporate, legal and regulatory status, tax, employment and the material assets, intellectual property and material con - tracts of the target company. In Kenya, the limitations on warranties and indemni - ties depend on what is negotiated. Warranties and indemnities may be limited by:
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