KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Deborah Sese, Cliffe Dekker Hofmeyr
Escrow or Retention Private equity-backed sellers are looking to limit their risk and return their investment to their investors on exit. In this respect, their obligations are highly unlikely to be backed by an escrow or retention. 6.11 Commonly Litigated Provisions Litigation in courts due to breach of contract and war - ranties is not common in private equity transactions in Kenya. Parties are more willing to settle matters out of court, or through alternative dispute resolution, espe - cially since private equity-backed buyers are looking to maintain a relationship with the target company and promote growth. Public-to-private transactions by private equity- backed bidders are uncommon in Kenya, and if they do occur, they are often kept confidential and not widely reported. However, there have been a few of these transactions, such as Kuramo Capital Manage - ment’s acquisition of a 25% stake in TransCentury PLC. In such transactions, the board is obligated to adhere to Capital Markets principles, ensuring that all shareholders are treated equally. This requires that all agreements, whether relationship or transactional, be made available to shareholders for inspection as part of the transaction process. 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers The Capital Markets (Licensing Requirements) (Gen - eral) Regulations, 2002 (the “Licensing Regulations”) specify that any person (including a private equity- backed bidder) who acquires a “notifiable interest” (ie, 3% or more) in shares in a public company, or who ceases to be interested in such shares, must notify the public company of the acquisition or cessation of interest in the shares. The Licensing Regulations also require that public companies report the following to the NSE on a monthly basis: • all persons who acquire or cease to have a notifi - able interest in its shares; 7. Takeovers 7.1 Public-to-Private
• limiting the thresholds within which the claim can be made; • including an overall cap on liability; • limiting the period within which a breach of war - ranty or indemnity can be made; • qualifying the warranty to the knowledge of the seller; and • qualifying the warranties with information that has been disclosed to the seller. This is undertaken by way of a disclosure letter. It is not common for a general disclosure of the contents and documentation to be shared in the data room; usually, specific disclosures are required. 6.10 Other Protections in Acquisition Documentation Further to the approach taken by private equity- backed buyers discussed in 6.8 Allocation of Risk and 6.9 Warranty and Indemnity Protection , other protections in acquisition documents are outlined in the following. Claw-Back Provisions Acquisition documentation typically includes claw- back provisions that enable private equity-backed buyers to reclaim funds by adjusting the purchase price or financial arrangements after the acquisition has completed. In the event that the equity-backed buyer is unable to receive financial compensation for the loss suffered, the authors have seen claw-back clauses that enable the private equity-backed buyer to acquire additional equity. This can be part of the post-completion accounts mechanism or an option providing the private equity-backed buyer with the right to purchase the founder’s shares, in the event of a breach of a warranty or indemnity, based on the loss suffered. Ideally, the put option is only exercisable for a set duration. Warranty and Indemnity Insurance Warranty and indemnity insurance is not common in Kenya. However, in cross-border deals this is now being considered as an option, where parties have utilised warranty and indemnity insurance from inter - national insurance companies.
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