What acquisition means
An acquisition is one party taking control of a business from another.
The fundamental structural choice comes first.
A share purchase buys the company. The buyer acquires the shares, and the company continues to exist with everything it owns and everything it owes. Contracts, licences, employees, assets and liabilities all remain with the company, so nothing needs to be transferred individually. The buyer also inherits every liability, including ones nobody knew about.
An asset purchase buys the things. The buyer selects the assets it wants, and the liabilities generally stay with the seller. It is cleaner on risk, and it is administratively heavier, because each asset, contract and licence has to be transferred, and third party consents are needed where contracts prohibit assignment.
Buyers usually prefer asset purchases. Sellers usually prefer share sales. Where the deal lands is a negotiation, and it is often driven by tax and by which contracts and licences cannot be transferred.
How it is used
A Nigerian acquisition follows a recognisable sequence.
A term sheet or heads of terms, mostly non binding, with confidentiality and exclusivity binding.
Due diligence: corporate records and the register of members, title to assets, material contracts, employment and pension position, tax compliance and history, litigation, regulatory permits, intellectual property and data protection.
The transaction documents: a share purchase agreement or asset purchase agreement, with warranties from the seller about the state of the business, indemnities for identified risks, and a disclosure letter in which the seller qualifies the warranties by disclosing what is actually the case.
Conditions precedent, including regulatory approvals and third party consents, with a long stop date.
Completion, where the price is paid, transfers are executed and the register is updated.
Post completion: CAC filings, stamping and registration of transfers, updating the beneficial ownership record, and handover.
The disclosure letter is the document buyers underestimate. A warranty that is disclosed against is not a warranty, and the negotiation over disclosure is where the risk actually moves.
Key features
- Buying a business by share purchase or asset purchase
- A share purchase acquires the company with all its liabilities
- An asset purchase selects assets and generally leaves liabilities behind
- Due diligence establishes what is being bought
- Warranties and indemnities allocate risk between the parties
- The disclosure letter qualifies the warranties and is where risk shifts
How this works in Nigeria
Due diligence in Nigeria has a specific character, because the records are frequently incomplete.
The register of members may not have been maintained. Share transfers may never have been stamped. Annual returns may be years behind. Property may sit under an unperfected deed. Employees may be engaged through arrangements that would not survive scrutiny at the industrial court. Tax filings may be missing.
None of that necessarily kills a transaction. What it does is move it: into conditions precedent requiring the seller to regularise, into indemnities for identified exposures, and into price.
A buyer should therefore start due diligence early, because Nigerian rectification takes time. Filing three years of annual returns, stamping historic transfers and perfecting a title are not week long exercises.
Employees are the second Nigerian point. On a share purchase, employment continues unaffected because the employer is the same company. On an asset purchase, the employees are not automatically transferred, and the position has to be managed: terminating and re engaging, with the terminal entitlements that follow, or agreeing transfers with each employee. That cost belongs in the model rather than in a surprise at completion.
Merger control is the third. Where the thresholds are met, FCCPC approval is a condition precedent, and sector regulators may also be involved.
Share purchase vs asset purchase
Two structures with opposite risk profiles.
Share purchase. The buyer acquires the company itself. Contracts, licences, property and employees stay where they are, so there is little to transfer. Everything the company owes comes too, including unknown liabilities, historic tax exposures and litigation nobody disclosed. Risk is managed through due diligence, warranties and indemnities.
Asset purchase. The buyer selects what it wants and leaves the rest. Liabilities generally stay with the seller. The cost is administrative: each asset transferred, each contract assigned with consent where required, each licence reapplied for, and employees dealt with individually.
Sellers prefer share sales because they exit cleanly. Buyers prefer asset purchases because they leave the history behind.
What usually decides it is whether the value sits in things that can be transferred. A business whose value is a licence, a lease and a customer contract that all prohibit assignment is effectively a share purchase whatever the buyer would prefer.
Limits and risks
Warranties are only as good as the seller's ability to pay a claim. A warranty from an individual who has spent the proceeds is worth little, which is why retentions and escrow arrangements exist.
Due diligence is also limited by what the seller discloses and what the records show. In a business with poor records, the buyer is inferring rather than verifying.
Asset purchases can fail on consents. A key contract or licence that cannot be transferred can undermine the whole rationale.
And integration is where value is actually lost. A well negotiated acquisition of a business that then loses its people and its customers has bought a set of assets rather than a business.
Worth knowing
Hold back part of the price, in escrow or as a retention, against warranty claims. Nigerian sellers frequently distribute the proceeds immediately, and a buyer who discovers an undisclosed tax exposure six months later has excellent warranties and nobody solvent to claim against.
Questions people ask
What is the difference between a share purchase and an asset purchase?
A share purchase buys the company with everything it owns and owes, including unknown liabilities. An asset purchase buys selected assets and generally leaves liabilities with the seller, at the cost of transferring each item individually.
Which structure should a buyer prefer?
Usually an asset purchase, because liabilities stay behind. What often decides it is whether the value sits in contracts, leases or licences that cannot be transferred without consent, which pushes the deal towards a share purchase.
What does due diligence cover?
Corporate records and the share register, title to assets, material contracts, employment and pension position, tax compliance and history, litigation, regulatory permits, intellectual property and data protection.
What is a disclosure letter?
The document in which the seller qualifies the warranties by disclosing what is actually the case. A warranty that has been disclosed against does not protect the buyer, which is why the disclosure negotiation matters as much as the warranties.
What happens to employees on an acquisition?
On a share purchase employment continues unaffected, because the employer is the same company. On an asset purchase employees are not automatically transferred, and the position must be managed, with terminal entitlements where employment ends.
Do I need regulatory approval?
Where the transaction meets the merger control thresholds, FCCPC approval is required and should be a condition precedent. Regulated sectors also require their own regulator's approval.