Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the M&A volume featuring discussion and analysis of legal developments, keynote deals as well as an insight into typical transactions within key jurisdictions worldwide.

1 What trends are you seeing in overall activity levels for mergers and acquisitions in your jurisdiction during the past year or so?

Mergers and acquisitions remained active in Egypt compared with levels prior to the financial crisis.

Overall patterns of activity have been consistent with no major change throughout 2020 and 2021.

These levels of sustained activity noted above are owing to a number of factors including, for example, the great efforts that Egypt’s government has undertaken to attract foreign investments to the market; and the large number of ongoing infrastructure projects available in Egypt, whereby it replaced South Africa as the second-highest ranked destination for projects covering the entire MENA region. That is why, in 2020, Egypt led MENA countries in capital investment, according to fDi Intelligence’s 2020 report.

2 Which sectors have been particularly active or stagnant? What are the underlying reasons for these activity levels? What size are typical transactions?

The technology, media and telecoms (TMT), banking and finance, and healthcare sectors have been particularlly active.

There is no specific size of transactions but most of them are large-sized deals.

3 What were the recent keynote deals? What made them so significant?

The following closed and still ongoing transactions are, in our opinion, the most notable deals where some of which were also part of international merger and acquisition transactions:

  • the acquisition of Arab Investment Bank by both the Sovereign Fund of Egypt and EFG Hermes Holding SAE;
  • the acquisition of BLOM Bank Egypt by Arab Banking Corporation;
  • the acquisition of Careem by Uber;
  • the acquisition of Eventtus by Bevy;
  • the acquisition of SODIC by Aldar;
  • the acquisition of Vodafone Group’s shares in Vodafone Egypt by Vodacom;
  • EMPG/OLX merger;
  • the Wabtec/General Electric spin-off and merger.

The majority of the deals above, if not all of them, involve key players in their relevant sectors.

In addition to these deals, Egypt’s market also involved a number of major transactions that were not successfully closed, such as the admit made by STC to acquire the entire stake of Vodafone Group in Vodafone Egypt as well as the rejected merger between Cleopatra and Alameda.

4 In your experience, what consideration do shareholders in a target tend to prefer? Are mergers and acquisitions in your jurisdiction primarily cash or share transactions? Are shareholders generally willing to accept shares issued by a foreign acquirer?

The primary consideration for the majority of mergers and acquisitions deals is cash. However, in a few transactions, shareholders may be willing to accept a shares swap.

5 How has the legal and regulatory landscape for mergers and acquisitions changed during the past few years in your jurisdiction?

The most significant changes made to the legal and regulatory landscape for mergers and acquisitions include the following:

  • The concept of having a shareholders’ agreement (SHA) for a company other than its articles of incorporation was not recognised under the Egyptian Companies Law until 2018, where entering into an SHA was not effective vis-à-vis such company and any shareholder who is not a party of the said SHA or third parties (including the said company’s creditors). However, following major changes introduced by the Egyptian Companies Law in 2018, it is now possible to have an SHA providing that several conditions are satisfied.
  • The change made to the Egyptian Companies Law above also introduced spin-offs, called ‘horizontal spin-offs’, and split-offs, called ‘vertical split-offs’. Before this change, it was common practice before the General Authority for Investment and Free Zones (GAFI) that the split-off of company was implemented by way of a resolution from an extraordinary general shareholders meeting as well as a split-off contract. However, the said change imposes several requirements for the implementation of both horizontal spin-offs and vertical split-offs. The said requirements were vital to regulate and protect the interest of shareholders during spin-offs or split-offs as well as the creditors of the company subject to the said spin-offs or split-offs.
  • Change-of-control restrictions were imposed or increased for specific sectors such as education and healthcare, whereby certain regulatory approvals or non-objections are required to be obtained before closing the relevant transaction.
  • According to one of the key changes made under Egyptian law in 2020, any person, whether a natural or juristic person, registered with the commercial registry in Egypt, is required to create a special register for the ‘beneficial owners’ (the beneficial owner register) and annotate in this beneficial owners register specific data including, inter alia, beneficial owners’ data regarding who actually owns or controls the said person, whether the beneficial owner is a juristic person or legal interest. This data must be:
  • updated once any change is made to the said ownership or control; and
  • notified to the competent commercial registry immediately upon the occurrence thereof.
  • As part of the state’s efforts to stimulate the Egyptian economy, the President issued Law No. 152 of 2020 on the Development of the Small, Micro, Small and Medium-sized and Micro-enterprises (the SMEs Law). This SMEs Law aims to attract the projects developed in the informal economy and to legitimise their status in accordance with the applicable laws. The SMEs Law has developed new mechanisms to grant an easy access to SMEs using financial institutions and to support those institutions, in turn, in their fund recovery.
  • The Egyptian Financial Regulatory Authority has just agreed to allow incorporation of special purpose acquisition companies (SPAC) in Egypt within the activities of venture capital companies.

6 Describe recent developments in the commercial landscape. Are buyers from outside your jurisdiction common?

Egypt’s innovative companies managed, despite all challenges involved with covid-19, to attract both international and local buyers.

Furthermore, Egypt-based companies started also to expand abroad by acquiring key players in other jurisdictions such as the multiple acquisition transactions made by Swvl abroad and acquisition of Gulf CX by Raya Contact Center Services Company.

7 Are shareholder activists part of the corporate scene? How have they influenced M&A?

Yes, sometimes key shareholders attract other non-shareholders to look into the said shareholders’ portfolios and follow their approach.

8 Take us through the typical stages of a transaction in your jurisdiction.

There are no typical stages for transactions in Egypt. However, it is very common for non-Egyptian buyers to engage intermediaries to locate local potential sellers and targets, but this is not the common approach for local buyers as they usually rely on their own connection to establish first contact.

If contact is made and acceptable in general, a formal non-binding offer may be made to agree on the following steps. Parties are, in general, liable for binding provisions under any pre-contractual document where they are, in all cases, also liable for any misleading statements.

As a general rule under the Civil Code, the seller is not answerable for any defects of which the purchaser was aware at the time of the sale or any defects that could be discovered by the purchaser by examining the subject of the sale with the care of a reasonable person, unless the purchaser proves that the seller confirmed the absence of those defects.

There is no typical scope of due diligence in Egypt as it depends on the level of due diligence that the buyer is willing to conduct; however, full due diligence is usually recommended to be in line with the general rule above. Buyers may also rely on due diligence reports produced by the sellers if the sellers conduct the due diligence with the care of a reasonable person.

Other special requirements apply to listed companies and specific industries.

9 Are there any legal or commercial changes anticipated in the near future that will materially affect practice or activity in your jurisdiction?

There are several contemplated and rapid changes anticipated to the overall legal framework in Egypt including laws and regulations governing mergers and acquisitions, especially for specific sectors. However, determining whether such changes will materially affect practice or activity in Egypt can only be made at the time of the relevant transaction.

10 What does the future hold? What activity levels do you expect for the next year? Which sectors will be the most active? Do you foresee any particular geopolitical or macroeconomic developments that will affect deal sizes and activity?

We do believe that the most active sectors will very likely be TMT, banking and finance, real estate, agriculture, greenfield and healthcare.

The Inside Track

What factors make mergers and acquisitions practice in your jurisdiction unique?

Egypt managed also to be on top of all ranked countries in the Middle East and Africa regions by capital investment in 2019 by acquiring 12 per cent of capital investment with a total value of US$13.7 billion. The majority of this investment came in the energy, construction and transportation sectors.

The Egyptian government is in the process of completing a number of ‘mega projects’, including, inter alia, (1) the new Administrative Capital, the first phase’s total space of approximately 44.1 square kilometres with a total construction value of 20 billion Egyptian pounds, which is equal to approximately US$1.2 billion; (2) a new 4.4 billion Egyptian pounds line for the third phase of the metro, the fourth phase of the metro with a total value of US$1.2 billion and the first skytrain with a total value of US$1.5 billion; (3) Zohr gas field, which is the largest ever natural gas find in the Mediterranean Sea; (4) Benban Solar Park, which is a photovoltaic power station under construction with a planned total capacity of 1650 MWp and will be the largest solar installation in the world; and (5) El Dabaa Nuclear Power Plant, which is the first nuclear power plant planned for Egypt.

All of these facts made the merger and acquisition practice in Egypt unique with a lot of potentials, especially for targets that have already been involved in key projects.

What three things should a client consider when choosing counsel for a complex transaction in your jurisdiction?

Experience, professionalism and ethics are, in our opinion, on top of all things that should be considered when engaging counsels for a complex transaction.

What is the most interesting or unusual matter you have recently worked on, and why?

The Wabtec/General Electric merger is one of the most interesting matters that we have recently worked on because of the following main reasons:

  • Our firm represented Alstom as local legal counsel in Egypt for the acquisition made by General Electric of Alstom’s grid and power sectors and was noticed by General Electric for our performance.
  • Following the said acquisition, General Electric decided to engage our firm and we were gradually engaged to represent sector by sector until we became engaged for all sectors of General Electric in Egypt including the transport sector.
  • Our firm was engaged by General Electric to support locally in the merger made with Wabtec where we also got noticed by Wabtec that decided also to hire our firm after the merger.

The trust that we gained from the multiple representations above confirms the level of professionalism we follow for representing our clients, even for the most complex and cross-border transactions.