The spectre of a dead deal loomed when it emerged that an employee of BOC Kenya Plc, an industrial and medical gas manufacturing company, which is currently involved in an acquisition process by Carbacid Investments Ltd and Aksaya Investments LLP, filed a labour dispute in court against the company for a claim of Sh15 million. The employee made an application to the Nairobi’s Industrial Court seeking to halt the acquisition until his claim is heard and determined.
The court’s riposte to that petition was to provisionally restrict BOC from pursuing its buyout deal; with Justice Mbaru Monica ordering it to temporarily hold off any merger, transfer or reorganisation of its business and/or disposal of assets until the said labour dispute was resolved. The court’s decision thwarted the progress of the buyout resulting in a substantial delay of the publication of key transaction documentation.
Consequent to the court’s order, the Capital Markets Authority (CMA) advised both parties to the transaction to hold off the process until the dispute is determined.
The propensity of an ongoing labour dispute to stall a buyout process should come as no surprise to those adept to the specialised nook of mergers and acquisitions. The case of BOC, however, provides an opportunity to accentuate the importance of legal due diligence in assessing investment opportunities as it is through it that such potential liabilities become unearthed. Although due diligence is time-consuming and resource-intensive, it ultimately determines whether a deal worth huge sums will fall into a morass hence its often cited significance. Even Achilles was only as strong as his heel.
Once a potential investor sources for an attractive investment opportunity, they normally undertake to ascertain the viability of the investment by conducting an audit of all material facets of the target to understand its underlying strengths and weaknesses. The areas commonly covered by due diligence include commercial, human resources, legal and financial.
An investor’s decision whether to go ahead with the deal or not and what areas would require negotiations rests with the results of due diligence. Legal due diligence is characteristically carried out by law firms which are engaged by deal teams and involves a thorough review of a target company’s material and non-material documentation. Materiality is determined by the parties to a transaction on a case-by-case basis. Such documentation include corporate records, licences, property documentation, employee related records, intellectual property information, and material agreements. An assessment of threatened/pending litigation, […]
