A guide to Mergers & Acquisitions (M&A) law in Mauritius, with a focus on key areas including deal structure, due diligence requirements, regulatory frameworks, treatment of seller liability, deal process, hostile bids and other trends across the M&A sector in the jurisdiction.
This guide to mergers and acquisitions (M&A) in Mauritius covers the following topics:
- DEAL STRUCTURE OF M&A DEALS
- INITIAL STEPS OF AN M&A TRANSACTION
- M&A DUE DILIGENCE
- REGULATORY FRAMEWORK
- TREATMENT OF SELLER LIABILITY IN M&A TRANSACTIONS
- DEAL PROCESS IN A PUBLIC M&A TRANSACTIONS
- HOSTILE BIDS
- M&A TRENDS AND PREDICTIONS FOR MAURITIUS
- M&A TIPS AND TRAPS IN MAURITIUS
DEAL STRUCTURE OF M&A DEALS
1.1 HOW ARE PRIVATE AND PUBLIC M&A TRANSACTIONS TYPICALLY STRUCTURED IN MAURITIUS?
Private and public M&A transactions are typically structured as an acquisition of shares, which will automatically capture all assets, liabilities and business obligations of the target, which is acquired as a going concern. However, it is also possible to acquire only the assets that represent the business of the target.
A takeover offer can be made by the offeror to the target’s shareholders. The Securities (Takeover) Rules 2010 define the concept of ‘effective control’ as:
the holding of securities by any person, either individually or together with a person acting in concert, which will result in that person, either individually or together with a person acting in concert, having the right to exercise, or control the exercise of, more than 30% of the rights attached to the voting shares of the company.
Other forms include:
- a scheme of arrangement duly approved by the Supreme Court of Mauritius;
- a legal merger, which involves two or more companies being merged by an order of the Supreme Court of Mauritius. This is rarely used, as in practice mergers and acquisitions involve straightforward actions and shareholder resolutions;
- an amalgamation of two companies into one – either one of the original companies or an entirely new company. Again, this is straightforward and involves shareholder resolutions and straightforward actions; and
- stock exchange transactions through which control of public listed companies can be obtained, mainly through the acquisition of shares on the securities exchange through normal market operations or through cross-trade.
1.2 WHAT ARE THE KEY DIFFERENCES AND POTENTIAL ADVANTAGES AND DISADVANTAGES OF THE VARIOUS STRUCTURES?
The difference between using a share sale structure and a structure involving the acquisition of assets is that a share sale automatically captures all assets, liabilities and business obligations of the target.
If assets only are being acquired, the acquisition documents will confirm the exact assets and liabilities being acquired. This may be perceived as disadvantageous for the seller and the shareholders, as they retain all liabilities which are not transferred during the sale.
1.3 WHAT FACTORS COMMONLY INFLUENCE THE CHOICE OF SALE PROCESS/TRANSACTION STRUCTURE?
There is no exhaustive list of factors which determine the choice of sale process/transaction structure. However, taxation (including the treatment of value added tax) is one of the determining factors that will influence the type of structure which will be adopted.
It is possible for parties to have recourse to the setting up of new companies to address taxation and other regulatory issues, which will be wholly owned subsidiaries.
Other considerations in making such determinations include:
- whether the target is a listed company; and
- the consents required from regulators and the speed at which these are undertaken.
INITIAL STEPS OF AN M&A TRANSACTION
2.1 WHAT DOCUMENTS ARE TYPICALLY ENTERED INTO DURING THE INITIAL PREPARATORY STAGE OF AN M&A TRANSACTION?
The key document is the memorandum of understanding, which sets out:
- all the terms agreed by the buyer and seller; and
- the key elements of the sale, such as:
- the price;
- the basis for valuation;
- the exchange of contracts; and
- completion of the sale.
The memorandum is expected to capture confidentiality and exclusivity clauses (ie, to prohibit the seller from dealing with potential buyers for an agreed time).
The confidentiality agreement will typically capture:
- the commercial and financial information about the business to enable a detailed evaluation of the target;
- the information which a buyer may disclose or use, including the fact of the proposed acquisition and the exceptions to these; and
- the seller’s right to request that confidential information be returned or destroyed, especially if the buyer does not proceed with the acquisition.
Also, adviser appointment agreements will form part of the documentation in the preparatory stages.
2.2 ARE BREAK FEES PERMITTED IN MAURITIUS (BY A BUYER AND/OR THE TARGET)? IF SO, UNDER WHAT CONDITIONS WILL THEY GENERALLY BE PAYABLE? WHAT RESTRICTIONS AND OTHER CONSIDERATIONS SHOULD BE ADDRESSED IN FORMULATING BREAK FEES?
This is not regulated and will remain a contractual arrangement between the parties to the sale.
2.3 WHAT ARE THE MOST COMMONLY USED METHODS OF FINANCING TRANSACTIONS IN MAURITIUS (DEBT/EQUITY)?
Both debt and equity are used to finance transactions in Mauritius.
2.4 WHICH ADVISERS AND STAKEHOLDERS SHOULD BE INVOLVED IN THE INITIAL PREPARATORY STAGE OF A TRANSACTION?
There is no exhaustive list of advisers, but those who are expected to form part of the preparatory stage will be auditors, financial and legal advisers.
2.5 CAN THE TARGET IN A PRIVATE M&A TRANSACTION PAY ADVISER COSTS OR IS THIS LIMITED BY RULES AGAINST FINANCIAL ASSISTANCE OR SIMILAR?
‘Financial assistance’ has a specific meaning under the Companies Act 2001 and will not apply in these circumstances. The question as to which party will bear the adviser costs remains an arrangement between the parties, as it is not regulated.
M&A DUE DILIGENCE
3.1 ARE THERE ANY JURISDICTION-SPECIFIC POINTS RELATING TO THE FOLLOWING ASPECTS OF THE TARGET THAT A BUYER SHOULD CONSIDER WHEN CONDUCTING DUE DILIGENCE ON THE TARGET?
Commercial/corporate
Legal and financial due diligence is undertaken by the buyer. This will involve a review of the following documents in respect of the Mauritian target:
- a certificate of incorporation, including a certificate of incorporation on a change of name;
- the constitution of the company;
- the register of members, directors and beneficial owners; and
- any charges against the assets of the target or pledges created by shareholders in respect of the shares which they hold in the target.
Financial/tax
This is unregulated and therefore remains an arrangement between the buyer and the seller. However, there is no capital gains tax or withholding tax in Mauritius.
Litigation
Litigation searches with the Supreme Court of Mauritius are generally undertaken as part of the due diligence exercise. This is a public search and results are available as from 2012 onwards.
Employment
The Workers’ Rights Act is the governing law on employment and its provisions will apply if there is a termination of employment upon a merger or takeover.
Intellectual property/information technology
The governing legislation for intellectual property is the Industrial Property Act, which establishes a register of patents, industrial designs, marks, geographical indications and layout designs maintained by the director of the Industrial Property Office.
The Copyright Act captures a computer program as ‘artistic, literary or scientific work’ and would extend partly to information technology.
Data protection and cybersecurity
The Data Protection Act is the governing legislation for data protection in Mauritius. It is based on the EU General Data Protection Regulation and its aim is to strengthen the control and personal autonomy of data subjects over their personal data, in line with current international standards.
Real estate
Under Mauritius law, legal title to real estate is evidenced by registration in the register of the registrar general of Mauritius. The register is a public document and is the source of information on real estate due diligence in Mauritius.
3.2 WHAT PUBLIC SEARCHES ARE COMMONLY CONDUCTED AS PART OF DUE DILIGENCE IN MAURITIUS?
These will be searches with:
- the registrar of companies (ROC), who is responsible for incorporating companies; and
- the registrar general/conservator of mortgages (RG/CM), who is the supervisor of property of Mauritian citizens and companies.
The register maintained by the RG/CM is public and discloses whether the assets of the Mauritian company or citizen have been charged in favour of secured creditors that will enjoy priority in ranking on the insolvency of the Mauritian company or citizen.
The register of the ROC confirms:
- whether the company is still registered with the ROC; and
- details such as:
- the names of directors, shareholders and the company secretary;
- accounts filed; and
- whether the company has paid its dues to the ROC.
The register of the ROC is public only in respect of companies which undertake domestic activities, as the ROC keeps confidential the files which she maintains in respect of companies licensed by the Financial Services Commission of Mauritius (FSC) to undertake global business activities either as a global business company (GBC) or an authorised company (AC).
The ROC will only grant access to the records maintained in respect of a GBC or an AC upon the production of a letter of authorisation issued by an officer of such companies.
3.3 IS PRE-SALE VENDOR LEGAL DUE DILIGENCE COMMON IN MAURITIUS? IF SO, DO THE RELEVANT FORMS TYPICALLY GIVE RELIANCE AND WITH WHAT LIABILITY CAP?
Yes, pre-sale vendor legal due diligence is customary in Mauritius. However, there are no forms which are prescribed and to be used towards this end.
REGULATORY FRAMEWORK
4.1 WHAT KINDS OF (SECTOR-SPECIFIC AND NON-SECTOR SPECIFIC) REGULATORY APPROVALS MUST BE OBTAINED BEFORE A TRANSACTION CAN CLOSE IN MAURITIUS?
Where an acquisition is made through the sale of shares, the prior approval of the FSC is mandatory for a global business company GBC or an authorised company AC if the percentage of shares to be sold is 20% or more of the issued shares of the target. This threshold is lower when the target holds a special licence from the FSC – such a company must secure the prior approval of the FSC when the percentage of shares to be acquired is 5% or more of the issued shares of the company.
4.2 WHICH BODIES ARE RESPONSIBLE FOR SUPERVISING M&A ACTIVITY IN MAURITIUS? WHAT POWERS DO THEY HAVE?
Mergers and acquisitions are undertaken under:
- the Securities Act 2005;
- the Companies Act 2001; and
- the Competition Act 2007.
The bodies responsible for M&A are:
- the FSC;
- the registrar of companies; and
- the Competition Commission.
4.3 WHAT TRANSFER TAXES APPLY AND WHO TYPICALLY BEARS THEM?
There is no withholding tax or capital gains tax in Mauritius. Furthermore, there is no stamp duty tax which applies.
TREATMENT OF SELLER LIABILITY IN M&A TRANSACTIONS
5.1 WHAT ARE CUSTOMARY REPRESENTATIONS AND WARRANTIES? WHAT ARE THE CONSEQUENCES OF BREACHING THEM?
The typical representations and warranties will confirm the following:
- The parties have corporate capacity and authority to enter into the transaction;
- The necessary consents, approvals and licences have been obtained;
- Entry into the transaction documents will not violate any applicable laws or regulations; and
- The seller is the owner of the target shares and/or property which is free or otherwise burdened by liens, charges.
Furthermore, the buyer:
- will require warranties as to:
- employees’ terms and conditions of employment;
- employment disputes; and
- benefits (including pension entitlements);
- through the novation or assignment of contracts, will be responsible for contractual liabilities and therefore will require some warranties as to the state of those contracts; and
- will require the seller to warrant:
- title to the assets;
- the absence of liabilities; and
- the adequacy and state of the assets that it is buying.
As with any other buyer, a private equity provider will usually seek contractual protection from the seller in the form of warranties.
Breach will trigger a claim for damages, which are calculated on a contractual basis in order to place the aggrieved party in the position it would have been in had the breach not occurred. The Supreme Court of Mauritius will very rarely state that the transaction is void and place the aggrieved party in the position which it would have been had it not entered into the transaction.
5.2 WHAT LIMITATIONS TO LIABILITIES UNDER TRANSACTION DOCUMENTS (INCLUDING FOR REPRESENTATIONS, WARRANTIES AND SPECIFIC INDEMNITIES) WHICH TYPICALLY APPLY TO M&A TRANSACTIONS IN MAURITIUS?
It is market practice that the agreements relating to the acquisition will place caps on a seller’s liability for breach of warranties and representations and indemnity claims.
5.3 WHAT ARE THE TRENDS OBSERVED IN RESPECT OF BUYERS SEEKING TO OBTAIN WARRANTY AND INDEMNITY INSURANCE IN MAURITIUS?
Insurance is being taken out on these matters.
5.4 WHAT IS THE USUAL APPROACH TAKEN IN MAURITIUS TO ENSURE THAT A SELLER HAS SUFFICIENT SUBSTANCE TO MEET ANY CLAIMS BY A BUYER?
Escrow arrangements and financial guarantees are common.
5.5 DO SELLERS IN MAURITIUS OFTEN GIVE RESTRICTIVE COVENANTS IN SALE AND PURCHASE AGREEMENTS? WHAT TIMEFRAMES ARE GENERALLY THOUGHT TO BE ENFORCEABLE?
Restrictive covenants are typical and will capture non-compete clauses or attempts to solicit employees, customers and suppliers of the target. The Supreme Court of Mauritius has held that a restrictive covenant of one year for employees is acceptable; otherwise, there are no statutory deadlines for other restrictive covenants.
5.6 WHERE THERE IS A GAP BETWEEN SIGNING AND CLOSING, IS IT COMMON TO HAVE CONDITIONS TO CLOSING, SUCH AS NO MATERIAL ADVERSE CHANGE (MAC) AND BRING-DOWN OF WARRANTIES?
DEAL PROCESS IN A PUBLIC M&A TRANSACTION
6.1 WHAT IS THE TYPICAL TIMETABLE FOR AN OFFER? WHAT ARE THE KEY MILESTONES IN THIS TIMETABLE?
This is not regulated.
6.2 CAN A BUYER BUILD UP A STAKE IN THE TARGET BEFORE AND/OR DURING THE TRANSACTION PROCESS? WHAT DISCLOSURE OBLIGATIONS APPLY IN THIS REGARD?
This is not regulated.
6.3 ARE THERE PROVISIONS FOR THE SQUEEZE-OUT OF ANY REMAINING MINORITY SHAREHOLDERS (AND THE ABILITY FOR MINORITY SHAREHOLDERS TO ‘SELL OUT’)? WHAT KIND OF MINORITY SHAREHOLDERS RIGHTS ARE TYPICAL IN MAURITIUS?
This is not regulated.
6.4 HOW DOES A BIDDER DEMONSTRATE THAT IT HAS COMMITTED FINANCING FOR THE TRANSACTION?
This is not regulated.
6.5 WHAT THRESHOLD/LEVEL OF ACCEPTANCES IS REQUIRED TO DELIST A COMPANY?
Shareholder and regulatory approvals are required.
6.6 IS ‘BUMPITRAGE’ A COMMON FEATURE IN PUBLIC TAKEOVERS IN MAURITIUS?
We are not aware of this.
6.7 IS THERE ANY MINIMUM LEVEL OF CONSIDERATION THAT A BUYER MUST PAY ON A TAKEOVER BID (EG, BY REFERENCE TO SHARES ACQUIRED IN THE MARKET OR TO A VOLUME-WEIGHTED AVERAGE OVER A PERIOD OF TIME)?
There is no specific legislation which governs the question of consideration, save for the Civil Code, which requires that any sale be supported by consideration which need not be adequate, but only sufficient.
6.8 IN PUBLIC TAKEOVERS, TO WHAT EXTENT ARE BIDDERS PERMITTED TO INVOKE MAC CONDITIONS (WHETHER TARGET OR MARKET-RELATED)?
We are not aware of such clauses being used.
6.9 ARE SHAREHOLDER IRREVOCABLE UNDERTAKINGS (TO ACCEPT THE TAKEOVER OFFER) CUSTOMARY IN MAURITIUS?
Yes.
HOSTILE BIDS
7.1 ARE HOSTILE BIDS PERMITTED IN MAURITIUS IN PUBLIC M&A TRANSACTIONS? IF SO, HOW ARE THEY TYPICALLY IMPLEMENTED?
Hostile bids are not permitted under Mauritian laws, as directors of a company retain discretion to refuse the transfer (ie, sale of shares) under the Companies Act 2001.
7.2 MUST HOSTILE BIDS BE PUBLICISED?
This is not applicable.
7.3 WHAT DEFENCES ARE AVAILABLE TO A TARGET BOARD AGAINST A HOSTILE BID?
M&A TRENDS AND PREDICTIONS
8.1 HOW WOULD YOU DESCRIBE THE CURRENT M&A LANDSCAPE AND PREVAILING TRENDS IN MAURITIUS? WHAT SIGNIFICANT DEALS TOOK PLACE IN THE LAST 12 MONTHS?
The current M&A landscape is very active. Recently, there have been changes in the financial services industry, with considerable amounts of private equity investments in fiduciary businesses and mergers between insurance companies, construction companies and financial service providers. In addition, applications for sandbox licences that capture Bitcoin and cryptocurrencies have begun to feature on the market. Finally, there have been significant legislative initiatives in the past two years in order to promote virtual assets, peer-to-peer lending and the establishment of crowdfunding platforms.
8.2 ARE ANY NEW DEVELOPMENTS ANTICIPATED IN THE NEXT 12 MONTHS, INCLUDING ANY PROPOSED LEGISLATIVE REFORMS? IN PARTICULAR, ARE YOU ANTICIPATING GREATER LEVELS OF FOREIGN DIRECT INVESTMENT SCRUTINY?
We are not aware of any specific legislative reforms in the near future. However, we expect:
- a robust regulatory framework for non-banking financial institutions and capital markets; and
- continuing consolidation within the fiduciary sector and the government sector.
M&A TIPS AND TRAPS
What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?
The following should be considered:
- Closing timetable: This should be realistic and agreed by the parties.
- Closing checklist: This should be comprehensive and managed by the parties’ legal teams.
Originally provided for Mondaq’s Comparative Guide to Mergers & Acquisitions, 2023.
For further information, please contact:
Sharmilla Bhima, Partner, Appleby
pbhima@applebyglobal.com
