Kenya’s legal framework on mergers and acquisitions (M&A) plays a vital role in regulating business consolidations, ensuring fair competition, and safeguarding consumer interests. The Competition Act (Chapter 504 of the Laws of Kenya) serves as the primary legislation governing mergers and acquisitions (M&A) transactions, supplemented by the Competition (General) Rules, 2019.
For a more in-depth introduction, explore our comprehensive overview on mergers and acquisitions in kenya. This article builds on that foundation offering an in-depth examination of Kenya’s M&A regulatory framework, covering the role of the Competition Authority of Kenya (CAK), merger definitions, approval processes, exemptions, and relevant legal considerations. If you are looking to engage in M&A transactions in Kenya, expert legal guidance is essential to ensure compliance, efficiency, and strategic business structuring.
1. Primary Legislation on Mergers & Acquisitions
The Competition Act governs all merger transactions in Kenya, granting the Competition Authority of Kenya (CAK) broad powers. However, sector-specific approvals may also be required, particularly in industries such as banking, insurance, and telecommunications.
Key Laws & Regulations:
Competition Act (Chapter 504) – Establishes the primary framework for mergers and acquisitions regulation in Kenya.
Competition (General) Rules, 2019 – Provides further procedural and substantive guidance on mergers and acquisitions.
Sector-Specific Considerations
Under Section 49 of the Competition Act, merger approval by CAK does not exempt businesses from complying with other regulatory requirements. For example, mergers involving financial institutions require separate approvals from the Central Bank of Kenya (CBK), while transactions in public-listed companies must comply with Capital Markets Authority (CMA) regulations.
2. The Role of the Competition Authority of Kenya (CAK)
Under Section 7 of the Competition Act, CAK operates as an independent institution responsible for administering and regulating competition matters, including merger approvals across all sectors, including banking, insurance, telecoms, and manufacturing.
Scope of CAK’s Regulatory Authority:
- Applies to private businesses, state corporations, and government institutions engaging in trade.
- Has primacy over other laws in matters of competition (Section 5(2)).
- Ensure mergers do not result in market dominance or anti-competitive practices.
- Reviews both local and cross-border mergers affecting Kenya.
3. Definition of a Merger Under Kenyan Law
Under Section 2 of the Competition Act, a merger refers to: 📌 Any acquisition of shares, business, or assets, inside or outside Kenya, resulting in a change of control of a business or its assets.
A merger can be achieved through multiple ways, including:
- Purchase or lease of shares or business assets in another business.
- Acquisition of a controlling interest in a part of a business capable of operating independently.
- Acquisition of a business under receivership.
- Takeovers, amalgamations, and joint ventures leading to ownership changes.
- Foreign mergers affecting Kenyan subsidiaries.
- Share swaps that significantly alter the ownership structure
- Vertical integration across supply chains.
These transactions trigger mandatory CAK approval, ensuring they comply with competition and economic stability regulations.
4. Merger Control & Regulatory Approvals
a. When Is Merger Regulation Triggered?:
Regulatory approval is required when a merger meets financial thresholds or results in significant business control changes.
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- Under Section 41 of the Competition Act, a person is deemed to have control of an undertaking if they:
- Hold more than 50% of the issued share capital or voting rights.
- Control or veto the appointments of the majority of the board.
- Possesses the power to influence company policy materially.
- Are the parent/holding company of the undertaking.
- Control voting rights or the appointment of trustees in a trust structure.
- Influence nominee companies, or can appoint or change beneficiaries.
Merger notification and review processes apply once these thresholds are met.
b. Regulatory Approval Process
- Merger notification – Businesses must submit applications for CAK clearance.
- Competitive impact assessment – CAK evaluates market concentration risks.
- Public interest considerations – Ensuring fair consumer pricing and financial accessibility.
- Sector-specific compliance – Banks, insurers, and telecoms may require additional approvals.
- Final approval or conditional clearance – CAK may impose regulatory conditions to prevent monopolistic practices.
5. Exceptions & Exemptions in Merger Transactions
Not all transactions qualify as mergers under Kenyan law. Rule 6 of the Competition General Rules outlines transactions that are not classified as mergers, including:
- Non-full-function joint ventures (e.g., short-term partnerships or collaborations).
- Receiverships or administration arrangements that do not alter business control.
- Underwriting or stockbroking transactions conducted in the ordinary course of business.
- Assets, raw materials, or trading stock purchases that do not lead to ownership control changes.
- Transactions where the acquirer already controls the business.
- Corporate actions like stock splits, bonus issues, and share buybacks do not alter control.
- Transfers that do not involve substantial business operations or that lack a significant market presence.
- Subscription rights & stock buybacks with no corporate restructuring impact.
These exemptions ensure normal business transactions do not require unnecessary regulatory approvals.
6. Merger Control and Notification Requirements in Kenya
Mandatory Merger Notification
Under Section 42 of the Competition Act, no merger may be implemented without prior approval from CAK. Any merger implemented in contravention of the Act is null and void. As such, no obligation imposed on the participating parties by any agreement in respect of the merger is enforceable in any legal proceedings.
The law imposes criminal and financial penalties, including:
- Fines up to KES 10 million
- Imprisonment up to 5 years
- Administrative penalties up to 10% of the gross annual turnover of the undertaking(s)
Additionally, payment of the full purchase price before approval is deemed as implementation of a merger and such punishable under Section 42 of the Act. However, a down payment of up to 20% is permissible without constituting implementation.
Categories of Mergers
Generally, merger control may be categorised as mergers excluded from notification, notifiable mergers and notifiable mergers excludable.
- Notifiable Mergers (Mandatory Notification)
According to Paragraph 4 of the First Schedule of the Competition Rules, a merger must be notified where:- Combined turnover or assets in Kenya exceeds KES 1 billion
- Acquisitions where the target company’s turnover/asset exceeds KES 500 million
- Vertical integration mergers involving entities with a combined turnover above KES 10 billion.
- Value of reserves or assets in the carbon-based minerals sector exceeds KES 10 billion
- Combined turnover or assets ≤ KES 500 million, but 2/3 or more of the turnover or assets are in Kenya, and the undertakings operate in the COMESA region
- Notifiable Mergers Excludable (Conditional Exclusion)
Mergers falling into the categories below may apply for exclusion from notification, but only after applying to CAK. Merger transactions that meet any of the following thresholds are eligible to be excluded from Kenya merger control.- Combined turnover or assets between KES 500 million and KES 1 billion
- Firms engaged in prospecting in the carbon-based mineral sector, regardless of asset value
- Excluded Mergers (Exempt from Notification)
Mergers that do not require any notification to CAK include:- Mergers that qualify for COMESA notification but do not generate 2/3 of turnover/assets in Kenya
- Combined turnover or asset value in Kenya does not exceed < KES 500 million
- Mergers are taking place entirely outside Kenya with no local connection
- Intra-group restructurings involving wholly owned subsidiaries or parent companies
Even in excluded cases, Rule 13 allows CAK to call in a transaction if it is likely to lessen competition or raise public interest concerns.
7. Calculating Turnover and Asset Values
The Competition Authority uses audited financials to determine whether a merger meets the relevant thresholds. Where statements are unavailable or unreliable, CAK may use International Financial Reporting Standards (IFRS) to assess value.
- Turnover: Includes all revenues from sales of goods and services in the previous financial year
- Asset Value: Determined based on the gross value from the latest audited balance sheet
For Acquiring Undertakings, the calculation includes:
- The acquiring company
- Its parent company
- Its subsidiaries
- Other subsidiaries of the parent company not involved in the transaction
For Target Undertakings, the calculation includes:
- The target company
- Its subsidiaries or any business segment being acquired
Merging parties must provide a comprehensive disclosure of all Kenyan-based investments to enable CAK to correctly assess turnover and asset levels.
8. Cross-Border M&A & COMESA Regulations
Kenya’s Competition Act has an extra-territorial effect, meaning it applies to transactions outside Kenya that result in a change of control of a business operating in Kenya. As such, multinational acquisitions that affect Kenyan subsidiaries must comply with local merger control rules.
Additionally, mergers that meet the COMESA Competition Regulations (Common Market for Eastern & Southern Africa) notification to the COMESA Competition Commission are also required. Parties must submit filings to COMESA and inform the Competition Authority of Kenya accordingly.
Businesses engaging in cross-border acquisitions must:
- Obtain approvals in Kenya and COMESA member states.
- Notify CAK and the COMESA Competition Commission.
- Comply with Kenyan law for local business control changes.
Cross-border regulations ensure mergers do not negatively affect market competition across multiple jurisdictions.
9. Key Takeaways for Businesses
- Merger control in Kenya is mandatory and must be complied with before the implementation of any qualifying transaction.
- The definition of a merger includes direct and indirect acquisitions, share swaps, joint ventures, and takeovers.
- M&A transactions involving Kenyan businesses — even if executed abroad — may require approval from the Competition Authority of Kenya.
- Certain transactions, particularly those not resulting in control, are exempt from notification.
- Companies operating in regulated sectors (e.g., banking, insurance, telecoms) may be required to obtain additional sector-specific approvals.
Conclusion
Kenya’s legal framework on mergers and acquisitions is rigorous and comprehensive. It ensures transparency, promotes competitive markets, and guards against anti-competitive practices. Businesses must be cautious not to implement mergers without prior approval, as doing so can lead to criminal liability and invalidate the entire transaction.
Whether you are navigating a local acquisition or a complex cross-border merger, regulatory compliance is not optional; it’s a strategic imperative.
How Njaga & Co. Advocates Can Assist You in M&A Transactions
Navigating mergers and acquisitions in Kenya requires expert legal guidance to ensure compliance with competition law, sector-specific regulations, and corporate governance structures.
At Njaga & Co. Advocates LLP, we offer tailored legal support on all aspects of mergers and acquisitions — from transaction structuring, regulatory compliance, competition approvals, to cross-border filings. Whether you’re a multinational entering the Kenyan market or a local firm seeking to grow through strategic mergers, we are your trusted legal partner.
Contact Us Today for Strategic M&A Legal Support. Looking to engage in mergers or acquisitions in Kenya? We provide expert legal assistance tailored to your needs.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a qualified advocate for personalized legal guidance.
