Finance (banking and insurance) and oil and gas are strategic sectors driving M&A transactions in Angola. Although the COVID-19 pandemic has brought oil drilling to a halt in Angola, oil and gas are set to continue playing a vital role in meeting the world's energy needs and having a great impact on the Angolan economy and major transactions.

Since 2018–19 the M&A market in Angola has grown considerably, especially due to government reforms that are targeting the improvement of the private sector, notably on investment projects and privatisation.

The privatisation programme PROPRIV, launched in 2019 by the Angolan government, is still ongoing and offers regular investment opportunities for private investors intending to acquire a participation interest in the share capital of public and private companies in which the state holds a significant participation interest.

Priority Sectors

In addition, priority sectors, notably agriculture and fishing, are also turning to M&A to find ways to overcome the lack of capitalisation by finding new investors (mostly foreign), as well as by absorbing the know-how of such foreign investors and reducing costs.

Manufacturing

In manufacturing industries (beverages being the most significant example), M&A transactions with mostly foreign investors aim to reduce the use and importation of raw materials or midstream products in an attempt to reduce production costs.

Transport and Logistics

Likewise, the transport and logistics infrastructure remains a major challenge for business in Angola. Rebuilding the country’s infrastructure will expand the economy, modernise and better connect its cities. There are a number of projects for infrastructures, mostly supported and engaged by public companies, but also opened to deals with foreign investors in partnership with established local private entities.

Over the past 20 years, foreign companies/individuals have invested highly in Angola. The first large transactions were in the oil and gas sector (oil companies and related services providers) and companies with interests in exploration blocks. Those were essentially international operations.

More recently, with the enactment of the new Private Investment Law in 2018, amended in 2021, Angola opened the market to international investment under a more flexible and tolerant approach towards investors. As opposed to the previous legislation, legal requirements for the investment and incorporation of legal entities have now become more flexible and accessible.

In more recent years, major investments have been made in infrastructure, construction, agriculture and hotels with the development of the capital Luanda. The government programme PRODESI, launched in 2021, is a public investment programme aiming at the development and diversification of the private sector in Angola. These measures were implemented to diversify the economy and to generate more confidence in private investment. The M&A market is essentially controlled by private entities.

Angola has approved a specific legal framework applicable to private equity (PE):

• the Presidential Legislative Decree No 4/15, dated 16 September 2015, which approved a specific legal framework applicable to PE funds, which regulates the investment activity of capital at risk through collective entities set by investment funds supervised by the Angolan Securities Market Commission (Comissão do Mercado de Capitais);
• the Securities Code (Law 22/15 of 31 August 2015); and
• any acquisition or disposal of an equity stake, or the rights and obligations inherent thereto, are governed by the Angolan Corporate Code (Lei das Sociedades Comerciais – Law No 1/2004, dated 13 February 2004) and, if traded on the Angolan Stock Exchange, by the Regulations issued by the Angolan Securities Market Commission that are already in force – despite certain matters still pending further regulation.

Also, the Private Investment Law, most recently amended in 2021, should be highlighted because it has established a set of principles aimed at facilitating, promoting and accelerating investment into Angola.

Finally, taking into consideration the Angolan Privatisations Law, approved by Presidential Decree No 250/19, of 5 August 2019, the privatisation programme relaunched the restructuring and reforming of the public business sector.

Depending on the business area in which the targeted company operates, investors have to establish contact primarily with the Angolan Investment and Export Promotion Agency (AIPEX), the Notary, the Companies Register, the Competition Authority (ARC) and any sector-relevant regulatory authority.

In 2018, there was a considerable change in the legal framework in Angola due to the enactment of the Angolan Competition Law which was first implemented and enforced in 2019. To address new restrictive practices identified by the government, it adopted a new sanctions framework and new prior notification obligations. In addition, for company mergers there is a mandatory mechanism that requires the authorisation of the ARC for the effectiveness of the intended transactions.

Note that the competition rules are only applicable to certain types of transactions. The mergers or acquisitions that are subject to this regime and need the approval of the ARC are the ones in which a specific turnover or market share threshold is exceeded, subject to confirmation of the activity sector in which the transaction will occur.

There are three basic pillars to include in due diligence conducted in PE transactions in Angola. The corporate governance due diligence review acknowledges all the steps taken since the incorporation of the target company, passing through all the legal changes to reach the actual stage and conditions, notably on shareholding, management and changes of corporate by-laws. Under Angolan law, the general rule is that the provision of by-laws (effective to third parties as well) supersedes the provision of a shareholders' agreement (which is only effective with regard to the involved parties).

PE funds and private investors in general typically review and confirm the good tax standing of the target companies, notably full compliance and contingency/liability assessments of all the different types of taxes that may be imposed upon a particular business.

The last basic milestone of due diligence is in labour and employment.

Due diligence is a particularly detailed, and vital, in the pre-investment phase in Angola. PE funds engage with external local professionals to perform the customary due diligence analysis.

In addition, and depending on the industry where the M&A transaction will occur, PE funds may be required to actively consider all the operational licences and permits of the specific type of business. Usually, the PE funds have specific sectors of activity as a target (agriculture, fishing, oil and gas), which are subject to specific licensing and local content requirements in Angola, making licensing due diligence a topic that is addressed separately, or within corporate due diligence.

Environmental and social due diligence may also be conducted, but this does not often happen.

Vendor due diligence may be described as the investigation and review of the seller’s corporate profile. The most common procedure in Angola is that the due diligence is not carried out directly by the buyer, but rather by an independent consultant, adviser or auditor.

For PE investors, the main task is to provide information and a database to ensure that the buyer is fully aware of the description of the business, the possible risks, or the impediments or liabilities of the transaction.

The purpose of vendor due diligence is that of an ancillary tool but it is not commonly used in Angola, as due diligence is carried out under the instructions of the buyer and the vendor only provides documentary support. Also, the scope of due diligence is usually only the target company and not the vendor. Typically, investors in Angola (foreign or local) are not interested in reviewing and assessing the corporate profile and liability risk exposure of the vendor. The main reason for this is that most target companies in Angola are limited liability companies, which means that the obligations of the company are not passed on to the shareholders (potential vendors) and the vendor is most commonly not included in the scope of due diligence.

Most PE acquisitions are carried out by way of a private sale and purchase agreement (SPA). This is because most common legal structures in Angola are private limited liability companies (sociedades por quotas) and, therefore, the transactions are mostly related to the shares (which ultimately already include the assets of the companies).

Due to the nature of private limited liability companies in Angola, tender offers are unusual. The board of directors is almost always composed of the representatives of the shareholders of the company, which means that transactions are carried out by purchase agreement through a friendly takeover approved by the board of directors.

Private equity investment funds (PE funds) which are interested in investing in Angola are commonly subscribed by limited partners domiciled in Europe or the USA, depending on tax considerations, investment structure and the location of the target company. These PE funds typically invest in Angola through newly created companies – special-purpose vehicles (SPVs) – usually incorporated in Angola (local holdings), in a jurisdiction with which Angola has a favourable double taxation treaty (recently Portugal and the UAE), or in jurisdictions which are geographically close to Angola.

It is not very common for PE investors to acquire equity stakes directly in the target companies, but rather by using a foreign SPV which will subsequently acquire the shares in the Angolan target.

The PE fund may co-invest together with other individuals (top managers) or entities, through the incorporated SPV.

PE funds are most commonly designed as limited partnerships. The PE fund’s partners, known as general partners, manage the PE fund by selecting which investments they will include in its portfolios and are also responsible for attaining capital commitments from the limited partners.

Investors hold limited partnership interests in the fund vehicle while the fund manager's team holds an interest in the general partner.

The common profit allocation scheme is usually distributed in the amount of 80% to limited partners, pro rata to their capital contributions, and 20% to the general partner, ie, carried interest, the latter conditional upon the limited partners having first received their preferred return.

Limited partners sometimes request direct investment in target companies along with the PE fund to increase their exposure to a specific industry sector, or to adjust their risk-profile target.

Equity structures are designed with the purpose of providing incentives and minimising risk-sharing between investors and managers. Due to the lack of expertise of PE management in Angola, this mechanism is really valued to retain human capital.

Historically, PE fund buyers do not generally invite co-investors. This is because, when the Law of Private Investment was launched in 2011, for each investor-entity a separate investment project was required. However, with the current Private Investment Law approved in 2018 and recently amended in 2021, one project may involve more than one investor and is not subject to minimum investment amount requirements.

Where there is an invitation for co-investors to invest alongside the PE fund, the leading investor, which has the know-how and expertise, takes control and management of the investment and transaction, while the co-investors, usually with a mature and relevant reputation in the market, remain in the background. Limited partners sometimes request direct investment in target companies along with the PE fund to increment their exposure to a specific industry sector or to adjust their risk-profile target.

In Angola, fixed price transactions are favoured by both private equity sellers and buyers.

When the due diligence that usually precedes the transaction is not sufficiently detailed, either because legal compliance is not satisfactorily verified, or because tax liabilities are not defined, PE sellers and buyers promote fixed price structures, as they offer certainty of value which is a key point for a PE seller (or buyer).

This structure involves fixing an acquisition price at the time of signing the SPA. The acquisition price paid initially does not exceed 20% or 30% of the total price. Depending on the precedent conditions negotiated and agreed by the parties, the final price could be reduced at the time of closing if liabilities and contingencies will influence the price.

Joint Ventures

In joint venture transactions, a locked-box mechanism is used to fix the equity price at the time of signing the SPA. The price is calculated using a recent historical balance sheet (“locked-box balance sheet”) where cash, debt and working capital are known amounts. By forecasting the performance of the target company, the price would be adjusted.

For the corporate seller the structure used is the same as for the PE seller, since the transaction is also subjected to due diligence which dictates the fixed-price mechanism.

In PE transactions in Angola, locked-box consideration structures are not used and, for this reason, there is no place to charge any interest on leakage.

In PE transactions in Angola, locked-box or completion accounts consideration structures are not used, and the fixed-price consideration structure is preferred. Therefore, any dispute raised during the transaction is typically solved and settled under the dispute resolution provisions of the legal documentation composed at the first stage of amicable discussions and negotiations. Dispute resolution mechanisms are mainly set forth for disputes that may trigger the termination of the SPA and therefore the non-completion of the transaction.

In early 2019, the recently created Angolan Competition Authority approved its first merger since becoming operational. This approval marked the first application of Law 5/2018, Angolan’s first competition legislation, which was adopted in May 2018. Anti-trust legislation makes it mandatory for companies envisaging mergers and acquisitions in Angola (including foreign-to-foreign transactions) to file to the ARC and ensure that closing does not take place before obtaining clearance.

The law also introduces a merger control regime in Angola. Transactions satisfying the following thresholds must be notified to and approved by the ARC:

• the combined market share exceeds 50%;
• the combined market share is between 30% and 50% and the individual turnover in Angola of at least two parties exceeds AOA450 million (approximately USD1.3 million); or
• the combined turnover in Angola of all the parties exceeds AOA3.5 billion (approximately USD10 million).

Fines of up to 10% of the parties’ turnover can be imposed if a notifiable transaction is implemented without the ARC’s approval.

"Hell or high water" negotiations are extremely “hostile” for a jurisdiction like Angola where, most of the time, the oil and gas, banking and insurance sectors are the object of the transactions. Therefore, there are many regulatory authorisations that cannot be granted, or the procedure to achieve all the permits, licences and/or authorisations necessary would be too time-consuming and would not succeed. Also, due to the nature of the country, Angola has more difficulties ensuring the certainty of the transaction, either because the regulatory authorities do not address the demand as they should, or because the documentation that precedes the transaction is generally dispersed.

The concept of break fees is not legally regulated in Angola and is not commonly used in transactions involving PE-backed buyers.

PE buyers and sellers promote the certainty of the transaction and, as such, termination rights are heavily regulated, especially on the buyer’s side. It is usual that the SPA is limited to conditions precedent that may not be met in the foreseen time. In fact, it is usual to extend the time foreseen in order for the parties to comply with their liabilities.

SPAs can be terminated if these conditions are not satisfied by a long-stop date that is agreed by the parties, if the delay is caused by the parties. If there are delays in obtaining official updated documentation, these circumstances do not typically generate the termination of an SPA, but rather, extension of the agreed closing date.

As a general rule, the seller is not the PE fund and the SPA will reflect a less favourable risk allocation to the buyer. The main goal is to reach the closing deal with no substantial changes to the initial offer, except, as mentioned, the price mechanisms will reflect the risk carried by the buyer.       

Angolan sellers (irrespective of their nature) are not familiar with granting business warranties in an acquisition agreement.

Instead, whenever there are financing loans, the seller may provide a collateral to minimise the risk of the buyer not keeping up with their financial obligation.

Typically, PE sellers want to minimise their ongoing liability on the promissory contract, and they may address equity holdings which are burdened by covenants before the transaction occurs.

Typically, warranty and indemnity insurance is not used in Angolan transactions. Sellers may take over the target company's debt before the acquisition, to guarantee that the supplementary payments or the supplies of the company are not transferred when the transaction is closed.

Escrow accounts and retention mechanisms are typically agreed when the transaction involves financial (banking and insurance) entities which are more familiar with these structures.

Judicial and arbitration procedures relating to PE transactions are not common in Angola. PE investors generally promote the private settlement of differences with their counterparts.

Where PE sellers are involved, the potential for disputes is limited, given the limited nature of their contractual liabilities.

The Angolan market has no significant experience of public-to-private takeovers due to the fact that capital markets and PE are still at a very early stage in the country. However, there have been relevant developments in relation to private limited companies going public through the initial public offer process and being regulated on the stock exchange.

Disclosure thresholds for shares start at 5% in respect of companies having the share capital open to public investment. Subsequent thresholds are: 10%, 15%, 20%, 25% and 90% of the voting share capital. The shares of the acquiring company are relevant to calculate these thresholds. If the thresholds are exceeded, the acquisition will be disclosed to the public. Failure to notify a discloseable increase could result in a fine applicable to the shareholder, and the regulator can inform the market that the company is not transparent.

Control may pass before the launching of the bid – Angolan law provides for a mandatory bid rule – or upon completion of the bid. Control has two relevant thresholds: one third of the voting rights (which may be set aside if the bidder provides evidence that it does not control the target company); or one half of the voting rights.

The bidder could gain 100% control after the bid if it is entitled to exercise a squeeze-out right and consequently purchase the shares of the minority shareholders.

Cash is the form of consideration more often used to acquire Angolan target companies. Issuance of shares may require notification of the offering with the Securities Market Commission, an expensive and time-consuming process.

Once the parties are committed and they have made the cash considerations agreement available, they are free to establish the terms for the cash consideration’s timeline. In public takeovers, the offeror must indicate the date of the cash consideration payment in the offer.

In private transactions, the parties are free to negotiate and offer different terms to different shareholders. Although there could be exceptions to this general rule, for example, the company’s articles of association might have different types of shares with different rights and also, certain provisions may be contained in the shareholders’ agreement. In public takeovers, the terms and conditions should be the same for all potential buyers and the offeror’s proposal must contain all the mandatory information established in the Angolan Securities Code.

In addition, in the recently enacted privatisation law there are mandatory rules which are applicable to the acquisition of shares in state-owned companies, held directly by the state.

As mentioned, a bidder can exercise a squeeze-out right and consequently purchase the shares of the minority shareholders to assume 100% control of a target.

Or instead, a PE bidder can try to have influence over the composition of the board of directors, indicating one or more persons to form part of a list to be elected to the board, even when the directors cannot represent the relevant shareholders. There is no requirement for such arrangements to be made public in a PE structure.

Veto rights may also be created for the benefit of PE bidders, through shareholder agreements. Such arrangements may refer to the exercise of voting rights, but not to the actual exercise of management.

Potential acquirers often seek to enter into voting arrangements with target-company shareholders in order to obtain the vote in favour of the transaction and against a competing transaction. If there is a friendly atmosphere and obeying of the general rules applicable to a takeover, a bidder may interact with the target in order to enhance the success of its bid.

Under Angolan law, there is no distinction between a friendly or hostile acquisition or takeover. It is quite common, however, for such a distinction to be based on non-legal principles: a takeover will be deemed as friendly or hostile based on the response of the target company’s board of directors and/or of the relevant shareholders to the relevant takeover bid.       

Equity incentivisation of the management team is often used to give the management a percentage stake in the ordinary equity for a low cost, or returns based on interest remuneration, and is, therefore, an essential feature of most PE investments.

Incentive alignment between investors and managers drives carried interest remuneration, providing risk-sharing and human talent retention, which are particularly vital in Angola.

Sweet equity provides management with the opportunity to have an ordinary equity stake in the target company. Typically, sweet equity is offered to management at the same low price per share as the price paid by the PE fund. The allocation of ordinary equity stakes has been set at 10–15%, granting management equity incentive awards.

The main goal of sweet equity is to encourage management to remain with the business until a successful exit can be achieved and cash-value returns can be made to PE investors.

It is therefore crucial to the leaver to transfer back the entirety of their incentive equity. Because there are "good" and "bad" leaver provisions, it is usual to trigger a call option so that investors can ensure that leaving does not affect the value created. This way, the vesting trigger is typically driven by performance.

Typically, managers are subject to restrictive covenants in the definitive acquisition agreement, which include non-competition, confidentiality and non-disparagement undertakings.

In respect of limited liability companies by shares or joint-stock companies (sociedades por quotas e sociedades anónimas), it is possible to stipulate under the by-laws special rules focused on ensuring that minority shareholders are entitled to appoint a representative to the board of directors. This is typically named a shareholder’s special right in that, even though the shareholder may hold a minority stake, it will be allowed to appoint a member of the board (or even more members than the majority shareholder).

Despite not having much experience, it is possible for PE investors to influence the appointment and composition of the board of directors, even though the representation of the directors is not always relevant. Also, it is possible to constitute committees to deal with investment policies, remuneration considerations or conflicts of interest between directors on the board.

The piercing of the corporate veil is an available mechanism under Angolan law for the purposes of criminal offences and is subject to very strict rules and evidence.

Members of the board of directors may be held liable towards the creditors of the company whenever they commit a legal or contractual fault of their obligations in such a way that the creditors are affected. Another circumstance is if the company’s estate becomes insufficient to discharge the company’s obligations. However, any shareholder, acting alone or together with another shareholder under a shareholder agreement, may appoint managers or members of the auditing body (without the remaining shareholders being entitled to participate in such an election) and may also be held jointly and severally liable with the appointed person in cases where there is wilful default in the selection of such person and the same has a duty to indemnify.

PE funds promote that their portfolio companies impose legal compliance policies, including with respect to anti-money laundering and avoiding the financing of terrorism, which triggers a wider range of duties, such as identification, performing due diligence, refusing or abstaining from certain actions, co-operation, maintaining secrecy, control, training and communication.

IPOs are not common in Angola.

Drag rights are very common in equity agreements to provide control over the exit to the PE fund in terms of all shareholders agreeing to participate in the acquisition of the target company by buying/selling at the same terms and prices. This very often features in PE transactions in Angola, since PE investors are not always in a majority position, and this is a good mechanism to use to convince shareholders to agree to the transfer of shares.

Tag rights, on the other hand, are also very common due to the fact that the management team wants to be protected against other possible unknown investors. Through this provision, when the PE fund sells its stake, the other shareholders may have the right to sell alongside them.

As mentioned above, experience of IPOs in Angola is quite limited. However, the capital market is walking onto a modern and mature stage and it is expected that with the increase in foreign investors through PE funds, the Angolan PE market may develop more sophisticated structures.