How to Avoid the Unpredictable Risks Involved in Acquiring a Company in Ghana

Opportunities created by most deals in Ghana also generate challenges, especially for buyers based in developed markets. While they have to adapt themselves to ever more stringent regulation in Ghana, governance standards in their new acquisitions may not be up to standard.

Download the full report here

Analyse your motive

Before considering to jump into a big deal in Ghana, companies or buyers first of all need to thoroughly analyze the motive behind the transaction. In agreement to this fact, we are of the view that acquisitions in Ghana should certainly focus on enhancing the capacity and expertise of a company in segments where they are not very strong yet while also aiming at the addition of key, scarce talent in industries such as high technology.

Thorough Due Diligence

This therefore necessitates a thorough due diligence and compliance work which needs to be done before the parties close a deal. This is very imperative in order for an M & A transaction in Ghana to become successful. For instance, during the AngloGold and Ashanti Goldfields merger deal, It was also found that out of the $44 million expected capital expenditure towards feasibility, drilling and mining of the deeps project, only $19 million has been spent as at December 2008. The deeps project was the main attraction that led AngloGold to merge with cash strapped Ashanti Goldfields and due to the lack of a detailed feasibility study into the deeps project, AngloGold soon realized after the merger that they did not probably carry out enough due diligence to ascertain the existence or otherwise of the deeps reserves. Even though in the books of Ashanti Goldfields, it had classified the deeps project as 'Blue Sky' meaning not much geological testing had been done and that the existence of a massive gold reserve may only be a wishful dream.

AngloGold therefore did not undertake a thorough feasibility study on what the ‘Blue Sky’ originally meant.

Click here to read our guide on how to start a business in Ghana

Risk Examination

In order to also prevent any kind of unpredictable risk involved in acquiring local companies, buyers need to carry out a well thought through examination of their risk management and compliance procedures prior to the completion of the deal. Buyers need to have a deeper understanding of the types of liabilities they are taking on. The main reason behind this is to prevent any unforeseen surprises that would probably lead to the payment of excessive environmental fines, labour compensation agreements, late tax bills and other charges derived from mistakes or illegal acts perpetrated by the previous owners.

Avoiding Underhand Dealings

With somehow rampant corrupt practices spread throughout Africa, buyers need to take an attentive look at initiatives put in place to tackle bribery, corruption, human rights abuses, employment of child labour by the firms they are acquiring or from third party firms which work together with the firms they are acquiring, as well as other governance issues not directly linked to the commercial side of the operation.

Acquirers from the United States, for instance, need to always be aware of the fact that they work under Foreign Corrupt Practices Act regulations, which enable U.S. enforcers to under certain conditions allege breaches of American law anywhere in the world. A lot of underhand dealings in the acquisition process could therefore result in reputation damage.

Assessment Of Exposure

When acquiring a company in Ghana, there needs to be a very clear focus on the compliance programs of targets companies.. Especially since the cost involved could be high and there is often a lack of robust data from the seller in Ghana. This was evident during the First Rand Bank and Merchant Bank merger deal; though the acquisition never came into fruition, Rand Bank had wasted an amount of over $3 million of due diligence which cost the firm.

Most often, characteristics of some firms in Ghana that could be seen as a competitive advantage in some cases, may turn out to be toxic for buyers based abroad. The pre-deal due diligence process is therefore very vital and needs to include the assessment of exposure of the target company to anti-trust laws, data protection and privacy rules, litigation, intellectual property breaches, product liability, and so on. The ultimate thing to note is make sure that the target company has what it takes to deliver the business enhancements of what the buyer is looking for, with regards to the necessary due diligence that needs to be done in order to create value. But most importantly, companies should never overrule the importance of discipline, specifically when it comes to valuations.

Click here to read our guide on how to start a business in Ghana

Image Credit:

No comments

Powered by Blogger.