Acquiring an existing CBN or SEC-licensed financial institution is increasingly attractive as a faster alternative to the lengthy greenfield licensing process. But the acquisition of a regulated financial institution is unlike any ordinary business transaction — regulatory approvals, change-of-ownership provisions, and fit-and-proper assessments for incoming shareholders and directors make it a complex, multi-stage process that demands specialist expertise. This guide explains what buyers and sellers need to know before they begin.
Why Acquire Rather Than Apply?
The typical route to operating a financial institution in Nigeria — applying for and obtaining a new licence — can take 18 to 30 months. For investors with a defined market entry timeline or a strategic opportunity that cannot wait, acquiring an existing licensed institution offers several advantages:
- Speed to market: The licence is already in place and, subject to regulatory approval of the change of ownership, can be transferred to new shareholders.
- Operational readiness: The institution has an existing operational infrastructure — staff, systems, branch network, and in some cases, customer relationships.
- Track record: The acquisition can be structured to preserve the institution’s regulatory track record and existing CBN relationships.
- Efficiency: For institutions with good capital ratios and a clean examination history, the regulatory transition can be smoother than a fresh application.
These advantages come with important caveats. The acquired institution also brings its liabilities, its compliance history, its legacy relationships, and — in poorly scoped acquisitions — hidden regulatory problems that the acquirer inherits along with the licence.
Key Principle: In a financial institution acquisition, you are not just buying a business — you are buying a regulatory relationship. Thorough regulatory due diligence is not optional. It is the single most important component of your pre-transaction assessment.
Regulatory Approvals Required for a Change of Ownership
A change of control of a CBN-licensed institution — whether through a share purchase, merger, or other form of business combination — requires prior written approval from the CBN. This is not a post-transaction formality. Completing a change of ownership before obtaining CBN approval is a serious regulatory infraction and can result in the transaction being unwound.
The CBN’s approval process for a change of control includes:
- Notification of intent: The acquirer must notify the CBN of the proposed transaction before signing a binding agreement. Many transactions are structured with CBN approval as a condition precedent to completion.
- Fit-and-proper assessment of new shareholders: Any individual or corporate entity acquiring a significant shareholding (typically defined as 5% or more) must undergo a fit-and-proper assessment. The CBN will assess their financial capacity, integrity, source of funds, and regulatory standing.
- Proposed director and management assessments: If the acquisition will result in changes to the board or senior management, new appointments must receive CBN approval through the standard fit-and-proper process.
- Business plan and integration plan review: The CBN will assess the acquirer’s plans for the institution post-acquisition, including capital adequacy projections, integration timelines, and customer continuity plans.
- Formal approval and completion: Once all conditions are satisfied, the CBN issues written approval. The transaction can then be legally completed.
Regulatory Due Diligence: What to Look For
Regulatory due diligence in a financial institution acquisition goes beyond reviewing audited financial statements. A thorough regulatory review should examine:
- Examination History: Request copies of the target institution’s CBN examination reports for the preceding three years. Examination findings reveal the real compliance condition of the institution — its AML/CFT posture, credit quality, governance practices, and any outstanding regulatory directives. Examination findings that have not been remediated become the acquirer’s problem on completion.
- Outstanding Regulatory Directives: The CBN regularly issues directives to institutions to take specific remedial actions within defined timeframes. An institution with outstanding unaddressed directives carries a regulatory liability. Acquirers must identify all outstanding directives and negotiate responsibility for remediation in the transaction agreement.
- Capital and Liquidity Position: Verify the institution’s capital adequacy ratios and liquidity ratios against CBN minimum requirements. An institution that is technically compliant on paper but operating close to regulatory minima has limited resilience. For post-recapitalisation transactions, confirm that the combined entity will comfortably meet the new capital thresholds.
- Non-Performing Loans: The quality of a lending institution’s loan portfolio is often the single largest driver of hidden value destruction in financial institution acquisitions. Request a full loan-by-loan review, assess the adequacy of provisioning, and apply stress testing assumptions to the portfolio under the acquirer’s ownership.
- Litigation and Contingent Liabilities: Review pending litigation, regulatory investigations, and contingent liabilities. Financial institutions in Nigeria are frequently the subject of customer and counterparty claims. Quantify known claims and seek warranties and indemnities from the seller in respect of undisclosed claims.
Structuring the Transaction
Financial institution acquisitions in Nigeria are typically structured as share purchases rather than asset purchases, because the licence is attached to the corporate entity rather than its assets. This means the acquirer takes on all of the target’s liabilities — a factor that reinforces the importance of comprehensive due diligence.
The transaction agreement should address, among other things, the regulatory approval condition precedent, representations and warranties from the seller about the institution’s regulatory standing and compliance history, indemnities for pre-completion regulatory liabilities, provisions for management transition, and the treatment of existing employment contracts.
For Sellers: Preparing Your Institution for Sale
Sellers who prepare their institutions for acquisition typically achieve better outcomes — both in terms of transaction value and speed of completion. Pre-sale preparation should include ensuring that all CBN examination findings are remediated, that governance documentation is current and complete, that financial statements are audited and up to date, and that key personnel arrangements are in place to provide stability through a transition period.
An institution that enters a sale process with unresolved examination findings, lapsed governance documentation, or personnel gaps will attract a lower valuation and give buyers grounds to negotiate material price reductions or impose extensive seller indemnities.
How M33 Supports Financial Institution Transactions
M33 Nigeria Limited provides full-cycle advisory support for the acquisition and sale of CBN and SEC-licensed financial institutions. Our services cover regulatory due diligence, transaction structuring support, CBN change-of-ownership application preparation, fit-and-proper documentation for incoming shareholders and directors, and post-completion regulatory transition advisory.
We have direct experience on both sides of regulated transactions and understand the CBN’s expectations for how these processes are managed.
Frequently Asked Questions
Can a foreigner acquire a Nigerian bank or finance company?
Yes, subject to CBN foreign ownership guidelines and a successful fit-and-proper assessment. Foreign investors acquiring significant stakes in Nigerian financial institutions must demonstrate the source of acquisition funds, provide evidence of good standing with their home-country regulators where applicable, and satisfy the CBN’s assessment of their financial capacity to support the institution.
How long does CBN approval for a change of ownership take?
Timelines vary depending on the complexity of the transaction and the completeness of the application. Simple acquisitions with well-prepared applications have been approved within three to five months. Complex group restructurings or transactions involving multiple regulatory bodies can take considerably longer. Early engagement with the CBN — before a binding agreement is signed — is strongly advisable.
What happens if the CBN declines to approve a proposed acquisition?
If the CBN declines to approve a change of ownership, the transaction cannot proceed. This is why CBN approval is structured as a condition precedent in well-drafted transaction agreements — so that neither party is legally bound to complete if regulatory approval is withheld. Parties who proceed to completion without approval face regulatory sanctions and potential transaction reversal.
This article was written by Hans Omang, Director and Principal Consultant at M33 Nigeria Limited. M33 provides end-to-end advisory for the acquisition and sale of regulated financial institutions in Nigeria. For a confidential discussion about a potential transaction, contact M33 here.