A merger takes place when one or more companies, either directly or indirectly, acquire direct or indirect control over the whole or part of the business of another company. A merger can happen by means of buying or leasing shares and assets, a joint venture agreement or an amalgamation of companies and/or businesses.
A small merger is a transaction where the value is less than R600 million, a value obtained by adding the annual turnover of both the acquiring and transferred firms or by combining the value of their assets or where the annual turnover or asset value of the transferred firm is less than R100 million.
Mergers and acquisition (“M&A”) transactions are regulated by the Competition Act 89 of 1998 (“Act”). According to the Act, the Competition Commission must be notified of all intermediate and large mergers, but it is not a requirement to give notice of a small merger to the Competition Commission. Notwithstanding the aforementioned, section 13(2) of the Act provides for the voluntary notification of a small merger to the Competition Commission at any time.
Also, the Competition Commission may require that the parties to a small merger notify the Competition Commission of such merger within six months from the implementation thereof. The Competition Commission may, however, require notification of a small merger, if in the opinion of the Commission, having regard to the provisions of section 12A (Consideration of mergers) of the Act, the merger—
(a) substantially prevent or lessen competition; or
(b) cannot be justified in terms of public interest considerations.
If notification of a small merger is required, the parties may not take any further steps to implement the merger until the merger has either been approved or conditionally approved. by the Competition Commission. Where the parties to a small merger are required to give notice thereof to the Competition Commission, such notice must be given within 20 business days after the parties have received a notice from the Commission requiring notification.
An intermediate or large merger may not be implemented without notification to and approval from the Competition Commission, whereas a small merger may be implemented without the requirement to notify the Competition Commission unless the parties voluntarily give notice to the Competition Commission or the Competition Commission specifically requires notification.
It should also be noted that there are currently concerns among the regulatory bodies regarding anti-competitive acquisitions in the digital and information technology sector, where M&As occur before the parties have sufficient turnover and/or capital to exceed the notification thresholds, particularly in the early life of digital and IT companies. This is often the case where the target firm valuation is high due to the prospective future value of its intellectual property, skills, technology, or resources, but where these are not yet recordable as such in the financial statements of the target firm, thus failing to trigger a mandatory notification.
The Competition Commission will likely continue to monitor small mergers with the intention of identifying M&As which should be notified to the Competition Commission for their consideration. The Competition Commission also relies on the public and interested parties to inform the Competition Commission of all M&As which might be considered anti-competitive.
Should you be concerned about the size of your potential transaction or unsure as to whether your small merger transaction is reportable or not, make contact with our M&A team who can provide the right advice and guidance with respect to all the regulatory aspects that may be applicable to your transaction.
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).