In the Government Gazette of 14 October 2022, the Competition Commission (the Commission) amended its guideline on small merger notifications (the Guideline). The Guideline comes into effect on 1 December 2022.
The Competition Act distinguishes between a small merger, an intermediate merger and a large merger. Large and intermediate merger transactions require mandatory notification and approval by the Competition Authorities before they may be implemented. Small merger transactions do not require mandatory notification, but the Commission may require, within six months of the implementation of a small merger, that such mergers be notified and approved by the Commission.
The merger thresholds were last increased in October 2017. A small merger is now defined to be where the target firm has assets, or turnover, of less than R100 million and the combined assets, or turnover, of the target firm and the acquiring firm is less than R600 million. For a large merger, the target turnover, or asset value, must exceed R190 million and the combined turnover, or asset value, must exceed R6.6 billion.
In the determination of the thresholds, regard is had not to the actual purchase price but the values as to assets, or turnover, calculated in accordance with IFRS, in the last financial statements of the firm in question. If there has been a material change in the business of the firm not shown in the financial statements, then the IFRS values must be adjusted for such change, in accordance with the methodology used in IFRS.
In the Guideline, the Commission states that it is concerned that potentially anti-competitive acquisitions are taking place in the digital or technology markets where the target firm value may be high but the values, as recorded in the financial statements of the target firm, may be below the threshold of R100 million.
The Guideline states that small mergers require notification to the Commission in three instances. They are:
1. At the time of entering into the transaction, any of the firms affected by the merger, are subject to an investigation by the Commission
2. At the time of entering into the transaction, any of the firms are respondents to pending proceedings referred by the Commission to the Competition Tribunal
3. The acquiring firm’s turnover, or asset value, exceeds R6.6 billion and: (a) The consideration for the acquisition of the investment exceeds R190 million; or (b) The consideration for the acquisition of a part of the target firm is less than R190 million but effectively values the target firm at R190 million or more.
Parties to small mergers which meet the above criteria must inform the Commission, in writing, of their intention to enter into the transaction. The parties must provide sufficient detail on the acquiring and target firms, the proposed transaction and the relevant markets in which the firms compete. The Commission will reply to the parties within 30 business days and inform them whether or not they will be required to notify the small merger to the Commission in the same way as an intermediate merger or large merger is notified.
It follows that if the purchase price for the target firm exceeds R190 million or, for the purposes of the transaction, a value of R190 million or more is placed on the target firm, and the acquirer is a large firm with assets, or turnover, in excess of R6.6 billion, then the transaction must be notified to the Commission, even though the financial statements of the target firm, prepared in accordance with IFRS, reflect it having assets, or turnover, of less than R100 million.
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Should you require advice or assistance, please contact Michael Jackson on +27 (0)31 536 8512 email: mjackson@coxyeats.co.za
Jason Goodison on +27 (0)31 536 8517
email: jgoodison@coxyeats.co.za
Wade Ogilvie on +27 (0)31 536 8527
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Benjamin Meadows on +27 (0)31 835 3109
email: bmeadows@coxyeats.co.za
Kaitlin Morris on +27 (0)31 536 8598
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Savannah Buys on +27 (0)31 835 3134
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Courtney Kantor on +27 (0)31 536 8567
email: ckantor@coxyeats.co.za
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