New notification requirements for small business mergers

10 January 2023 836
“New guidelines for small merger notification have been issued by the Competition Commission and businesses should take note of these when considering any mergers or acquisitions in the coming year. In this article, we look at the main aspects of these new guidelines.”

The Competition Act 89 of 1998 (“Competition Act”) defines a merger as a “direct or indirect acquisition or direct or indirect establishment of control by one or more persons over all significant interest in the whole or part of the business of another firm”. 

Mergers are generally grouped into three categories based on the respective thresholds for combined turnover or assets of the entities participating in such a transaction: 

  1. Large merger 
  2. Intermediate merger
  3. Small merger
Large and intermediate mergers require mandatory notification and approval by the Competition Commission, but small mergers do not require mandatory notification, although the Competition Commission may require, up to six months after a small merger has been implemented, that small mergers be notified and approved by the Competition Commission. Merging parties may also not take further steps to implement the small merger that has been notified until it has been approved or conditionally approved.

The thresholds for merger notification were set in 2017 and still apply. However, in the recent guidelines published by the Competition Commission and which are effective as of 1 December 2022, the Competition Commission requires that it must be informed in writing before the implementation of all small mergers which meet any of the following criteria:
  • at the time of entering into the transaction any of the firms, or firms within their group, are subject to an investigation by the Commission in terms of Chapter 2 of the Act; or
  • at the time of entering into the transaction any of the firms, or firms within their group, are respondents to pending proceedings referred by the Commission to the Competition Tribunal in terms of Chapter 2 of the Act; or
  • where the acquiring firm’s turnover or asset value alone exceeds the large merger combined asset/turnover threshold (currently R6.6 billion). For the avoidance of doubt, only the acquiring firm’s turnover or asset value (without including the target firm) must exceed the large merger combined turnover/asset value threshold, and at least one of the following criteria must be met for the target firm:
    • the consideration for the acquisition or investment exceeds the target firm asset/turnover threshold for large mergers (currently R190 million); or
    • the consideration for the acquisition of a part of the target firm is less than the R190 million threshold but effectively values the target firm at R190 million or more.
The main reason for the amendment to the small merger notification relates to the potential for anti-competitive merger and acquisition transactions in the technology sector in South Africa. The turnovers of entities in this sector over time are often not predictable or adequately reflected in the early stages of a potential acquisition agreement. Yet, in time the turnover, assets acquired and accumulated capital values of such entities mature and if they were correctly reflected at an earlier stage of the acquisition, would usually fall under the scope and ambit of a mandatory merger notification to the Competition Commission, but now do not, thereby defeating the purpose of the Competition Act.

Accordingly, from 01 December 2022, parties to small mergers which fall within the new parameters as discussed above must inform the Competition Commission in writing of their intention to enter into such a transaction, which must include the – 

  • Sufficient details of the acquiring and target firms respectively; 
  • Sufficient details on the proposed transaction; 
  • Sufficient details on the relevant markets in which the firms compete. 
Subsequent to receiving the written notice, the Competition Commission will provide the parties with written feedback within a period of 30 business days to inform them whether or not they would be required to notify the small merger to the Competition Commission in accordance with the provisions of section 13 of the Competition Act.

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). 

Related Expertise: Corporate, Corporate Structuring
Related Sectors: Mergers & Acquisitions