The Competition Commission has published new rules on notifying small mergers, which could increase the regulatory burden for potential investors in South Africa and further strain the Commission’s resources.

The Competition Commission recently published the final revised Guidelines on Small Merger Notification1 (the Guidelines), effective from 1 December 2022, which state that small mergers and acquisitions in all industries may now have to be notified to and approved by the Commission if certain criteria are met.

Small mergers are transactions that do not meet the prescribed intermediate or large merger thresholds and, therefore, do not require a mandatory notification. In terms of the Competition Act, however, the Commission may require, up to six months after a small merger has been implemented, that such mergers be notified to and approved by the Commission if, in the opinion of the Commission:

• the merger may substantially prevent or lessen competition; or

• cannot be justified on public interest grounds

Why were the Guidelines revised?

When amendments were proposed to the Guidelines last year, the revisions were specifically aimed at capturing small mergers, where the merger parties operate in digital or technology markets. The Commission is concerned that acquisitions in this space often escape regulatory scrutiny because they occur at an early stage in the life of the target, before these entities have generated sufficient turnover or accumulated capital and physical assets. For example, the competition authority in the US recently reported that Microsoft, Amazon, Google, Apple, and Meta Platforms (formerly known as Facebook) engaged in 616 acquisitions between 2010 and 2019 that fell below the merger thresholds but were worth at least US$1m.

Significantly, the final version of the Guidelines obliges merger parties to inform the Commission of all small mergers that meet the criteria, not only those in the digital space.

When will firms need to inform the Commission about small mergers?

• The older version of the Guidelines has been in place for many years. The revised version still states that, if at the time of entering into the transaction, any of the firms (or firms within their groups) are:

(i) Subject to a prohibited practice investigation by the Commission, or

(ii) Are respondents to pending proceedings following a referral by the Commission to the Competition Tribunal, the Commission must be informed in writing before the implementation of the small merger.

• The Commission will, however, also require that it be informed of all small mergers and share acquisitions where the acquiring firm’s turnover or asset value alone exceeds the large merger combined asset/turnover threshold (currently R6,6bn) and at least one of the following criteria must be met for the target firm:

(i) the consideration for the acquisition or investment exceeds the target firm’s asset/turnover threshold for large mergers (currently R190m)

(ii) the consideration for the acquisition of a part of the target firm is less than the R190m threshold, but effectively values the target firm at R190m or more.

What is the procedure for informing the Commission?

Parties to small mergers which meet the above criteria are advised to inform the Commission in writing of their intention to enter into the transaction. The parties should provide sufficient detail on the acquiring and target firms, the proposed transaction, and the relevant markets in which the firms compete.

How does this development impact transactions in South Africa?

The Guidelines create an additional regulatory obligation for merger parties. They will need to assess whether they meet the criteria detailed above and if it is necessary to inform the Commission about their merger, even if the firms involved in the transaction do not meet the prescribed South African merger thresholds. This is a particularly important consideration when the merger parties operate in digital / technology markets.

The Commission has warned that it will remain vigilant in identifying small mergers that require notification. It remains to be seen whether there will be any consequences for firms involved in mergers that meet the relevant criteria but fail to inform the Commission. It is also uncertain how the thresholds should be interpreted and why the scope of the Guidelines was not limited to digital markets.

Daryl Dingley is a Partner and Elisha Bhugwandeen a Senior Knowledge Lawyer | Webber Wentzel.

This article first appeared in DealMakers, SA’s quarterly M&A publication

DealMakers is SA’s M&A publication
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