Mergers and Acquisitions in South Africa

MERGERS AND ACQUISITIONS IN SOUTH AFRICA 

Mergers and Acquisitions are now becoming an increasingly prominent feature in the South African corporate world. This article looks at the definitions of Mergers and Acquisitions in terms of the applicable legal framework, the different types of mergers and acquisitions that can be implemented and the key considerations which are to be taken into account when commencing these transactions.  

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1. What is a Merger and Acquisition

In South Africa, these two transactions are governed by the Companies Act, 71 of 2008, and defined in chapter 1 of the act as “amalgamated or merged company”; this being a company that either – 

(a) was incorporated pursuant to an amalgamation or merger agreement; or

(b) was an amalgamating or merging company and continued in existence after

the implementation of the amalgamation or merger agreement,

and holds any part of the assets and liabilities that were held by any of the

amalgamating or merging companies immediately before the implementation of the agreement;

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2. Legal framework governing Mergers and Acquisitions in South Africa

The South African mergers and acquisitions industry is governed various legislations, including the Companies Act, 71 of 2008, which provides the legal framework in ensuring these transactions are completed in an efficient manner, the Competition Act, 89 of 1998, with its aim of ensuring that merged companies do not become too competitive and harm the public interest. Another crucial role it plays is to promote the economic development of small businesses and previously disadvantaged individuals. 

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3. The types of Mergers and Acquisitions in South Africa

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Vertical 

A vertical acquisition refers to a company buying another company that is part of its supply chain, this can relate to a manufacturer purchasing a supplier or a distributor. This is done as a cost-effective method in order to control more parts of the production process and gain more control on the supply chain, as it is more efficient to purchase an existing company than to create a new one. 

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Horizontal 

A horizontal acquisition refers to one company acquires another company that operates in the same industry and or offers similar products or services. This acquisition achieves a business’ growth as it reduces its competition in the market. 

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Conglomerate 

A conglomerate acquisition refers to a company being acquired by another company that does not operate within the same industry. Thus, they are not competitors nor are they within the same supply chain. This type of acquisition is done to grow a business portfolio.  

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Market Extension 

A Market Extension merger or acquisition refers to two companies which provide the same product or service entering into a merger. This is done to expand a company’s market. 

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5. Key Considerations in Mergers and Acquisitions transactions 

To ensure every opportunity is seized and every potential risk is identified, due diligence needs to be conducted in the following factors:

1. Intellectual property rights 
2. Tax implications 
3. Assets and shares 
4. Regulatory compliance
5. Operations 
6. Contracts and agreements 
7. Employment contracts, transformations and labour matters 
8. Potential litigation 
9. Financial risks and implications 

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6. Why Choose Van Deventer and Van Deventer Incorporated 

The mergers and acquisitions are time consuming transactions and require a dedicated team of advisors that will assist with strategic planning, draft all necessary documents and guide the transaction from inception to completion. Our team at Van Deventer and Van Deventer Incorporated is ready to provide the right strategic advice in defining the best strategy before the process commences, the drafting of business plans and necessary documents in line with the parties and assisting in negotiations. 

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