Proposed increase to merger notification thresholds
After several years of subdued growth and cautious capital flows, South Africa is beginning to show early but encouraging signs of renewed economic momentum. A combination of long-awaited structural reforms starting to gain traction, improved policy certainty in key sectors, and the prospect of sovereign ratings upgrades has helped shift sentiment. While the recovery remains uneven, the direction of travel is enough to prompt a fresh look at South Africa’s investment case.
This changing backdrop is already translating into renewed deal interest. South Africa is home to a range of assets that, by global standards, appear attractively priced, drawing the attention of both local buyers and international investors seeking value in a market that may be turning a corner. Yet, for all the improving fundamentals, one long-standing concern continues to loom large: the perceived complexity and burden of South Africa’s merger and acquisition regime. In this article, the team from law firm Cox Yeats examines recent developments in the M&A landscape and why they may be more significant for prospective investors than is commonly assumed.
Ross Booth and Jean-Minique White from Cox Yeats write:
The Minister of Trade, Industry and Competition has published draft amendments to the Determination of Merger Thresholds under section 11 of the Competition Act, which envisions an increase in merger notification thresholds and merger filing fees. The method of calculating turnover and asset values remains unchanged.
Under the draft amendments, an intermediate merger will be notifiable only if the combined annual turnover or asset value of the acquiring and target firms in, into or from South Africa is R1 billion or more, and the annual turnover or asset value of the target firm is R175 million or more, increased from the current thresholds of R600 million and R100 million, respectively.
A large merger will be triggered where the combined annual turnover or asset value of the parties is R9.5 billion or more, and the target firm’s turnover or asset value is R280 million or more, increased from the current R6.6 billion and R190 million thresholds. Transactions falling below the intermediate thresholds will remain classified as small mergers and will not be subject to mandatory notification, subject to the Competition Commission’s existing call-in powers.
The draft also proposes increased filing fees. The fee for notifying an intermediate merger would rise to R220 000 from R165 000, and R735 000 from R550 000 for notifying a large merger. While fewer transactions are likely to require notification if the revised thresholds are adopted, the cost of notification for those that do will be materially higher.
From a market perspective, the combined effect of higher thresholds and higher filing fees is likely to shift deal activity at the margins. Mid-market transactions that previously required clearance may proceed without regulatory delay, while larger transactions will face increased upfront costs that may influence transaction timing, structuring and allocation of risk between parties.
The draft amendments are open for public comments for 30 business days from the date of publication.
