10/05/2020
Mergers & Acquisitions
vires in numero
With the outbreak of the Covid-19 pandemic together with Government Mandated
Lockdowns suppressing the ability to do business, last mentioned signalled the dawn of
tough times for companies and individuals alike in South Africa and most are focusing on
tightening their belts.
However when one considers the mergers and acquisitions market, it’s an interesting
time as there are opportunities to be taken as smart business people find ways of
collaborating and making current conditions work to their advantage.
What is a merger?
In its simplest form merger is the joining of two (or more) corporate entities to enhance its
market power.
Section 12(1)(a) of the Competition Act 89 of 1998 (hereinafter referred to a s “the Act”)
states that a merger occurs when one or more firms directly or indirectly acquire or
establish direct or indirect control over the whole or part of the business of another firm.
This may be achieved through the lease or purchase of the shares, an interest or assets
of the target firm, or an amalgamation or other combination with the other firm.
This definition covers horizontal, vertical and conglomerate mergers.
Briefly, these can be defined as follows:
◦ Horizontal mergers: The merger of two or more companies that are in direct
competition with each other and which share the same product lines and markets.
◦ Vertical mergers: Where a customer and a company, or a supplier and a company,
merge.
◦ Conglomerate merger: Where two or more companies that have no common
business areas merge.
The acquisition of control however, is decisive in establishing whether a merger had
occurred and in this regard Section 12(2)(a) to (g) of the Act define at length the different
categories of control.
Legal professionals, along with other professional advisors, play a crucial role in a
smooth ex*****on of the merger process generally. They should preferably be involved
right from the outset in the planning stages, and should remain on board until the
implementation of the merger has been finalised.
Legal expertise in a merger is essential to structure a transaction in the most efficient way
possible, to make sure all regulatory requirements are met, to assist with negotiations and
drafting and to advise the company on any ancillary legal issues or legal obstacles which
may arise during the course of the transaction.
The importance of the implementation phase of a merger, which usually takes place after
the honeymoon is over is often underestimated. It is vital that the various professionals
remain involved at this post-merger stage to ensure that all facets of the transaction are
properly maintained.
Time to join forces?
The effect of the Covid-19 pandemic and huge payouts from Government coffers will likely
give rise to increased future taxes. The adverse effect of increased taxes are likely to be
felt by many small companies, perhaps to the point that business is no longer feasible for
them. Businesses struggling to hold their own financially might turn to the option of cutting
their losses by selling to an investor, or by joining forces with a competitor or supplier.
It was Winston Churchill that said: “A pessimist sees the difficulty in every opportunity; an
optimist sees the opportunity in every difficulty.”
Business owners must begin to consider what potential benefits other businesses may
offer them in a firmly cemented partnership. Van Wyk Attorneys, along with fellow
professionals can help to highlight these benefits. Contact us today for a consultation.
