New rules will impact tech companies in South Africa – what you should know

The Competition Commission has invited public comment on proposed amendments to its Small Merger Guidelines, which expand the scope of potentially notifiable mergers in digital markets

Significantly, the guidelines propose that, if certain criteria are met, the Commission must be informed of all small mergers and acquisitions where the merger parties operate in digital markets, said law firm Webber Wentzel.

“Small mergers are transactions that do not meet the prescribed intermediate or large merger thresholds,” it said.

“This proposal substantially expands the scope of potentially notifiable mergers and could create regulatory hurdles for firms engaging in transactions in this space.”

The proposed amendments indicate that the commission is seeking to rapidly advance its recent enforcement initiatives in the digital market, Webber Wentzel said.

It noted that a few weeks ago, the commission also launched a market inquiry into online intermediation platforms, and finalised its paper on Competition in the Digital Economy.

In the paper, it was proposed that specific technology companies that dominate different digital markets in South Africa inform the commission of all small domestic acquisitions, including investments in start-ups and global acquisitions of targets with some local presence.

Below the firm clarified some of the key points around the commission’s proposals.


Will the proposed amendments change the approach to small mergers in other markets?

The approach to all other small mergers is likely to remain the same.

The guidelines still state that, if at the time of entering into the transaction, any of the firms (or firms within their groups) are subject to a prohibited practice investigation by the commission, or are respondents following a referral by the commission of a prohibited practice investigation to the Competition Tribunal, then the Commission will require the notification of the small merger.


Are the amendments to the Guidelines already in effect?

No, not yet. Stakeholders and interested parties are invited to submit comments on the proposed changes by 11 June 2021.


When will firms operating in digital markets need to inform the Commission about proposed transactions?

The Commission will require that it be informed of all small mergers and acquisitions where either the acquiring firm, the target firm, or both, operate in one or more digital market(s) provided at least one of the following criteria are met:

  • The consideration for the acquisition or investment exceeds R190 million, provided the target firm has activities in South Africa;
  • The consideration for the acquisition of a part of the target firm is less than R190 million but effectively values the target firm at R190 million (provided the target firm has activities in South Africa and, as a result of the acquisition, the acquiring firm gains access to commercially sensitive information of the target firm or exerts material influence over the target firm within the meaning of section 12(2)(g) of the Competition Act)
  • At least one of the parties to the transaction has a market share of 35% or more in at least one digital market
  • The proposed merger results in a combined post-merger market share the merged entity to gain or reinforce dominance over the market, as defined by the Competition Act.

“There are many aspects of the guidelines that will require clarity – for example, how broadly digital markets will be defined, what is meant by the term ‘operate’, and whether there will be any consequences for firms involved in mergers that meet the relevant criteria and fail to inform the commission,” Webber Wentzel said.

“This new approach to mergers in the digital market will also have to be carefully balanced against the need to foster investment in smaller, innovative technology firms.

“It is hoped that this proposed additional administrative and regulatory obligation will not serve as a deterrent to growth in this space.”

  • Commentary by Shawn van der Meulen (partner) and Elisha Bhugwandeen (professional support lawyer) at Webber Wentzel.

Read: South Africa’s ‘silicon valley’ has over 450 tech firms and employs more than 40,000 people

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New rules will impact tech companies in South Africa – what you should know