The Competition Commission plans to investigate the merger and acquisition of smaller digital companies in South Africa.
In a gazette published on Friday (7 May), the commission said that while larger mergers are subject to regulatory oversight, these smaller companies often fall below the size threshold for automatic investigation.
“There is an increasing risk that the growth of digital players through the rising number of acquisitions of new, innovative companies may have a detrimental impact on innovation particularly where these digital companies act as gatekeepers in multiple markets,” the commission said.
“There are concerns that these potentially anti-competitive acquisitions are escaping regulatory scrutiny due to the acquisitions taking place at an early stage in the life of the target before they have generated sufficient turnover that would trigger merger notification as set by the turnover thresholds.”
The commission said it will now evaluate whether a small merger requires notification on its own merits.
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 markets 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 (for example, the acquisition of a 25% stake at R47.5 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 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 at which the merged entity gains or reinforces dominance over the market, as defined by the Competition Act.