SA’s competition authorities are increasingly demanding that every merger deal enhance the company’s BEE credentials, in a regulatory landscape that is becoming more complex for clients to navigate in SA and globally, says law firm Herbert Smith Freehills (HSF).
But though SA’s competition regulators have become more demanding, they have also become more predictable, enabling clients to know upfront what they need to do to get a deal through, said Jean Meijer, who leads the global law firm’s SA office.
“The regulatory demands are all solvable, but clients have to address them upfront and plan transactions in ways that mitigate them,” Meijer said.
SA’s competition authorities have over the past decade become increasingly focused on a broad range of public interest issues — such as employment, localisation, ownership and even human rights — when they scrutinise mergers.
But the Competition Commission sparked controversy in 2021 when it prohibited the takeover of Burger King SA by a US-based private equity firm because it would detract from Burger King’s empowerment credentials, not because it raised any competition concerns.
The deal was subsequently approved by the Competition Tribunal, subject to conditions that included a BEE component.
Meijer said there had since January been a clear shift in the regulators’ approach to an increasing focus on transformation. But it is not unpredictable or capricious, and the law firm has this year managed to get all the deals on which it advised through the regulators, with conditions. This includes the R6.4bn deal in which New York Stock Exchange-listed Nigerian company IHS bought MTN’s telecommunications towers. This was subject to a series of conditions, including that IHS SA achieve 30% BEE ownership within two years, conditions that are now typical in many deals.
Hiving off telecommunications towers is one of the trends in deal-making activity globally as well as in SA, where Telkom recently shelved plans to list its towers business separately, while Vodacom has gone the route of separating the business.
HSF, one of London’s “magic circle” big global firms, sees mergers & acquisition (M&A) activity continuing to grow globally and in SA, even if not at the frenetic levels of the past two years. Despite the global headwinds of rising inflation and interest rates, there was still a strong deal pipeline, HSF global chair Rebecca Maslen-Stannage said in an interview on a recent visit to Johannesburg.
Firms are responding to pressure to boost their environmental, social & governance (ESG) credentials, and in industries such as financial services are seeking to consolidate into larger entities that are better able to sustain the rising cost of ever more complex regulation.
Technology, media & telecom and infrastructure are also big drivers of deal flow.
In SA, M&A activity picked up six to 12 months ago, once the economic uncertainty about Covid-19 started to lift, as companies adapted and looked to grow and gain new technologies and expertise. Some companies have become cheaper targets for takeovers. The abundance of cheap capital has been a big driver, in SA and globally, and so too is the greater focus on ESG.
ESG concerns are driving companies to divest assets such as coal that do not fit the ESG portfolio, but Maslen-Stannage cautioned that clean and responsible exits were becoming increasingly important to shareholders.
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