KuGompo small business community members were mostly delighted with the news that red tape has been slashed for medium-sized mergers on Monday — though with a few caveats.
In the biggest reform in nearly a decade, trade, industry & competition minister Parks Tau has raised merger filing thresholds to R1bn, meaning small deals no longer require approval from the Competition Commission — significant red tape relief for investors.
Tau said on Friday that the amendment came into effect immediately, liberating many deals from long, costly processes.
The amendment recalibrates thresholds that have been static since 2017, tangling countless attempts to stabilise and grow in a regulatory net simply due to inflation.
The new threshold is for transactions whose combined assets/turnover total below R1bn —up from R600m —for intermediate mergers, an increase of about 67%.
The amendments seek to reduce the regulatory burden on transactions that pose minimal competition concerns if any, particularly given the high legal and economic costs associated with merger filings and delays in the approval process.
Mdantsane IT consultant and Kasi Konversations network co-founder Chuma Memela said it was a strong start but there was a way to go.
“I welcome it with cautious optimism,” said Memela, whose master’s research examines financial inclusion of township economies in SA.
“For the Mdantsane small business community, the issue has never been only about regulation, it is the larger, holistic difficulty of growing small enterprises into larger, formal and investable businesses.
“Too many township retailer and traders remain fragmented, undercapitalised and exposed to competition from larger, better organised players.
“They need a stronger growth and development framework.
“Still, this threshold change matters a lot.
“When small businesses want to pool resources, merge operations, bring in investors or consolidate buying power, the process should not be so costly that only large corporates can afford it.”
“For Mdantsane, this reform could be the beginning of co-op models across retail, transport, automotive services, food, construction and beauty, provided businesses also receive access to finance, legal guidance and practical support.”
Black Business Forum president Luthando Bara, the turnaround specialist and strategic branding consultant behind the annual Berlin November fiesta, said the forum welcomes the adjustment as a “progressive step towards improving the ease of doing business in SA”.
“For small businesses, the change has the potential to unlock opportunities by allowing businesses to conclude transactions faster and focus more on growth and job creation rather than compliance burdens,” he added.
“In an economy where access to capital, partnerships, and market opportunities remains a challenge for many emerging black-owned businesses, any reform that improves efficiency in the market is welcomed.
“At the same time, one of the key concerns we raised was the possibility that fewer mergers will be subjected to mandatory notification, thus reducing oversight and potentially disadvantaging smaller players in concentrated sectors of the economy.
“We are encouraged that this concern has been addressed through the powers of the Competition Commission to investigate or call in smaller mergers where there may be competition or public-interest concerns.”
Corporate law firm Cliffe Dekker Hofmeyr said the adjustments came none too soon and would go a long way to reduce deal complexity and cost.
For large mergers, the new thresholds for combined asset value or turnover of the target firm and the acquiring group (whichever is higher) are R9.5bn from R6.6bn.
The threshold increases are well above inflation, signalling a deliberate policy to reduce the number of notified mergers, rather than implement a mechanical update to the figures.
“The increases are material. In practice, a number of transactions that would previously have qualified as intermediate mergers may now fall below mandatory notification thresholds and be treated as small mergers, which are not subject to compulsory notification before completion,” Cliffe Dekker Hofmeyr said.
The amendments also increase the merger filing fees for intermediate and large mergers to R220,000 for intermediate mergers and R735,000 for large mergers.
Several jurisdictions across the world have been hiking merger thresholds with the aim of reducing the administrative burden on businesses while enabling a more efficient allocation of the competition authorities’ resources.
The French government last month raised merger control thresholds for the first time in more than 20 years.
While the move by Tau to subject fewer mergers to approval requirements smooths the path to corporate dealmaking in South Africa, the adverse impact is that the move might see the Competition Commission dedicate more resources to a smaller number of notified transactions and more rigorous reviews of notified transactions. — With Alison Stent