Following its recent announcement of a proposed market inquiry in this sector, the South African Competition Commission (the “Commission”) is continuing its efforts to improve regulatory scrutiny within digital markets. On 7 May 2021, the Commission published for comments draft amendments to its guidelines for the notification of small mergers (the “Draft Amendments”).
Pursuant to the provisions of the Competition Act, No. 89 of 1998 (as amended) (the “Act”), small mergers are not subject to pre-merger notification because they do not exceed the applicable pre-merger notification thresholds. However, the Commission may, for a period of up to 6 months following the implementation of a small merger, call for the merger to be notified if it is of the opinion that the merger may substantially prevent or lessen competition or that it cannot be justified on public interest grounds.
The existing guidelines require that parties to a small merger who are being investigated or prosecuted for engaging in prohibited practices inform the Commission of their proposed merger. The Draft Amendments seek to expand the scope of these guidelines as outlined below.
The Commission has increasingly expressed concerns over the insufficient regulation of competition within digital markets, resulting in its recent launch of a market inquiry into online intermediation platforms. The Draft Amendments note that there is an increasing risk that the growth of digital players through the acquisition of new, innovative companies “may have a detrimental impact on innovation, particularly where these digital companies act as gatekeepers in multiple markets.” The Commission has concerns that where these acquisitions are of start up entities with assets and turnover that fall below the merger notification thresholds, they will not require notification and may therefore escape regulatory scrutiny. The Draft Amendments thus seek to clarify instances where small mergers within digital markets will need to be notified.
The Draft Amendments retain the requirement of the existing small merger guidelines that the Commission be informed of a small merger where, at the time of entering into the transaction, any of the firms, or firms within their group, are:
- subject to an investigation by the Commission under Chapter 2 of the Act (being the chapter dealing with prohibited practices); or
- respondents to pending proceedings referred by the Commission to the Competition Tribunal under Chapter 2 of the Act.
To address the concerns outlined above, the Draft Guidelines seek to expand the criteria for such notification to include small mergers where either the acquiring firm or target firm, or both, operate within one or more digital markets and one of the following criteria are met:
- “the consideration 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; or
- 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 Act.”
Parties have until 21 June 2021 to submit comments on the Draft Amendments. For more information please contact any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of South African competition law.