ANDREW BAHLMANN: M&A regulatory landscape requires expert navigation

The global landscape for M&A is shaped increasingly by stringent antitrust scrutiny. Competition authorities worldwide are taking a more assertive stance in reviewing such deals to prevent monopolistic behaviour and protect consumers. Understanding this regulatory environment is crucial for businesses seeking to expand through cross-border acquisitions.

Competition authorities are tasked with maintaining fair competition in the market. They evaluate M&A to ensure they don’t result in excessive market concentration, which could lead to higher prices, reduced innovation or fewer choices for consumers. If an authority determines a merger would significantly harm competition it has the power to block the deal, require divestitures to preserve market balance or approve it subject to conditions.

SA’s Competition Commission and the Competition Tribunal fulfil this role domestically. Over the years they have actively blocked or imposed conditions on several high-profile mergers to prevent the formation of monopolies and to ensure competitive markets.

For instance, the proposed merger between Sasol Oil and Engen was prohibited in 2006 by the Competition Tribunal due to concerns about the substantial lessening of competition in the fuel retail market. The tribunal ruled that the merger would have reduced the number of significant competitors in the market, leading to potential price increases and reduced service quality.

The Walmart/Massmart merger in 2011 was ultimately approved only after the Competition Tribunal imposed several conditions due to concerns about the impact on suppliers and competition. Walmart’s acquisition of Massmart was closely scrutinised, with conditions including the establishment of a supplier development fund and commitments to protect local suppliers.

In 2019 the Competition Commission recommended prohibiting the merger between the two construction giants, Murray & Roberts and Aveng. which was seen as likely to create a dominant player with the ability to unilaterally influence market prices and conditions, ultimately leading to its prohibition.

Planning and strategy

For companies considering in M&A, navigating competition/antitrust scrutiny requires careful planning and strategy. Engaging with competition authorities early in the process can help identify potential concerns and allow for adjustments to the deal structure to mitigate risks. Companies should be prepared for a thorough investigation and possibly protracted negotiations if their proposed merger raises significant competition issues.

While competition authorities are ultimately aimed at consumer protection, their activities can also lead to over-reach through the enforcement of policies not aimed at consumer protection; for instance, enforcing policies such as B-BBEE.

In 2016 Mediclinic’s attempted acquisition of Matlosana Medical Healtch Services was initially prohibited by the Competition Tribunal. The tribunal argued that the merger would significantly reduce competition in the private health-care market in certain regions. However, Mediclinic held that the decision was overly restrictive and didn’t adequately consider the benefits of the merger.

The merger between another two construction companies, Group Five and WBHO, faced much scrutiny. The tribunal imposed stringent conditions that the companies felt were overly burdensome and potentially harmful to their business operations. The conditions included extensive divestitures and behavioural remedies that some critics argued went beyond what was necessary to maintain competition.

Review option

Parties that disagree with the Competition Tribunal’s decisions have several avenues to challenge or seek a review of those decisions. The same applies in other jurisdictions.

Locally, the first and most direct avenue for recourse is to appeal the tribunal's decision to the Competition Appeal Court, which has the authority to uphold, overturn or modify the tribunal’s rulings. It can also refer cases back to the tribunal for reconsideration. This process is often followed by parties that believe the tribunal hasn’t adequately considered the evidence or has applied the law incorrectly.

In cases where a party believes the tribunal’s decision was procedurally unfair or that there was a significant error in the application of the law, they can seek a judicial review by the high court. This is a more limited form of recourse, focusing on whether the tribunal acted within its powers and followed proper procedures.

In some cases parties may opt to negotiate with the Competition Commission and tribunal to reach a settlement. This often involves agreeing to certain conditions or remedies while allowing the merger to proceed. Negotiation can be a pragmatic approach to resolving disputes without the need for lengthy appeals.

Though not a formal legal avenue, companies sometimes engage in public or political lobbying to influence outcomes. This could involve highlighting the broader economic or social benefits of the merger to garner public or government support.

As competition authorities worldwide — including SA — continue to rigorously enforce antitrust laws, companies must be diligent in their approach to M&A. Having an experienced M&A adviser on one’s team becomes a prerequisite in a complex regulatory environment.

For instance, the recently finalised acquisition by Chilean mining supply leader ME Elecmetal of Prima Foundry, a key player in SA’s mining industry, was facilitated by Deal Leaders International. The transaction demonstrated extensive experience and expertise in the mining sector, involving the navigation of diverse cultural, linguistic and strategic challenges, not to mention time-zone differences. We ensured that ME Elecmetal’s global growth strategy was seamlessly integrated with Prima’s established presence in the SA mining supply chain.

Understanding the regulatory landscape and being prepared to address competition concerns is essential for successfully navigating the complex process of M&A. By doing so, companies can achieve their growth objectives while remaining compliant with antitrust regulations.

• Bahlmann is CEO: corporate & advisory at Deal Leaders International.