BRAD WEBBER: Chance for new minister to scale back complexity in M&A activity

SA’s competition policy has evolved to incorporate public interest in its regulatory assessments, reshaping the mergers & acquisitions (M&A) landscape and presenting challenges and opportunities for investors and businesses.

Under former trade, industry & competition minister Ebrahim Patel’s leadership this shift redefined the evaluation of M&A, introducing both challenges and new avenues for investors and businesses. We are now tasked with navigating a landscape where traditional deal metrics are no longer sufficient on their own; the sociopolitical context of transactions has become equally critical. 

Historically, SA’s competition policy focused primarily on the economic impacts of transactions. The goal was straightforward: assess whether a deal would improve, maintain or diminish competition in the market. This approach allowed for a relatively predictable M&A environment, where financial performance, market position and potential synergies were the central considerations. However, with Patel’s appointment the regulatory landscape began to shift. Public interest considerations, always a part of the legislative framework, started to play a more prominent role in the evaluation process. 

This shift was demonstrated in handling high-profile transactions such as the Walmart-Massmart acquisition. Despite the clear economic benefits of the deal, foreign direct investment and consumer advantages due to Walmart’s global sourcing capabilities, the department imposed substantial concessions. These included commitments to local procurement and employee training, which ultimately increased the complexity and cost of the transaction for Walmart. This marked a turning point, where public interest concerns could override purely economic considerations, setting a new precedent for future transactions. 

The AB InBev-SABMiller merger further underscored the importance of preparing for public interest negotiations. Having observed the challenges faced by Walmart, AB InBev entered talks with a strategic approach, proactively offering concessions related to local supplier development and BEE. This facilitated the approval process and highlighted the increasing complexity of navigating SA’s regulatory environment. These developments indicated that a deep understanding of the sociopolitical landscape had become as crucial as traditional financial metrics in structuring and executing deals. 

However, rejecting the Burger King sale to an offshore private equity firm illustrated the unpredictability and potential pitfalls of the evolving policy framework. The deal was blocked because the new owners did not meet the required BEE criteria, despite there being no real competition issues. This decision raised concerns within the investment community about the potential effect on future transactions, particularly those involving BEE groups seeking to realise value from their investments. 

The introduction of public interest criteria has undeniably added a layer of complexity to the M&A landscape in SA. Early engagement with regulators has become essential, as has the ability to proactively anticipate and address public interest concerns. This expanded focus requires a more holistic approach to deal-making, where the interests of the merging parties must be aligned with broader national objectives, particularly in areas such as employment, local procurement, and economic empowerment. 

As we look ahead, it is crucial that SA’s competition policy continues to evolve in a way that balances public interest with the need to create a stable and predictable investment climate. The introduction of guidelines around public interest provisions is a step in the right direction, but more needs to be done to ensure that these guidelines are applied consistently and transparently. This approach will help restore confidence among investors, both local and foreign, and ensure SA remains an attractive destination for capital. 

New BEE approach

One key area requiring attention is the approach to BEE in M&A transactions. While promoting black ownership and economic participation remains a critical objective, the framework may inadvertently stifle investment and economic growth. A more flexible approach, allowing BEE groups to realise value from their investments while promoting broader economic empowerment, is essential for fostering a healthy investment climate, particularly for foreign direct investment.

Uncertainty around BEE requirements can act as a deterrent, and international acquirers must also account for potential economic dilution from fulfilling these requirements, a factor often absent in other jurisdictions. This additional cost of doing business in SA requires strategic foresight and a deep understanding of local legislation to navigate the complex regulatory landscape.

As Parks Tau takes the helm at trade, industry & competition there is an opportunity to reset the tone and create an environment conducive to economic growth and social equity. By engaging with the business community, unions and other stakeholders, the minister can develop a more practical and predictable framework that balances public interest with the need to attract investment. Such an approach would support economic activity and shorten the time frames for deal approvals, which have sometimes extended to two years or more due to protracted negotiations with the department and competition authorities. 

The evolution of SA’s competition policy presents challenges and opportunities for investment banking professionals. While the focus on public interest is important, it must be balanced with the need to create a stable and predictable investment climate. The investment community and corporates doing business in SA must adapt to this new reality by enhancing their strategic capabilities, deepening our understanding of sociopolitical factors, and developing innovative solutions that meet our clients’ and the broader economy’s economic and social objectives.

By doing so we can help ensure that SA continues to attract the investment needed to drive sustainable economic growth and development, benefiting all stakeholders involved. 

• Webber is investment banking originator: consumer at Nedbank Corporate & Investment Banking.