It Might Be the right time to consider business merger

14 Jul 2020 12:40 pm by Portia Samkelisiwe Dlamini

Most businesses have been struggling to stay afloat and some have considered cutting the number of their employees while others are totally closing down as they have not survived the COVID 19 lockdown period. Before deciding on totally closing down your business or company you might want to consider a business merger with a company or business that offers or renders the same goods and services as yours.

Written by Portia Samkelisiwe Dlamini, Candidate Attorney at Schwenn Incorporated, for LexisNexis South Africa.

[Durban, 18 June 2020]

Introduction

Most businesses have been struggling to stay afloat and some have considered cutting a number of their employees while others are totally closing down as they have not survived the COVID-19 lockdown period.

Before deciding on totally closing down your business or company you might want to consider a business merger with a company or business that offers or renders the same goods and services as yours.

What is a merger?

A merger takes place when two independent companies combine their business by mutual consent or through a hostile takeover. From an economic perspective there are three kinds of mergers that one might consider. They are the horizontal, vertical and conglomerate merger.

What is a horizontal merger?

A merger between firms operating on the same level of supply chain selling substituted products in the same geographic area. These include competitors like clothing stores. This type of a merger is the most popular as it involves businesses and companies applicable in our daily lives.

What is a vertical merger?

A vertical merger entails an integration of companies or parties involved in different stages of supply chain of a common product or service. An example of a vertical integration would be a business merging with its supplier.

What is a conglomerate merger?

Conglomerate mergers cover all other types of mergers that are neither horizontal nor vertical in nature. These are transactions that take place between parties that have no apparent economic relationship. An example of a conglomerate merger would be a mining company and a motor manufacturer.

How are mergers categorised in terms of the Competition Act?

The Competition Act 89 of 1998 classifies mergers into three categories on the basis of total annual turnover and assets of parties involved in the merger, being small, intermediate and large mergers.

What constitutes a small merger?

A small merger is classified in terms of Section 13(2) of the Competition Act as a merger that does not fall under the intermediate and large merger definitions.

What constitutes an intermediate merger?

The combined annual turnover or asset value of the acquiring firms and target firms in, into or from South Africa must be more than R600 million but less than R6, 6 billion while the target turnover or asset value must be more than R100 million but less than R190 million in, into or from South Africa.

What constitutes a larger merger?

The combined annual turnover or asset value of the acquiring firms and target firms in, into or from South Africa must be more than R6, 6 billion while the target turnover or asset value must be more than R190 million in, into or from South Africa.

Do I have to notify the Competition commission if we decide to embark on a business merger?

Yes, the Competition Commission must be notified of an intermediate and a large merger. A small merger can be notified of voluntarily within 6 months after implementation.

Conclusion

There are many reasons why it might be a good idea to consider a business merger other than completely shutting down your company. Gather as much information even if it’s a small merger but it’s worth keeping your name in the business industry and helping your business makes it through the COVID-19 period.  If you would like to know whether your merger is classified as small, intermediate or large, you may use the Competition Commission’s merger calculator at

http://www.compcom.co.za/merger/Default.aspx

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