ARTICLE
23 April 2024

South African Private M&A: A Guide To Deal Structure And Process

Ai
Andersen in South Africa

Contributor

Andersen in South Africa is a Legal, Tax and Advisory firm offering a full range of value-added and cost-effective services to their corporate and commercial clients. They are a member firm of Andersen Global, an international entity surrounding the development of a seamless professional services model providing best in class tax and legal services around the world.
Written for Mondaq by Derrick Kaufmann, a Managing Partner at Andersen in South Africa, head of Corporate, Mergers & Acquisitions a Board member on the African Regional...
South Africa Corporate/Commercial Law
To print this article, all you need is to be registered or login on Mondaq.com.

Written for Mondaq by Derrick Kaufmann, a Managing Partner at Andersen in South Africa, head of Corporate, Mergers & Acquisitions a Board member on the African Regional Board of Andersen Global, this guide offers a comprehensive overview of private mergers and acquisitions (M&A) in South Africa, focusing on deal structures, transaction processes, and key considerations for participants.

1. Deal Structure: Choosing the Right Path

South African M&A transactions primarily involve two structures:

  • Share Purchase Agreement (SPA): The buyer acquires the entire company, including its assets, liabilities, and intangible assets like goodwill and intellectual property. This structure is ideal for full ownership and control.
  • Asset Purchase Agreement (APA): The buyer acquires specific assets and liabilities chosen from the target company. This allows for a more targeted approach, cherry-picking desired components.

Choosing the Right Structure:

Several factors influence structure selection:

  • Buyer's Objectives: Does the buyer require the entire company (SPA) or specific assets (APA)?
  • Target Company Characteristics: Are there potential liabilities the buyer wants to avoid (APA)?
  • Tax Implications: Each structure has different tax consequences, requiring careful evaluation.
  • Due Diligence: The scope and depth of due diligence vary depending on the chosen structure.
  • Negotiation Leverage: Each structure offers different leverage for negotiation between buyer and seller.
  • Regulatory Approvals: Both structures might require regulatory approvals, depending on the nature of the transaction.

2. Transaction Process: A Step-by-Step Guide

A typical South African private M&A transaction involves several stages:

  • Initial Preparatory Stage:
    • Confidentiality Agreement: Protects sensitive information shared during discussions.
    • Non-Binding Letter of Intent: Outlines basic terms for negotiations.
    • Exclusivity Agreement (Optional): Grants the buyer exclusive negotiation rights for a defined period.
    • Break Fee Agreement (Optional): Protects the seller if the buyer walks away after exclusivity or due diligence.
    • Due Diligence Access Agreement: Defines procedures for accessing information during due diligence.
    • Standstill Agreement (Optional): Restricts both parties from taking certain actions during negotiations.
    • Financing Commitment Letter (Optional): Showcases the buyer's ability to secure financing.
  • Due Diligence:
    • Financial Due Diligence: Evaluates historical financials, forecasts, and potential liabilities.
    • Legal Due Diligence: Reviews contracts, compliance, and potential legal claims.
    • Commercial Due Diligence: Assesses market position, customer base, and operational efficiency.
    • Tax Due Diligence: Analyses tax liabilities and potential risks.
    • Environmental Due Diligence (if applicable): Identifies environmental risks associated with the target.
  • Corporate and Regulatory Approvals:
    • Shareholder Approval (if applicable): Required for transactions exceeding a certain threshold or affecting voting rights.
    • Board of Directors Approval: Necessary for transaction approval.
    • Creditor Consents (if applicable): Needed to protect creditor interests.
    • Competition Commission Approval (if applicable): Required for transactions exceeding specific thresholds.
    • Takeover Regulation Panel Notification (if applicable): Necessary for 'regulated companies'.
    • Industry-Specific Approvals (if applicable): May be required in certain sectors.
  • Transaction Documents:
    • Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA): Defines the legal framework.
    • Closing Documents: Include transfer documents, escrow agreements, and closing certificates.
    • Tax Clearance Certificates: Required by the South African Revenue Service.
  • Closing and Post-Closing:
    • Transfer of ownership or assets.
    • Post-closing adjustments (if applicable).

3. Key Considerations for Participants

  • Due diligence is crucial for informed decision-making. Its scope and depth depend on the transaction's specifics.
  • Confidentiality agreements are essential to protect sensitive information shared during the process.
  • Experienced legal and financial advisers can guide the process, interpret findings, and identify deal breakers.
  • Regulatory compliance is vital throughout the transaction.
  • Clear communication and mutual respect between buyer and seller foster trust and expedite transactions.

Understanding deal structures, transaction processes and regulatory requirements are key considerations driving successful outcomes for private M&A in South Africa.

Read the full guide on Mondaq

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More