23 April 2024

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

Andersen in South Africa


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
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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.

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