This article outlines (in Kally and Co’s “To the Point” fashion) some of the main elements of the legal framework and practical considerations which should be borne in mind within the context of South African M&A transactions.

1. Companies Act, No. 71 of 2008

The Companies Act governs corporate governance, shareholder rights, and scheme-of-arrangement processes. Key sections of his Act for M&A include:

• Section 114: Requires shareholder approval (special resolution) for fundamental transactions, including disposals of all or the greater part of assets.
• Section 115–116: Regulates schemes of arrangement—a flexible mechanism to restructure or merge companies with court and shareholder approval.

2. Competition Act, No. 89 of 1998

The Competition Act imposes merger control to prevent anti‑competitive concentrations. Transactions meeting certain thresholds (combined annual turnover or asset values) must be notified to and approved by the Competition Commission before implementation. 

In recent times, the Competition Commission has placed strong emphasis on so-called “Public interest grounds” which measure a M&A transaction’s impact on historically disadvantaged persons (particularly the spread of ownership).

3. Broad-Based Black Economic Empowerment (B-BBEE) Codes

B-BBEE status remains a crucial competitive factor, especially for transactions involving government procurement or large corporate groups. 

Structuring share purchases to optimize B-BBEE points post‑transaction is often an imperative term of the transaction itself.

4. Due Diligence: Beyond the Basics

A robust due diligence process underpins any successful M&A deal. In addition to the usual financial, tax, and commercial reviews, South African transactions often require:

• Mining and environmental permits (where applicable) and verification of compliance with the National Environmental Management Act and Mining Rights Act.
• Assessing potential liabilities under the Labour Relations Act, particularly concerning dismissals or retrenchment packages.
• Confirming title registers, zoning and property rights as well as understanding expropriation risk under the Expropriation Act.
• For inbound or outbound foreign investment, ensuring compliance with the South African Reserve Bank’s (“SARB”) exchange control regulations.

5. Transaction Structures

Choosing the optimal structure depends on tax, risk allocation, and financing considerations and may create huge upside for buyers and/or sellers following the successful completion of the M&A deal.

6. Financing and Security

Most deals in South Africa are financed through a mix of equity, vendor financing, and debt (often syndicated by local or international banks). Key points include:

• Collateral requirements: Common security packages include cessions and pledges of shares and/or intellectual property, and mortgage bonds over immovable property.
• Financial assistance restrictions: Sections 44 and 45 of the Companies Act limit a company’s ability to provide loans or guarantees in connection with the acquisition of its own shares.

7. Common Pitfalls and How to Avoid Them

• Underestimating Competition Approvals: Late or incomplete filings can lead to “gun‑jumping” charges and heavy fines. Engage competition law experts at the onset of the transaction to mitigate these risks. 
• B-BBEE Non‑Compliance: Ignoring B-BBEE can derail public‑sector contracts. Consider post‑deal compliance structures (e.g., management share schemes).
• Incomplete Tax Structuring: Failure to plan for VAT, securities transfer tax, or capital gains tax can erode deal value. Liaise with specialized tax advisors.
• Cultural and Integration Risks: Beyond legalities, misaligned corporate cultures or ineffective integration planning can hinder post‑deal synergies. Involve human‑resources and operational teams from the outset.

8. Looking Ahead: Emerging Trends

• Digital Assets: Blockchain and fintech companies are increasingly targets or acquirers in M&A deals; ensure digital‑asset custody and data‑privacy issues are addressed.
• Sustainability Clauses: Environmental, social, and governance (ESG) representations and warranties are appearing more frequently in South African M&A agreements.
• Cross‑Border Complexity: With inbound investment from Asia and the Middle East on the rise, foreign‑law considerations (e.g., anti‑bribery laws) are becoming more prominent.

9. Conclusion

M&A in South Africa offers substantial growth opportunities but requires careful navigation of local laws, regulatory approvals, and socio‑economic imperatives. By partnering with experienced legal, tax, and competition specialists (and undertaking thorough due diligence and integration planning into your process) acquirers can unlock value whilst mitigating risk.