Alignment or misalignment? The BEE Commission, the Competition Commission and M&A

15 April 2024 ,  Luhann Prinsloo 141
As much as M&A transactions are a part of our economic landscape and vital to economic growth and investment in South Africa, there remains a vital balance been economic growth and addressing historical disparities and increasing the participation of previously disadvantaged in the economy. To regulate and align these objectives, the Competition Commission and BEE Commission play pivotal roles. But, do their functions complement each other? In this article, we investigate how their respective functions and mandates align (or not) in respect of the South African M&A environment.

The Competition Commission is the guardian of fair competition in South Africa, with its primary objective the prevention of anti-competitive behaviour to ensure markets remain open, competitive, and conducive to consumer welfare. When assessing M&A, the Competition Commission evaluates whether such transactions would substantially lessen competition in relevant market sectors, by examining factors such as market share, the likelihood of lessened competition, and potential barriers to entry. If a proposed merger raises concerns regarding market dominance or anti-competitive practices, the Competition Commission may impose conditions or prohibit the transaction altogether to preserve market competitiveness.

One such factor which the Competition Commission is required to examine, and which factor is increasingly rising to prominence in recent M&A assessments, is whether an intended merger can (or cannot) be justified on ‘substantial public interest grounds’ according to section 12A(1)(b) of the Competition Act 89 of 1998 and in particular, whether it would encourage a wider ownership distribution to raise the proportion of ownership held by historically disadvantaged persons (“HDPs”).

The BEE Commission, on the other hand, operates within the framework of the Broad-Based Black Economic Empowerment Act 53 of 2003 (“BEE Act”), a transformative legislative framework aimed at redressing historical injustices and fostering inclusive economic participation. It examines BEE transactions and establishes whether they advance the objectives of economic empowerment by promoting the participation of black-owned enterprises and fostering equitable access to economic opportunities. Another further function of the BEE Commission involves investigations into complaints related to BEE non-compliance and the taking of corrective measures to enforce adherence to BEE requirements. In the context of M&A, it is important to note that the BEE Commission does not approve an intended merger insofar as there are BEE-related matters in question, as that does not fall within their powers or mandate. 

One mandate of the BEE Commission that often creates uncertainty, is the requirement of the BEE Commission according to the BEE Regulations promulgated under the BEE Act, to maintain a comprehensive register of all major BEE transactions throughout a calendar year. This confuses parties leading them to believe that they also require BEE Commission approval when registering a major BEE transaction. The term ‘Major BEE Transaction’ means any transaction that results in ownership recognition per Statement 100 of the Codes of Good Practice and has a transaction value exceeding or equalling R25 million. Upon the completion of such a Major BEE transaction, it must be registered swiftly with the BEE Commission within 15 calendar days of the conclusion of the Major BEE Transaction, but it does not require any pre-approval by the BEE Commission regarding the implementation of a merger which is also a Major BEE Transaction. The parties simply need to register the same with the BEE Commission. 

The intersection of the Competition Commission and the BEE Commission’s mandates becomes particularly evident where it relates to BEE/HDP considerations in an M&A transaction. At the heart of HDPs per the Competition Act and BEE under the BEE Act, is the aim to redress those disadvantaged due to historical injustices. BEE focuses on promoting the inclusion of black individuals in economic activities, striving for a more equitable distribution of wealth and opportunity. Similarly, the HDP provisions within the Competition Act, target marginalised groups, ensuring fair participation and representation in competitive markets. In cases such as these, both regulatory bodies would ideally collaborate to ensure that M&A activities not only preserve market competition but also contribute to the advancement of economic empowerment goals. 

In cases where proposed mergers may impact BEE compliance or the interests of HDPs, the Competition Commission will generally consult with the BEE Commission to evaluate the transaction's implications. The BEE Commission may engage with the Competition Commission during merger reviews to provide insights into the potential socio-economic effects of a particular M&A transaction. However, despite the collaborative efforts being encouraged between the Competition Commission and the BEE Commission, it does appear from recent transactions, that there are challenges in balancing the mandates of the two regulatory bodies, namely balancing competition objectives with economic empowerment and/or HDP imperatives in M&A transactions. 

Nevertheless, the intersection of the Competition Commission and the BEE Commission presents opportunities for synergy and alignment between competition policy and socio-economic transformation objectives. They both play indispensable roles in shaping the outcomes of M&A in South Africa and provided these entities can leverage their respective mandates and collaborate effectively, these regulatory bodies can preserve competition, support economic growth and advance the objectives of BEE and inclusion of HDPs. 

What is clear though, is that despite challenges in balancing the respective objectives, BEE/HDP objectives are and will remain vital to the success of an M&A transaction and should form part of the transaction structure and plan from the get-go or be ignored at the peril of the transacting parties. 

For help in planning your M&A transaction and aligning such to BEE/HDP requirements, be sure to talk to our M&A Team and BEE Advisory Team. With their deep knowledge of BEE requirements and M&A transaction structuring, this vital aspect of South African M&A will be dealt with and integrated correctly into your overall transaction plan. 
Visit our M&A Team page and our B-BBEE Advisory Team page. 

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 
Related Sectors: Mergers & Acquisitions