The coronavirus outbreak has caused a sharp decrease in M&A deal volume in South Africa. However, there are indicators of recovery in one of the most developed countries on the continent. It has firmly established itself as an investment attractive economic destination with favorable conditions for doing business in Africa. If you are planning to start an M&A transaction in South Africa in the near future, you may find this article helpful.
Those planning a merger in South Africa should be aware that the acquisition of South African companies and their assets are governed by a variety of laws and regulations, including:
- Companies Law.
- Rules of currency control.
- Labor Code.
- Competition Law.
The new circumstances will call for additional warranties providing comfort with respect to specific Covid-19-related items, such as liquidity planning; business continuity preparedness; absence of significant infections among the target company’s workforce; and the target company not being subject to specific coronavirus-related governmental orders addressing the target company in South Africa.
NOTE: Today, buyers are seeking specific closing conditions to address Covid-19-related uncertainty, including achievement of specified financial metrics and triggers relating to specific contracts.
Foreign investment regulation
The local Central bank must give preliminary approval to any capital outflow or any credit inflow to the country.
If you wish to conduct a merger deal in South Africa, please note that it must be approved by the antitrust authorities. This refers to the effects that the potential deal may have on:
- the ability of SMEs to remain competitive;
- unemployment level;
- position of national industries in international markets.
Termination of M&A in Africa
Typical reasons for discontinuing a trade prior to closing include:
- violation of the agreement;
- a court or state body order banning the deal;
- adverse external changes in the transaction process.
The seller's liability limits are to be agreed by the parties. It can be:
- restrictions on the time frame within which claims can be filed;
- restrictive de minimis requirements.
The parties often agree on an upper limit equal to the purchase price. Creative pricing solutions may also bridge pricing gaps. Please note that guarantee and insurance coverage is widespread in this jurisdiction and is used especially in private equity deals.
Buyers generally opt for a South African firm's due diligence, which seeks to prove ownership of shares or assets, as well as mandatory identification of potential undisclosed risks. One of the latest requirements dictated by the pandemic is to check the degree to which the target is insulated from the effects of the virus.
Important: A party may be held liable for any willful or negligent provision of incorrect information that induces the buyer to enter into a deal.
Today, African countries make attempts to kick-start their economies. The usual course of business undertakings may need to be adjusted, including to require compliance with specific Covid-19 amendments. Before conducting a merger in Africa, we recommend that you contact the IQ Decision UK team, where you can get legal advice on the due diligence of a target company in South Africa.
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