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When the buyer is reluctant to make a choice about which assets to acquire and which obligations to assume, then such a transaction to acquire a private company in South Africa is structured as a purchase of shares.

Acquisition of a South African company through a formal merger is another matter. Such a transaction will lead to the consolidation of all assets and liabilities into a single company. In this case, the parties are not entitled to choose which assets and liabilities are included in the combined entity, since they are part of it by definition.

Assets only, please

It is not uncommon for a buyer to not want to acquire a target company in South Africa in its entirety with all its obligations. Then he has the opportunity to purchase shares in a South African private company and assume obligations in accordance with the terms set out in the share sale agreement.

Obtaining information about the seller and evaluating the assets of the acquired company is crucial when concluding an M&A deal in South Africa.

Before making a purchase offer, it is wise to do some research. At the beginning, the buyer may only have access to the business sale memorandum. 

It is not uncommon for sellers to ask potential buyers to sign confidentiality and non-disclosure agreements before the buyer can access confidential or more detailed information. If you intend to buy a business in South Africa, the seller will most likely also take care of obtaining evidence of your ability to finance the purchase and information about you.

Financing issues

Interestingly, the target company itself may show a desire to act as a source of financing for the transaction. It can provide financial assistance to buyers in connection with the purchase of its own securities. This is especially useful for those planning to start a private equity transaction in South Africa.

It is very important here that the provision of such assistance is approved by a majority of shareholders. Also, the sellers must provide the buyer with indemnification guarantees.

To be excluded

During the sale of the business in South Africa, the parties have the right to choose which assets or liabilities will be transferred to the buyer. The same cannot be said about the staff. When the well-performing business is transferred, employees are automatically transferred to the acquiring organization under the same terms of employment. Violation of this condition threatens further legal proceedings.

Final word

In the past few years, the Republic of South Africa has shown great openness to foreign investment. The most attractive areas for M&A in South Africa are considered mining, real estate, and technology.
Investors see potential in this country as one of the options to protect their money during the global recession - to strengthen the portfolio with reliable instruments with fixed income, shares of protective industries, ready-made investment products with limited or zero risks. 

Our legal experts provide advice on structuring private M&A in the South African market. Seasoned corporate and commercial law professionals work and advise clients on a wide range of legal matters related to business and commercial transactions, including advising on commercial contracts in South Africa, structuring, mergers and acquisitions, sale of a business in South Africa. We work closely with our clients to provide them with the information they need to make informed business decisions.