In the South African corporate sphere, mergers and acquisitions (‘M&As’) are often utilised by companies to expand operations or enhance their market share. While regularly grouped together, M&As are distinct in both structure and legal consequence.
Under section 1 of the Companies Act, a ‘merger’ (or amalgamation) is narrowly defined as a transaction or series of transactions carried out under an agreement between two or more companies, which results in either:
- The creation of one or more new companies that collectively assume all the assets and liabilities of the merging companies, which is accompanied by the dissolution of the original companies; or
- The continuation of at least one of the original companies (with or without the formation of new companies), where all the assets and liabilities – held by the merging companies prior to the implementation of the agreement – vest in the surviving company/companies and newly formed entity/entities.
The statutory requirements for a merger – and the contents of the merger agreement – are set out under section 113 of the Companies Act, and include a special resolution by the shareholders of all companies and the carrying out of solvency and liquidity tests.
Comparatively, an ‘acquisition’ has a wider meaning under the Act. Applicable to a variety of financial transactions, it typically involves a company purchasing the assets or shares of another, and includes ‘an acquisition by a regulated company of its own securities’, per section 117 of the Act. The acquired company may be absorbed or remain operational under new ownership. To that end, share purchase agreements and asset purchase agreements are essential to facilitating acquisitions, and due diligence plays a critical role in identifying any legal, financial, and regulatory risks before the agreement is finalised.
Crucially, M&As generally involve extensive legal components, including B-BBEE compliance, risk assessment, competition law considerations, industry-specific regulatory requirements, and tax considerations. Accordingly, engaging skilled and knowledgeable legal professionals is essential to secure compliance, facilitate strategic structuring, and protect shareholder value.
Headed by highly skilled and experienced Director and corporate and commercial law savant, Adam Ismail, STBB’s M&A team provide our valued clients with the legal and regulatory support they need to seal the deal.
For expert legal advice and guidance, contact our corporate and commercial law attorneys at commercial@stbb.co.za.
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