On June 1, 2021, the Competition Commission had formally blocked the process of Pan-African PE firm Emerging Capital Partners (ECP) from purchasing fast-food chain Burger King South Africa and Grand Foods Meat Plant.

The Commission found that the merger would lead to a significant reduction in the shareholding of historically disadvantaged persons in the target firm, from more than 68% to 0% as a result of the merger.

It is reported that the basis of this decision was not as a result of concerns around competition, but that “the proposed merger cannot be justified on substantial public interest grounds”. 

The Commission raised concerns “that the proposed merger will have a substantial negative effect on the promotion of greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons in firms in the market as contemplated in section 12A(3)(e) of the Competition Act.”

As an industry body, the Southern African Venture Capital and Private Equity Association (SAVCA) has noted the outcome of the Commission’s decision. 

SAVCA is fully supportive of B-BBEE legislation and the transformation of our country, as well as the health of our economy.

Furthermore, SAVCA fully supports the achievement of increased levels of ownership by historically disadvantaged persons thus creating a more equitable society.

“We are, however, concerned about this ruling given the impact of this precedent and the risks associated with South Africa’s ability to continue attracting foreign capital and its impact on the local private equity industry in the country,” said Sthembile Nkabinde, SAVCA Director, Founder & CEO Khulasande Capital, and Langa Madonko,SAVCA Director, Investment Principal Investor Relations & Capital Raising at Summit Africa.

“With an unemployment rate of 32.6% during the first quarter of 2021, we cannot disregard the impact that investment make towards job creation and the economy, especially during a time when unemployment is at its highest and the effects of the COVID-19 pandemic are being felt across our country in the form of extreme hunger and poverty,” they said.

“We note that there are competing factors at play in the ‘public interest’ considerations, and appreciate that weighing all of these against each other is highly complex and nuanced,” they added.

The decision does however have the unintended consequence of raising concerns for both the international and local investment community, potentially setting a precedent for restrictions on investment activity and thus deterring much needed investment capital.

This compounds an existing perceived risk around policy certainty, value realisation, liquidity and exit when considering investment on the continent.

“As such, SAVCA will engage with the Commission, the Department of Trade, Industry and Competition (DTIC) and other relevant stakeholders on the matter to contribute to the dialogue of ensuring that South Africa is well positioned as an attractive investment destination to potential investors, while affirming that transformation imperatives remain critical for an inclusive and sustainable South Africa,” they said.