Most businesses have been struggling to stay afloat and some have considered cutting a number of their employees while some are totally closing down and not surviving the COVID 19 lockdown period.

Before deciding on totally closing down your business or company you might want to consider a business merger with a company or business that offers or renders the same goods and services like yours, or products that supplement or complement your existing business.

What is a Merger?

A Merger takes place when two independent companies combine their businesses which takes place by mutual consent or through a hostile takeover. From an economic perspective, there are three kinds of mergers that one might consider. The horizontal, vertical, and conglomerate mergers.

What is a horizontal merger?

A merger between firms operating on the same level of supply chain selling substituted products in the same geographic area. These include competitors like clothing stores. This type of merger is the most popular as it involves businesses and companies applicable in our daily lives.

What is a Vertical Merger?

A vertical merger entails the integration of companies or parties involved in different stages of the supply chain of a common product or service. An example of vertical integration would be a business merging with its supplier.

What is a Conglomerate merger?

Conglomerate merger covers all other types of mergers that are neither horizontal nor vertical in nature. These are transactions that take place between parties that have no apparent economic relationship. An example of a conglomerate merger would be a mining company and motor manufacture.

How are mergers categorized in terms of the Competition Act.

The Competition Act classifies mergers into 3 categories on the basis of total annual turnover assets of parties to the merger – Intermediate, Large, and small.

What constitutes an Intermediate Merger?

The combined annual turnover or assets of the acquiring firms and target firms in, into or from South Africa is less than R60 million or more.

The annual turnover or assets of a firm into or from South Africa is less than R80 Million.

What constitutes a larger merger?

The combined annual of assets of both the firms must is equal to or more than R6.6 million and the annual turnover or value of the transferred/ target firm is at least R190 million

There are many reasons why it might be a good idea to consider a business merger other than completely shutting down your company.

What constitutes a small merger?

A small merger is classified in terms of Section 13(2) of the Competition Act as a merger that does not fall under the intermediate and large mergers.

Do I have to notify the Competition Commission if we decide to embark on a business merger?

Yes, the Competition Commission must be notified of an intermediate and a large merger. A small merger can be notified of voluntarily within 6 months after implementation.

You might want to consider a business merger before concluding on shutting down your business or company completely. Gather as much information even if it’s a small merger but it’s worth keeping your name in the business industry and helping your business makes it through the COVID-19 period.

 

For any more questions you would like answered about your business please contact us today on Charmaine@schwenninc.co.za or 031 003 0630.

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