Higher thresholds, high-value start-ups, and the potential blind spot in South African merger control

South Africa’s newly increased merger thresholds are a welcome development, but do they heighten the risk that transactions that are likely to impact competition or the public interest will proceed without being investigated?

Merger thresholds are designed to separate the deals that require regulatory scrutiny from those that should be allowed to proceed without unnecessary examination. The increase in South Africa’s monetary thresholds is a long overdue and welcome development, as they should reduce gratuitous filings, lower transaction costs, and allow the competition authorities to focus their resources on transactions of greater economic impact. However, this increase also sharpens an existing question in South African merger control: what happens when a transaction is potentially harmful to competition in South African markets or the public interest, but not threshold-significant?

Consider a simple example: a large industry incumbent acquires a small but highly innovative South African technology start-up for R250m. The purchase price reflects the value of the target’s software, intellectual property, data, engineering infrastructure, customer pipeline or future competitive potential. However, because the company is at an early stage, it has limited turnover and few assets. Thus, on a conventional threshold analysis, this transaction may not trigger mandatory merger notification. This is the problem of the “invisible merger” – a transaction that is clearly visible to investors, founders and strategic acquirers, but may be less visible to a merger control regime built primarily around turnover and asset values.

The gap between commercial value and merger control visibility

The increased thresholds are not, in and of themselves, problematic. To the contrary, they are likely to be welcomed by businesses and advisers involved in ordinary-course M&A, as merger control imposes time, cost and execution risks. The higher thresholds also allow the regulatory authorities to focus on matters more likely to affect markets, consumers, workers, suppliers or broader public interest outcomes. However, turnover and asset thresholds remain proxies, and they are not perfect measures of competitive significance, particularly in sectors where value is increasingly intangible, forward-looking or not yet monetised.

Traditional merger thresholds assume that a firm’s economic significance will be reflected in its turnover or asset value, and this assumption works reasonably well in many mature and well-established sectors. A manufacturing business, retailer or logistics operator will often have revenue, physical assets, employees and market shares that provide a reasonable indication of its commercial importance. The same assumption is less reliable in digital and innovation-driven markets.

A start-up, for instance, may have minimal current revenue, but a competitively significant product. It may have few tangible assets, but important code, patents, data, trade secrets or engineering know-how. It may not yet be profitable, but may have a growing user base or a product that could become a future competitive threat. In that context, the purchase price may say far more about the target’s competitive significance than its historical turnover or accounting assets.

This creates a mismatch between commercial value and merger control visibility. An acquiring firm may be willing to pay a substantial amount precisely because the target gives it access to technology, data, scarce talent, product optionality or a future market position. Yet, if that value does not appear as turnover or recognised assets, the deal may remain below the mandatory notification thresholds.

South Africa’s small merger safety net

Notwithstanding what has been conveyed above, these transactions are not entirely beyond the purview of South African merger control. The South African Competition Commission (Commission) may require notification in terms of Section 13(3) of the Competition Act within a period of six months of a transaction being implemented, if it considers that the small merger may substantially prevent or lessen competition or cannot be justified on public interest grounds. Effective from 1 December 2022, the Commission has also issued Guidelines on Small Merger Notification (Guidelines), dealing with circumstances in which it expects to be informed of certain small mergers.

In particular, the Guidelines provide that the Commission must be informed of all small mergers and share acquisitions where the acquiring firm’s turnover or asset value alone exceeds the large merger combined asset/turnover threshold (R9,5bn), and at least one of two target-related criteria is met:

• The consideration for the acquisition or investment exceeds the target firm asset/turnover threshold for large mergers (R280m); or
• The acquirer values the target firm at or above the large target threshold.

The guidelines, therefore, do not create a standalone transaction-value filing trigger, as they use transaction value only where the acquiring firm is already sufficiently large by reference to the existing large merger threshold alone, and where the target’s consideration or effective valuation meets the relevant large target threshold.

These Guidelines are not binding, but do indicate that the Commission is alive to the risk of potentially significant acquisitions escaping scrutiny and, in substance, this is South Africa’s workaround. The formal statutory thresholds remain based on turnover and assets, but the small merger framework allows the Commission to look at acquisition consideration and valuation as indicators that a transaction may deserve attention. South Africa has, therefore, not ignored the invisible merger problem but, rather, has adopted a more discretionary and flexible mechanism.

What COMESA has done differently

The Common Market for Eastern and Southern Africa (COMESA) serves as a useful comparator because it has adopted a more direct transaction-value-only trigger for “digital” transactions, as opposed to the South African framework, where the thresholds remain central to the analysis.

Under COMESA’s December 2025 merger control reforms, a digital market transaction may be notifiable where the transaction value equals or exceeds US$250m and at least one party operates in two or more Member States, even if the traditional turnover or asset thresholds are not met. In other words, for qualifying digital transactions, COMESA converts transaction value into a jurisdictional gateway in its own right.

The distinction, therefore, is not that South Africa ignores transaction value while COMESA recognises it; South Africa clearly does recognise transaction value, but only within a small merger framework that remains tethered to the ordinary merger thresholds. COMESA goes further by making transaction value an independent basis for notification in certain digital market transactions. Unfortunately, what constitutes a “digital” merger has not been defined.

Certainty versus flexibility

The comparison raises an important policy question: should South Africa consider a more explicit transaction-value threshold for digital or innovation-driven mergers?

There are arguments on both sides. A transaction-value threshold offers greater certainty. It gives parties a clearer rule and reduces the risk that economically significant transactions escape scrutiny simply because the target has not yet generated material turnover. It is also better aligned with the commercial reality of start-up acquisitions, particularly in the age of artificial intelligence, where valuation may be driven by future potential rather than current revenue.

But there are risks. A transaction-value threshold may over-capture benign transactions, create fictitious valuation disputes, and increase the regulatory burden on start-up exits and investment activity. It may also be difficult to define the relevant category of “digital” or “technology” transactions with sufficient precision. South Africa’s current approach has the advantage of flexibility: the Commission can focus on transactions that appear to raise real concerns without requiring every high-value start-up acquisition to be notified. The difficulty is that flexibility can become uncertainty.

Conclusion

South Africa’s increased merger thresholds are, on balance, a positive development for dealmaking. They should reduce unnecessary filings and allow the competition authorities to focus on transactions that are more likely to affect competition or raise public interest concerns. But they also make it more important to recognise the limits of a threshold regime built around turnover and assets.

In digital and innovation-driven markets, commercial significance may sit in software, data, intellectual property, technical capability, network effects or future competitive potential, rather than in historical revenue or accounting assets. South Africa’s small merger framework provides an important safety net, but it remains a discretionary, threshold-linked mechanism. By contrast, COMESA’s approach shows that another African competition regime has chosen a more direct route by making transaction value an independent trigger for certain digital market mergers.

For now, the practical lesson for dealmakers is that a transaction may fall below the new mandatory notification thresholds, but that does not necessarily mean it falls below the Commission’s radar.

Heather Irvine is a Partner and Nicholas De Decker and Associate | Bowmans

This article first appeared in DealMakers, SA’s quarterly M&A publication.

DealMakers is SA’s M&A publication.
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