D Capital Fund 1 (Pty) Ltd v Proconics (Pty) Ltd (LM117Jul18) [2018] ZACT 66 (30 August 2018)
- Citation
- [2018] ZACT 66
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- A Ndoni, Imraan Valodia, Fiona Tregenna
- Case number
- LM117Jul18
More details
- Court
- Competition Tribunal
- Panel
- A Ndoni, Imraan Valodia, Fiona Tregenna
- Case number
- LM117Jul18
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed transaction does not result in a horizontal overlap between the merging parties, as the acquiring group is not active in the market for engineering specialist services. The pre-existing equity relationship further reduces any risk of market structure alteration. The Commission's investigation confirmed that the transaction is unlikely to substantially prevent or lessen competition in any relevant market. Additionally, there are no adverse public interest effects, particularly regarding employment. Accordingly, the Tribunal approved the transaction unconditionally.
Court disposition
The proposed transaction is approved unconditionally.
Orders
- The merger between D Capital Fund 1 (Pty) Ltd and Proconics (Pty) Ltd is approved without conditions.
02
Material facts
Parties
D Capital Fund 1 (Pty) Ltd
Applicant Counsel: I DlhadlhaProconics (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Approval / Final Determination
04
Questions and positions
Legal issues
- 01
Whether the proposed transaction will substantially prevent or lessen competition in any relevant market.
- 02
Whether the transaction raises any public interest concerns, including adverse effects on employment.
Party arguments
- Applicant
- The applicant argued that the transaction is a management buyout and will not result in any adverse competitive effects, as the acquiring group already holds an equity interest in the target firm and is not active in the relevant engineering services market. The transaction is intended to facilitate joint control between the Fund and Proconics management.
- Respondent
- The respondent, Proconics, confirmed that the transaction would not have any negative impact on employment and does not raise any other public interest concerns. The Competition Commission supported this position, finding no horizontal overlap or market structure alteration.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may only be prohibited if it is likely to substantially prevent or lessen competition in any relevant market.
- 02
Competition Act, No. 89 of 1998
Public interest considerations, including employment effects, must be assessed in merger proceedings.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed transaction does not result in a horizontal overlap between the merging parties, as the acquiring group is not active in the market for engineering specialist services. The pre-existing equity relationship further reduces any risk of market structure alteration. The Commission's investigation confirmed that the transaction is unlikely to substantially prevent or lessen competition in any relevant market. Additionally, there are no adverse public interest effects, particularly regarding employment. Accordingly, the Tribunal approved the transaction unconditionally.
Obiter and limits
- The Tribunal noted that management buyouts, when structured transparently and without anti-competitive effects, are generally not problematic under competition law.
- The Commission's thorough investigation into both competition and public interest aspects was commended.
Court disposition
The proposed transaction is approved unconditionally.
- The merger between D Capital Fund 1 (Pty) Ltd and Proconics (Pty) Ltd is approved without conditions.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM117Jul18
In the matter between
D Capital Fund 1 (Pty) Ltd
Primary Acquiring Firm
And
Proconics (Pty) Ltd
Primary Target Firm
Panel
: Ms A Ndoni (Presiding Member)
: Prof. Valodia (Tribunal Member)
: Prof. F Tregenna (Tribunal Member)
Heard on : 1 Aug 2018
Order Issued on : 1 Aug 2018 Reasons Issued on : 30 August 2018
REASONS
FOR DECISION
Approval
[1] On 1 August 2018, the Competition Tribunal ('Tribunal") unconditionally approved the proposed transaction in terms of which D Capital Fund 1 (Pty) Ltd ("the Fund") is acquiring control over Proconics (Pty) Ltd ("Proconics").
[2] The reasons for the approval of the proposed transaction follow.
Parties to the transaction
Primary Acquiring Firm
[3] The acquiring firm is the Fund, a private company incorporated under the laws of South Africa. The Fund is jointly controlled by Dlondlobala Capital (Pty) Ltd ("Dlondlobala Capital") and Corvest 200
(Pty) Ltd ("Corvest 200"), with a 55%/45% equity interest respectively. Dlondlobala Capital is not controlled by any firm.[1] Corvest 200 is controlled by RMB Private Equity Holdings ("RMB"), which is in tum controlled by First Rand Investment Holdings (Pty) Ltd ("First Rand lnvestmenr) . First Rand Investment is a wholly-owned subsidiary of First Rand Ltd ("First Randn).
[4] The Fund controls Capital Agri Fund 1 (Pty) Ltd, an investment vehicle seeking to invest in agricultural investments. In addition to the Fund, Dlondlobala Capital controls Rudan Engen 1 Stop Shop (Pty) Ltd, and has a 28.36% equity interest in Proconics.
[5] The abovementioned firms will hereunder be referred to as the "acquiring group". The acquiring group is active in the private equity sector, predominantly focused on, inter alia, diversifying its portfolios by investing in unlisted companies and participating in management buy-outs and buy-ins.
Primary Target Firm
[6] The primary target firm is Proconics, a private company incorporated under the laws of South Africa. Proconics is not controlled by any firm, nor does it control any firm. The shareholders of Proconics are: (i) Elizabeth Moolman ("Ms Moolman•) with a 41.45% shareholding; (ii) Dtondlobala Capital with a 28.36% shareholding; (iii) Roland Matthysen Family Trust ("RMFT") with a 28.36% shareholding; and (iv) Melvin Keith Jones (“Mr Jones” with a1.83%shareholding.
[7] Proconics is an electrical and instrumentation, control and mechanical engineering and design company that also offers Engineering Procurement and Construction (EPC)[2] services.
Proposed transaction and rationale
[8] The proposed transaction aims to facilitate a management buyout. The management buyout will be effected by a number of steps that will see the Proconics management acquire control of Proconics. Ultimately, the Fund intends to acquire 49% of the issued share capital in Proconics. Post merger, Proconics will be ultimately jointly controlled by the Fund and the Proconics management.
Relevant market and impact on competition
[9] The Competition Commission (“Commission”) found that the proposed transaction does not result in a horizontal overlap between the merging parties' activities. This is because no firm in the acquiring group is active in the market for the provision of engineering specialist services, detailed engineering and design and construction management services. The Commission further found that there is a pre-existing relationship between the merging parties. This is due to the fact that the acquiring group already has an equity interest in Proconics.
[10] The Commission therefore concluded that the proposed transaction is unlikely to lead to a substantial prevention or lessening of competition in any relevant market. The Commission further concluded that the nature of the proposed transaction makes it unlikely for it to alter the structure of any market. We concur with the Commission's conclusion.
Public interest
[11] The merging parties confirmed that the proposed transaction will not have any adverse effects on employment.[3] The proposed transaction raises no other public interest concerns.
Conclusion
[12] In light of the above, we concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market. In addition, no public interest issues arise from the proposed transaction. Accordingly, we approved the proposed transaction unconditionally.
Ms Andiswa Ndoni
Prof. Imraan Valodia and Prof. Fiona Tregenna concurring.
30/08/2018
Date
Tribunal Case Manager : Kgothatso Kgobe
For the Merging Parties : I Dlhadlha of Bowmans
For the Commission
: Z Siyo
[1] Its shareholders consist of nine individuals and one trust, each not holding more than 14.28% shareholding
[2] An EPC is a form of contracting arrangement where the EPC contractor is responsible for all the activities from design, procurement,
construction to commission and handover of the project to the customer.
[3] Commission's report, page 14 and page 44 of the Merger Record.
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