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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case no: LM105Oct23
In the large merger between:
Bidshelf 93 Proprietary Limited (to be renamed
Bidvest Automotive Holdings Proprietary Limited)
Primary Acquiring Firm
and
DEKRA Automotive Proprietary Limited Primary Target Firm
Panel: L Mncube (Presiding Member)
I Valodia (Tribunal Member)
G Budlender (Tribunal Member)
Heard on: 14 June 2024
Date of last submission: 21 June 2024
Order issued on: 21 June 2024
Reasons Issued on: 18 July 2024
REASONS FOR DECISION
Approval
[1] On 21 June 2024, the Competition Tribunal (“Tribunal”) conditionally approved
the large merger in which Bidshelf 93 Proprietary Limited (“Bidshelf”) to be
renamed to Bidvest Automotive Holdings Proprietary Limited (“Bidvest Auto”)
intends to acquire the entire issue d share capital of DEKRA Automotive
Proprietary Limited (“DEKRA”).
[2] Post-merger, DEKRA will be solely controlled by Bidvest Auto.
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Parties to the transaction and their activities
Primary acquiring firm
[3] The primary acquiring firm is Bidshelf (to be renamed to Bidvest Auto). Bidvest
Auto is ultimately controlled by the Bidvest Group Limited (“Bidvest Group”). The
Bidvest Group is an entity listed on the Johannesburg Securities Exchange and
as such it is not controlled by any single shareholder.
[4] Relevant to this particular transaction, the acquiring group is involved in the sale
of new and used passenger vehicles, light commercial vehicles, and heavy
commercial vehicles across South Africa. This includes after -sales services
(including the servicing of vehicles and parts sales). The acquiring group is also
involved in vehicle auctioneering which includes drive through and online
auctioneering. The acquiring group has auction centres in Durban,
Johannesburg, and Cape Town. The acquiring group also p rovides roadside
assistance.
[5] In this particular transaction, when the acquiring group is involved in the sale of
used motor vehicles a certification of roadworthiness is required by the law. The
acquiring group would, in this instance, contact DEKRA or any other automotive
automotive testing, inspection, and certification services (“VTS services”)
service provider. The Competition Commission (“Commission”) understands
that the service provider that is usually chosen, is one that is close to the
dealership. This is to reduce any risk or liability that may arise, such as increase
the mileage on the car that would be sold or the risk of the car being damaged
or in an accident.
[6] The acquiring group is also active in the market for the provision of fleet
management services.
Primary target firm
[7] The primary target firm is DEKRA, a company registered in South Africa. DEKRA
is ultimately controlled by DEKRA e.V (“DEKRA e.V”), an association registered
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in Germany. DEKRA e.V has approximately 20 000 members and is thus not
controlled by any shareholder.
[8] DEKRA does not control any firm.
[9] DEKRA is active in the provision of VTS services through 48 vehicle inspection
and testing stations in South Africa. DEKRA provides various services such as
certification services, condition reports and technical inspection checks.
[10] Through engagements with market participants, the Commission found that
these services are mainly provided to individuals and motor vehicle dealerships,
particularly those that sell used cars. These roadworthiness certificates are
usually valid for 60 days. In most instances, a roadworthiness certificate is a
requirement for the change of ownership for used vehicles in South Africa.
Description of the transaction and rationale
[11] In terms of the transaction, Bidvest is in the process of diversifying its automotive
division. In line with this diversification strategy, the services offered by DEKRA
Automotive will enhance Bidvest’s service offering in the automotive industry.
[12] DEKRA SE, the parent company of DEKRA Automotive, has determined that its
South African operations do not align with its global strategic objectives and,
therefore, has chosen to exit the South African market and realise the value of
its investment to date.
Competition Assessment
[13] The proposed transaction does not result in a horizontal overlap, as the
acquiring group does not provide automotive VTS services.
[14] However, there is a vertical overlap between the activities of the merging parties
as the acquiring group requires the VTS services provided by DEKRA when
selling its used vehicles. The acquiring group would, before selling a used car,
contact DEKRA or any other automotive VTS service provider to get the car
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tested for road worthiness. This is also required by banks when financing used
cars sold by dealerships and to transfer ownership of vehicles.
Relevant markets
[15] The merging parties submitted that the relevant product markets in respect of
this transaction are the narrow market for the provision of certification of
roadworthiness and the narrow market for condition report services (which
includes multi -point checks). These markets are collectively referred to as
“Vehicle Testing Station Services” or “VTS Services”. Furthermore, the merging
parties submitted that the appropriate scope for t he services of vehicle testing
stations is national and that the dynamics of the market do not significantly differ
between national and regional markets.
[16] The Commission did not conclude on the relevant market but as stated above,
the proposed transaction results in vertical overlaps as DEKRA provides VTS
services to the acquiring group’s used car sales activities. In this regard, the
Commission identified t he upstream markets for the provision of (i)
roadworthiness certification services, (ii) condition assessments and technical
inspection services by certified vehicle testing stations. In the downstream
market, the Commission identified the markets for the sale of used cars.
[17] We did not receive any evidence suggesting departure from the above approach
and there considered the impact of the merger on the basis considered by the
Commission. We did not find it necessary to conclude on the precise scope of
the relevant product markets.
[18] Furthermore, the Commission identified following local markets (“Affected Local
Markets”):
18.1.1. Gauteng: Boksburg, Randburg, Vanderbijlpark, Vereeniging, Malboro
Park, Westgate, City Deep, Edenvale, Egoli, Midrand, Centurion,
Silverton/Hatfield, Gezina East, and Pretoria North/Rosslyn.
18.1.2. Western Cape: N1 City, Paarl, Stellenbosch, Parrow, and Worcester.
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18.1.3. KwaZulu Natal: Ballito, Durban, and Pinetown/ Hillcrest/New
Germany.
[19] The identification of the Affected Local Market was guided by the submissions
from the customers of DEKRA (used car dealerships). Used car dealerships
procure roadworthiness certificates, condition, and technical reports from
providers such as DEKRA. Used car dealerships procure these services locally
(within 15km radius) to minimize the risk of driving the stock (cars) for a longer
distance before it being sold. Thus, to assess the vertical overlap between the
activities of DEKRA and the Acquiring Group, the Commission focused on areas
wherein the Acquiring Group has a used car dealership located within a 15km
radius of a DEKRA testing station.
[20] We did not receive any evidence suggesting departure from the above approach
and therefore considered the impact of the merger on the basis considered by
the Commission. We did not find it necessary to conclude on the precise scope
of the relevant geographic markets.
Vertical issues
[21] We considered first whether the merged entity will have the ability to foreclose
competitors.
[22] In relation to the market for the provision of condition assessment and technical
inspections, the Commission encountered data limitations and could not conduct
a conclusive assessment of the market shares. However, the Commission
assessed the available capacity to conduct condition assessment and technical
inspections in the respective markets, given the submissions by the market
participants, that most vehicle testing stations are also able to conduct these
assessments. The Commission noted that there are seven markets where
DEKRA competes with less than three other players, and these are the markets
that the Commission is of the view would have limited capacity.
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[23] In terms of the downstream market, the merging parties submit that the acquiring
group is of the view that its five largest competitors in the downstream market
for the sale of used vehicles are Supergroup Dealerships, NMI Durban South
Motors Proprietary Limited, the Combined Motor Holdings Limited Group (CMH),
Motus Select, and CFAO South Africa.
[24] The acquiring group submitted that using the figures for the 2022 national used
vehicle registrations obtained from the National Traffic Information System
(“NATIS”) website would result in a more accurate reflection of its market share,
as this figure does not exclude cash sales and consumer to consumer sales.
Based on the 2022 national used car registrations (1 662 269 vehicles), the
Acquiring Group’s market share in the national used vehicle market would be
below 5%.
[25] The Commission had no objections to the merging parties’ estimates and relied
on the same estimates in its assessment of the instant transaction.
[26] In the Local Affected Markets for the provision of roadworthiness tests by
certified vehicle testing stations, the Commission found that DEKRA has high
market share (above 40%) in out of the 26 local markets identified, in
Gauteng and in Western Cape and KwaZulu Natal.
[27] The Commission further notes that in those local markets where DEKRA is not
dominant, it still is a market leader with a larger proportion compared to its
competitors, albeit by small margins.
[28] The Commission further noted that in those local markets where DEKRA is not
dominant, it still is a market leader with a larger proportion compared to its
competitors, albeit by small margins. At a national level, DEKRA is the only
player that has national presence and thus has 100% market share.
Input foreclosure
[29] Regarding whether the merged entity will have the ability to foreclose rival used
car dealerships access to VTS services, in particular roadworthiness
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certification, the merging parties are of the view that DEKRA will not have the
ability to foreclose the Acquiring Group’s rivals in the downstream market, as
DEKRA does not have market power in the upstream market(s). According to
the merging parties, DEK RA has less than 15% market share in the national
upstream market.
[30] The merging parties also provided the market shares at the provincial level. In
this regard, the merging parties relied on the NATIS data for provincial
registrations and
. The merging parties’ estimates suggest that at a provincial
level DEKRA accounts for less than 30% in both the upstream market for the
provision of road worthy reports and the upstream market for condition and
technical reports.
[31] The Commission conducted its own market share assessment using data for the
number of roadworthiness certificates issued by each firm in each of the Affected
Local Markets local from 2021 to 2023. The data was obtained from NATIS, as
the custodian of vehicle certification and related information in South Africa.
[32] Having considered the data from NATIS, the Commission is of the view that the
rivals of DEKRA in the respective local markets will continue to constrain the
merged entity’s ability to engage in an input foreclosure strategy in those
markets. Furthermore, t he Commission found that there are more than 500
registered testing stations in South Africa. This signifies that the market for the
provision of vehicle testing services in South Africa is not concentrated. A market
participant submitted that in order to open a testing station one would need about
R 3 million. This also suggests that barriers to entry in this market are not
insurmountable.
[33] The Commission is of the view that the market does not have strenuous
regulatory requirements and is very fragmented with several players active. In
addition, the Commission also notes that some used car dealerships have their
own vehicle testing equipment and conduct the requisite services in house (such
as CMH UD Trucks). This suggests that national dealerships can internalise the
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provision of VTS services should the merging parties engage in any foreclosure
strategy.
[34] Regarding whether the merging parties will have the incentive to foreclose rival
used car dealerships, access to VTS services at a national level, the
Commission was of the view that the merging parties are unlikely to have
incentives to foreclose used car dealership access to VTS services as the
revenue derived from acquiring group’s total spend on VTS services is
insignificant only accounts for less that 10 % of the total revenue derived by
DEKRA in the provision of VTS services.
[35] To demonstrate that they do not have incentives to foreclose used car dealers
(local and national dealers) access to DEKRA testing service stations and to
remedy the concerns raised by third parties, the merging parties proposed a
condition that DEKRA will for five years, in the ordinary course of business,
continue to provide services to all automotive dealerships on commercially
reasonable and practical terms that are no less favourable than the terms of
procurement from DEKRA.
[36] We found no basis to deviate from the condition agreed to between the merging
parties and the Commission.
Customer foreclosure
[37] In assessing if the merging parties will have the ability to foreclose its
competitors access to a significant customer, the Commission assessed the
ability to foreclose nationally and locally.
[38] The Commission was of the view that the proposed transaction is unlikely to
result in a significant customer foreclosure concern at a national level as the
acquiring group is a smaller player with a market share of less than 10 %. the
acquiring group cannot be considered a significant customer at the national
level.
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[39] In all of the Affected Local Markets, the Commission found that the acquiring
Group makes use of other vehicle testing stations outside of DEKRA. The
Commission received a number of submissions from competitors of DEKRA that
have the acquiring group as a customer for vehicle testing services. These
market players raised concerns about the possibility of losing the acquiring
group’s business as a result of the merger. The acquiring group contributes less
than 40% of the total revenue generated by some of the competitors of DEKRA
that the Commission engaged, depending on their size.
[40] The Commission noted that in the Affected Local Markets, DEKRA is operating
below capacity and consequently the merged entity would have the ability to
foreclose its upstream rivals within the different local markets, given that all the
acquiring group’s d ealerships are located within 10km -15km of DEKRA’s
stations.
[41] The Commission was of the view that the merged entity would have an incentive
to foreclose its rivals by preventing the acquiring groups’ dealerships from
dealing with other VTS service providers and the proposed transaction has a
potential to affect competition in the market for vehicle testing services. Such a
strategy would benefit DEKRA by earning an additional revenue that would have
otherwise been directed to other competing players in the upstream market. The
Commission was also of the view that such a strategy would not lead to
significant cost escalation for the downstream operations as most of the
acquiring firm’s dealerships are mostly located within the determined catchment
area of DEKRA’s station. Thus, a condition which seeks to prevent the mer ged
entity from instructing and/or inducing its dealerships to not deal with other
market players was warranted.
[42] In light of the above, the merging parties agreed to a condition that for a period
of 36 months from the implementation of the transaction the acquiring group
agree that:
42.1. it will not direct or influence any of the acquiring group’s dealerships in
respect of their selection of VTS service providers;
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42.2. the acquiring group’s dealerships will, in the ordinary course of business,
continue to procure VTS services from their existing providers, provided
that those services can be procured on commercially reasonable and
practical terms (specifically in respect of quality standards, availability,
accessibility, capacity and price); and
42.3. the acquiring group’s dealerships will procure services from VTS service
providers on terms that are no less favourable than the terms of
procurement from DEKRA.
[43] According to the merging parties, the duration (of 36 months) would be sufficient
to allow the competitors of DEKRA to realign their business and find alternative
customers.
[44] The Commission has tested the condition with the testing stations that have
raised concerns and a market participant indicated that the condition proposed
by the merging is wide, non -specific and difficult to enforce. The market
participant also submitted that a five-year period would be more appropriate as
there is no alternative(s) in the local market in which they operate and that they
would not be able to replace the business that could be lost as a result of the
transaction.
[45] The merging parties agreed to increase the duration of the conditions by 5 years
and the Commission made the following recommendation to the Tribunal:
45.1. The acquiring firm undertakes that for a duration of 5 (five) years from
the approval date:
45.1.1. The acquiring firm will not in any way direct or influence any Bidvest
Automotive Dealership in respect of their choice of providers of the
services and the Bidvest Automotive Dealerships will retain their
unfettered discretion to select providers of the services; and
45.1.2. The Bidvest Automotive Dealerships will, in the ordinary course of
business, continue to procure the services from their existing
providers, including providers other than the target firm where
applicable (including small, a nd medium-sized enterprises (“SME”)
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and historically disadvantage person (“HDP”) firms). The services will,
where applicable, be procured in accordance with any existing
contractual terms as at the implementation date where applicable, or
otherwise, on terms no less favourable than the terms of procurement
with the target firm.
[46] Following the Tribunal hearing on 14 June 2024, we enhanced the condition to
include that the Bidvest Automotive dealerships will not discriminate against any
competitor of the target firm when selecting a provider of the services, provided
that the servic es are comparable in respect of quality standards, availability,
accessibility, capacity, and price.
Other concerns raised
Conflict of interest and unethical behavior
[47] The submitted that the proposed merger would
result in a conflict of interest, as the Acquiring Group may have an interest to
used DEKRA to certify the roadworthiness of its used vehicles at the expense of
ethical business practices.
[48] Similarly, the submitted that the
transaction would allow dealerships to operate testing stations that could lead to
manipulation in the market, especially where exclusive deals or market
domination is concerned. The submitted that this would result in corruption,
reduced effectiveness, and a lack of fairness in the testing process. The
also submitted that the transaction would result in a conflict of interest which
would also cause confusion in the industry in respect of the roles of each market
player. The submitted that the industry has traditionally accepted that
vehicle testing station owners should not be involved in the sale or repair of
motor vehicles as this separation maintains integrity and fairness. The GDT also
submitted that the transaction has a risk of setting precedent which could
potentially open the door for dominance and manipulation in the market.
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[49] Similar concerns were also raised by several testing stations contacted by the
Commission. Market participants were of the view that the certification of
vehicles should be an arm’s length transaction, to ensure the proper,
independent, and objective certi fication of vehicles. It is submitted that the
consequence of the above would be that the sale of vehicles would take
precedence over the inspection and certification process of a vehicle, which
would be detrimental to consumers.
[50] In relation to the information sharing concerns, the merging parties submitted
that when conducting inspections for certificates of roadworthiness and condition
reports (including multi -point checks), DEKRA has access to certain limited
information of the dealerships to which it provides services. This includes
information such as vehicle information, th e condition of a vehicle, and the
number of vehicles that it inspects per dealership. DEKRA does not obtain
access to information regarding a dealership’s inventory nor pricing information,
including the prices at which cars are bought and sold by such dealerships. None
of this information ought to be considered as competitively sensitive information.
[51] Notwithstanding the above, the merging parties proposed a condition which
would restrict the exchange of information between the merging parties, by way
of implementing appropriate information exchange protocols to prevent the flow
of competitively sensiti ve customer information between the merging parties.
According to the merging parties, the competitively sensitive customer
information to be covered should include: “information of a Customer that is not
in the public domain which is specific or precise and which is or may reasonably
be expected to be commercially sensitive from a competition perspective relating
to: current, planned or future pricing; margins; costs; Customer business plans
or strategies; Customer information including plans for approachi ng customers
or bidding for customer contracts; and marketing policies, plans, studies or
forecasts”.
[52] The Commission accepted the conditions as proposed by the merging parties
and we found no basis to disagree.
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Public interest assessment
Employment
[53] The merging parties submitted that the proposed transaction will have no
negative effect on employment. More specifically, no retrenchments will occur
as a result of the merger.
[54] NUMSA indicated to the Commission and made written submissions to the
Tribunal that since the merging parties have provided a firm statement that the
proposed merger will not result in any retrenchment, the parties should commit
to a condition that there would not be merger-specific (or a result of this merger,
there would not be) retrenchments in perpetuity. Furthermore, NUMSA also
submitted that the mering parties must, jointly with NUMSA, embark on a
harmonization of benefits, wages and conditions of employment process as the
existence of differing sets of standards in terms of wages, working conditions
and benefits structure is not ideal and cannot be sustained as it will be a source
of discontent and tensions among workers.
[55] At the Tribunal hearing, we questioned both the merging parties and NUMSA on
the proposed transaction’s impact on employment. From a public interest
perspective, the Commission found that there were no concerns in relation to
employment as there is no potential duplication, or any potential loss of
employment, as a direct result of the merger because of the lack of duplications.
[56] NUMSA submitted that even though they concede that the proposed transaction
would not necessarily have a direct impact on the employment , they are
requesting that there must be an undertaking or a condition must be imposed
that as a result of this merger there will be no retrenchments at least for the next
five years.1
[57] The merging parties reiterated that there will be no merger specific
retrenchments.
1 Hearing Transcript at p 25.
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[58] We considered the submissions made by NUMSA and the merging parties and
are of the view that the transaction would not result in a negative effect on
employment. This is because the transaction does not result in any overlap in
the activities of the merging parties and therefore there will not be any
duplications. In addition to the above, the merging parties have provided an
unequivocal undertaking that there shall be no job losses as a result of the
transaction.
Spread of ownership
[59] The merging parties submit that the acquiring group has 39.62% of its
shareholding held by HDPs. Whereas, DEKRA does not have any of its
shareholding held by HDPs.
[60] The Commission therefore found that the transaction would result in a promotion
of a greater spread of ownership by 39.62%.
[61] NUMSA raised a concern that NUMSA submitted that they are perplexed by
Bidvest not planning to have an employee share ownership program (“ ESOP”)
in place and merely reiterating its currently existing black economic
empowerment (“BEE”) credentials of 39.62%. Therefore, NUMSA, in its written
and oral submissions, proposed that an ESOP be formulated and at least 10%
equity be given to the employees.
[62] At the hearing, the Commission advised that in its consideration of the proposed
transaction, it found th at the acquir ing firm already has an HDP shareholding,
and the target firm does not. Therefore, the merger does not dilute any HDP
shareholding but promotes HDP ownership . This is what informed the
Commission to not seek an ESOP condition, as it only does so where there is a
dilution of HDP ownership or where there is no promotion at all. The merging
parties concurred with this submission and added that their position remains that
no additional conditions should be imposed in respect of the public interest.
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[63] Accordingly, we did not find that the proposed transaction required an ESOP to
be imposed and that the proposed transaction already promotes a greater
spread of ownership by HDPs.
Effect of the merger on the ability of small and medium enterprises and firm owned
by HDP to enter into and expand in the market
[64] Market participants had submitted that DEKRA pre-merger is already dominant
in local automotive VTS service markets in South Africa. With the acquiring
group’s acquisition of DEKRA, individual testing centres would no longer receive
any business from the acquiring group, and this would result in these individual
testing not being able to participate in the market and ultimately closing of their
business. Various other market participants, most of whom are independent
entities (which have smaller testing stations) also submitted this concern.
[65] A market participant also submitted that due to the size of the acquiring group,
as well as the national footprint of DEKRA, there is an incentive and motive to
conclude exclusivity deals with each other. This would result in the acquiring
group exclusively using DEKRA post-merger, which would result in other testing
stations losing revenue and perhaps even closing their business.
[66] The merging parties submitted that the merged entity does not have incentive,
nor would it be profitable to engage in any customer foreclosure strategies. The
merging parties submit that they anticipate that transaction would result in shift
that will be limited as the various used -car dealerships that are already within
the acquiring group will already be using the supplier located most conveniently
to them. in addition to the above, the merging parties submitted that the acquiring
group that its dealershi ps are empowered to make their own, independent
decisions whether or not to use DEKRA’s testing services in carrying out their
business-as-usual operations. Moreover, whilst customers do not generally
make such requests, the acquiring group’s customers may request the acquiring
group to make use of a specific vehicle testing station.
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[67] In light of the submissions received by market participants, the Commission
found that the vehicle testing market is characterised by low margins, the
Commission is concerned about possible exit of some players as a results of
customer foreclosure post -merger. As suggested by the market participants,
although the potential increment to the merged entity’s market shar e in the
upstream market may seem almost insignificant, coupled with the Merging
Parties financial resources, the instant transaction has the potential to propel the
merged entity toward minimum efficiency scale, which could confer it with some
level of market power. This would also remove smaller entities in the market,
which would allow entities such as DEKRA who have a national footprint to
increase their market power.
[68] The Commission was thus of the view that the transaction would have a negative
effect on small businesses and possibly businesses controlled by HDPs.
However, the condition stated above which requires the merging parties to
continue using third party service station s, including providers other than the
target firm where applicable (including SME and HDP firms) addresses this
harm.
Other public interest considerations
[69] The proposed transaction raised no other public interest concerns.
Conclusion
[70] Having considered the above, we conclude that the procurement and supply of
services conditions, as well as the information barrier condition , adequately
remedy the competition concerns identified. Furthermore, the imposed condition
in respect of the continued use of third-party service stations, (including SME
and HDP firms) addresses the public interest concern raised.