COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 76/LM/Oct 02
In the large merger between:
Corvest (Pty) Ltd
and
Merchant Commercial Finance (Pty) Ltd
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Reasons for Decision
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Approval
On 16 October 2002 we unconditionally approved the merger between Corvest (Pty) Ltd
(“Corvest”) and Merchant Commercial Finance (Pty) Ltd (“M Factors”). Our reasons for
this decision follow.
The transaction
The primary acquiring firm is Corvest, a private equity investor that is part of the First
Rand Group of companies
The primary target firm is M Factors, a wholly owned subsidiary of Corpcapital.
The transaction is constituted by a sale of shares through which Corvest will acquire 65%
of the issued share capital in M Factors from Corpcapital. The remaining 35% will
continue to be held by the Alexsa Trust, which will be responsible for the management of
the company.
The rationale for the transaction is to facilitate Corvest’s horizontal expansion in the
financial services sector, and more particularly in the factoring services market. The
parties submit that the transaction is in anticipation of increased international
consolidation and competition, capital demands of counterparties and regulators,
efficiency requirements, costly technology and a shortage of financial services skill in
South Africa.
Evaluating the merger
The relevant market
M Factors is primarily involved in the factoring business, while trade financing forms a
marginal part of its business. Although Corvest is not directly involved in any of these
businesses, another company within the First Rand Group, namely First Factors offers
similar factoring services as M Factors does. The relevant product market is therefore the
market for the provision of factoring services.
Factoring is a financing mechanism for transforming a company’s debtor’s book into
liquidity. The factoring house buys a company’s trading debts due/receivable and
undertakes all the administrative burdens of debt collection. In return, the company gains
an immediate cash injection and is relieved of the credit control burden. These services
are offered throughout South Africa and the factoring houses do not concentrate or
specialize in any specific industry.
The relevant market is loosely selfregulated by the Association of South African Factors
and Discounters.
Effect on competition
The Commission’s investigation revealed that the major competitors in the relevant
market are Cutfin (ABSA); Nedliberate (Nedcor/BOE) and Standard Bank Factors. In the
competitiveness report the parties submitted that M Factors enjoyed a market share of as
they put it “less than between 6 % and 12%” . On the other hand, the Commission’s
report indicates that the parties’ market shares are even lower than this. This apparent
report indicates that the parties’ market shares are even lower than this. This apparent
discrepancy was clarified by the parties at the hearing. It emerged that it is difficult to
arrive at a more precise market share determination, since the market share information
available is likely to include other similar financial services. Nonetheless, on both
accounts, the parties’ post merger market share is insignificant and unlikely to adversely
impact on competition in the market.
Furthermore, there are no regulatory requirements for entry into the market and low sunk
costs. The parties aver that their customers enjoy strong countervailing power, in that
they may shift to another provider at a relatively low cost.
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Public interest Issues
The transaction will not result in any job losses and there are no other adverse public
interest concerns.
Accordingly, we agree with the Commission’s recommendation that the transaction be
unconditionally approved.
7 November 2002
N. Manoim Date
Concurring: D. Lewis, U. Bhoola
For the merging parties: Edward Nathan Friedland Corporate Law Advisers
For the Commission: J. Mokwana, Legal Services Division, Competition
Commission
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