COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 70/LM/Sep04
In the large merger between:
Manupont 198 (Pty) Limited
and
IST Group Limited
Reasons for Decision
Approval
1. On 29 September 2004 the Competition Tribunal issued a Merger Clearance
Certificate approving unconditionally the merger between Manupont 198 (Pty) Ltd
(“Manupont”) and IST Group Ltd (“IST”). The reasons for this decision follow.
Merging parties
2. The primary acquiring firm is Manupont, a special purpose vehicle created solely
for purpose of this transaction. Manupont will be 100% controlled by Swanvest 320
(Pty) Ltd (“Swanvest”) which in turn will be controlled by Ethos Private Equity Ltd
(“Ethos Private Equity”) (as to 52%) – via a subscription for shares by Ethos Private
Equity Fund IV and Ethos Technology Fund 1, 25% by a consortium comprising a
BEE partner, 20% by management and other shareholders holding 2.3% of the
shares.1
3. The primary target firm is IST, a public company listed on the JSE. No firm
directly or indirectly controls IST. 2 IST Holdings (Pty) Ltd (“IST Holdings”) is a wholly
owned subsidiary of IST and controls a number of firms, which include inter alia IST
Data (Pty) Ltd (“IST Data”) (as to 100%).
The merger transaction
4. A Consortium led by Ethos wish to purchase 100% of the issued share capital of
IST. Manupont will acquire the IST shares in one indivisible transaction. The
members of the Consortium will become indirect shareholders in Manupont as per
the proportions stipulated in the Consortium Agreement.
1 For more information as to the various others partners involved see pages 1015, 2833 of the Record
and the Commission’s report (pages 34).
and the Commission’s report (pages 34).
2 Its shareholders as at 29 February 2004 holding in excess of 5% of the issued share capital include
Coordinated Network Investments (Pty) Ltd (28.10%), Sanlam Investment Management (20.22%) and
Coronation Asset Management (6%).
5. Subsequent to concluding the Consortium Agreement, the parties have
established an intermediate holding company, Swanvest, to hold their interests in
Manupont. This transaction will unfold in 2 stages. In stage one, Manupont will via a
scheme of arrangement – acquire 100% of the issued shares of IST and the listing of
the IST shares on the JSE will be terminated. Prior to the scheme becoming
operative, each consortium member will subscribe and pay for their respective
shareholdings in the holding company.
6. In the second stage, once the shares are purchased from IST, Manupont will then
directly acquire from IST and its subsidiaries their businesses as going concerns. 3
Postmerger, Manupont will hold 100% of the issued share capital in IST. Swanvest
will hold 100% of the shares in Manupont with the latter being held as follows: Ethos
(52.7%), Empowerment SPV (12.5%), ICT BEE Empowerment SPV (12.5%),
Lindsay Robertson (1.15%), Alistair Moffat (1.15%) and management (20%). 4
Rationale for the transaction
7. IST states that it needs to have a significant BEE shareholding for it to achieve its
strategic objectives. IST’s board believes that the BEE objective could be achieved
more effectively as a privately owned company as opposed to a public listed
company.
The merging parties’ main activities
The Primary Acquiring Firm
8. Manupont is a special purpose vehicle established for purpose of acquiring IST. It
does not provide any products or services. Swanvest is also created for purposes of
holding shares in Manupont for the benefit of Consortium members. It does not trade
in any product market. Ethos Holdings is the holding company for Ethos Private
Equity. It provides private equity funding through the raising of private equity funds
which are managed by the general partners. Ethos Private Equity is an equity fund
manager in South Africa. It provides investment capital to management teams,
investor groups, entrepreneurs and companies in need of finance. It also provides
support in the form of strategic direction and management and is often involved in the
development of companies in which it invests. Ethos Private Equity together with its
partners also operates and manages three other private equity funds on behalf of
investors, namely Ethos Private Equity Fund II, Ethos Private Equity Fund III and
Ethos Private Technology Fund I. These are collectively referred to as “Ethos
Funds”. The Ethos Funds have shareholdings in various operating companies and
are involved in advising these portfolio companies on strategic guidance and
investment decisions and provides other ongoing support.
9. Ethos Technology Fund I holds investments of more than 50% in INGO
Information Solutions (Pty) Ltd (90%) (“INGO”) and Tilos Business Solutions (Pty)
Ltd (88%) (“Tilos”). The latter seems to be relevant for purposes of this transaction.
Tilos is involved in the development of especially developed software products used
3 See the Record (pages 23).
4 See the Record (pages 4243) and the Commission’s recommendations (page 5).
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as building blocks for the creation of a wide range of business solutions. It also
specialises in the provision of IT services such as software development, system
implementation and product consulting.
The Primary Target Firm
10. IST is an engineering solutions company which provides solutions for capital
intensive industries. It operates 7 (seven) divisions, which are:
IST Dynamics – involved in embedded software products for the international
defence industry.
IST Energy – engaged in specialised electronic equipment and software for
electrical utilities.
IST Industrial – active in multidisciplinary turnkey systems and plants.
IST Otokon – provides utility information solutions and energy management
systems.
IST Telecom – involved in data and voice access networks for the
telecommunications industry.
IST Nuclear – provides solutions for the nuclear power industry.
IST Data – provides IT solutions for energy, fuel and asset management
systems. The parties indicated that IST Data is the primary software business
of IST and is primarily a Value Added Reseller (VAR) representing some of
the world’s leading software brands. It also develops asset management
software with its principal focus in the telecommunications industry.
Competition Evaluation
11. The parties stated that neither Manupont, Swanvest, Ethos Private Equity Fund
IV nor any of their portfolio companies in Ethos are involved in any similar product
markets in South Africa. Only Tilos and IST Data appear to be relevant for purposes
of considering this transaction. Tilos is the only Ethos Technology Fund I controlled
portfolio company involved in the software market. IST Data is also active in this
market. Tilos specialises in the development of uniquely architectured flexible
software products utilised as building blocks for more complex software packages. Its
products are used for applications such as employee relationship management
(“ERM”), human resource specific MIS solutions and other service related products.
12. On the other hand, IST Data is a distributor for GE Smallworld (a USbased
product) and MRO software Maximo products. The former is used for integrated
network planning and inventory control whilst the latter is a provider of asset
management systems for production, fleet and IT assets. 5 It is submitted that the
customer base of Tilos and IST Data are different. The customers of IST Data are
mainly industrial companies such Telkom, Eskom and Nampower whilst Tilos’ main
customers are more service orientated businesses like FNB, Key Concepts and Pay
People.
13. In light of the above, the Commission concluded that no overlaps exists in the
merging parties’ activities in that IST Data and Tilos compete in separate product
categories within the broad software market. The parties also contend that IST offers
5 Refer to page 94 of the record as well as Mr Colin Vallis’ testimony (pages 24 of the transcript).
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value added services in respect of the provision of engineering solutions, specialised
software and certain ancillary IT services whilst Tilos is an information technology,
business solutions and systems integration service provider. The Commission and
the parties further contended that the market for software development is competitive
because both parties appear to compete with major competitors in their respective
software market segments. There a number of large IT companies within South
Africa which resell various components of portal, workflow, document management
and MIS software. These include Comparex, Dimension Data, CS Holdings,
Computer Associates, Arravia.kom and T Systems. 6
14. The merger does not result in any vertical integration.
Public Interest Concerns
15. No public interest issues militate against the approval of this transaction. The
parties stated that the merger would not result in any job losses.
___________ 13 October 2004
David Lewis Date
Concurring: Norman Manoim and Medi Mokuena
For the merging parties: Jocelyn Katz (Webber Wentzel Bowens)
For the Commission: Maarten van Hooven ( Mergers & Acquisitions )
6 See page 46 as well as 8586 embracing a list of competitors to IST Data.
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