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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 016758
In the matter between:
ROELAND STREET INVESTMENT (PTY) LTD Primary Acquiring Firm
And
HARLEQUIN DUCK PROPERTIES 95 CC
INFOTEAM INVESTMENTS 87 CC
D&M PADAANLEG TRANSVAAL CC
SUPERSTRIKE INVESTMENTS 77 (PTY) LTD
POLFIN CC
FRIEDCORP 192 CC Primary Target Firms
(IN RESPECT OF 8 PROPERTY LETTING ENTERPRISES)
Panel : Anton Roskam (Presiding Member)
: Mondo Mazwai (Tribunal Member)
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: Imraan Valodia (Tribunal Member)
Heard on : 28 August 2013
Order Issued on : 28 August 2013
Reasons Issued on : 27 September 2013
Reasons for Decision
Approval
1 On 28 August 2013, The Competition Tribunal (“Tribunal”) unconditionally
approved the acquisition by Roeland Street Investments (Pty) Ltd of eight
property owning enterprises namely Harlequin Duck Properties 95 CC;
Infoteam Investments 87 CC; D & M Padaanleg Transvaal CC; Superstrike
Investments 77 (Pty) Ltd; Polfin CC; Friedcorp 192 CC.
2. The reasons for approving the proposed transaction follow.
Parties to transaction
3. The primary acquiring firm is Roeland Street Investments (Pty) Ltd
(“Roeland”). Roeland is jointly controlled by Acucap Properties Limited
(“Acucap”), SA Self Storage Investments Trust (“SASSI”) and the Fairstore
Trust (“Fairstore”) with each entity holding a 33.33% share. Fernwood Asset
Management (Pty) Ltd (“FAM”) is an asset management company that
manages the portfolio of Roeland and has the same shareholders and
directors as Roeland. Roeland does not control or own any entities. Roeland
and the firms controlling it are referred to as the Roeland Street Group.
4. Primary target firms are:
•Harlequin Duck Properties 95 CC (“Harlequin”);
•Infoteam Investments 87 CC (“Infoteam”);
•D & M Padaanleg Transvaal CC (“D&M”);
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•Superstrike Investments 77 (Pty) Ltd (“Superstrike”);
•Polfin CC (“Polfin”);
•Friedcorp 192 CC (“Friedcorp”).
5. The primary target firms are wholly owned and controlled by Mr Dirk Van Zyl
Smit (Mr Smit). Roeland intends purchasing 8 property letting enterprises (all
in the business of rentable self-storage space) owned by the respective
primary target firms. The Target Properties are:
•The Centurion Property (Centurion Node);
•The Lyttelton Property (Centurion node);
•Mnandi Property (Mnandi node);
•The R21 Property (Centurion node);
•Grootfontein Property (Faerie Glen/Garsfontein node);
•Mooikloof Property (Faerie Glen/Garsfontein node);
•Zandfontein Property (Rosslyn, Klerksoord, Akasia node);
•Zwartkops Property (Centurion node).
Proposed Transaction and Rationale
6. In terms of the Sale Agreement, Roeland is acquiring the Target Properties
from Harlequin, Infoteam, D7M, Superstrike, Polfin, and Friedcorp as a going
concern. Post-merger, the Roeland Street Group will have sole control over
the Target Properties.
7. The Roeland Street Group owns and operates rentable self-storage in Cape
Town, Johannesburg, Pretoria and Bloemfontein. It however only operates
one rentable self-storage property letting enterprise in Pretoria (Centurion).
According to the Roeland Street Group, the acquisition of the Target
Properties will enable it to attain commercial viability in Pretoria, given the
vast geographic spread across the city.
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8. The Roeland Street Group has embarked upon two key strategies, namely the
development of property letting enterprises within identified suburbs requiring
rentable self-storage space and the acquisition of existing property letting
enterprises that meet its specific acquisition criteria. The proposed
acquisitions, in conjunction with the modification of its current space offering,
will enable them to achieve regional and national economies of scale from an
operational perspective.
9. According to Mr Smit, the target entities are struggling with certain debt
redemption challenges and are also experiencing liquidity problems. Thus it is
no longer feasible for Mr Smit to continue with such property letting
investments. Further due to Mr Smit’s age he is no longer able to obtain
suitable finance for his businesses and has thus re-assessed his position
insofar as these investments are concerned.
Relevant Market and Impact on Competition
10. The relevant market was defined, upon filing, by the merging parties both in a
broad and narrow sense. They submitted that on a narrow definition, there
was no overlap as the acquiring firm’s storage space may be classified in
terms of the South African Self Storage Investment Trust (“SASSI”) grading
system as Grade A3, whereas, the target firm’s storage space may be
classified as Grade B2. On a broader definition, being the market for the
provision of rentable self-storage properties across all grades of storage
space including midi, mini and maxi industrial space classified as standard
units within a 30km radius, the merging parties found an overlap resulting in a
14% combined post-merger market share.
11. The Commission agreed with the merging parties that, when defined narrowly,
there is no overlap. They reached this conclusion on the basis that the
merging parties' rentable self storage properties were unlikely to be
substitutable because there was a vast price differential between the
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respective properties. The Commission also considered the market from a
broad perspective, being the market for the provision of rentable self-storage
properties within the Centurion area and found that there was an overlap. The
market shares were considered on a ‘number of units’ analysis and a ‘gross
lettable area’ (“GLA”) analysis. The combined post-merger market shares of
the total rentable storage space in Centurion were found to be 57% and 44%
respectively.
12. Given the high post-merger market shares as calculated by the Commission,
the Commission requested the merging parties to provide their market shares
and those of their competitors located within a 10km radius of the merging
parties properties. The merging parties then filed a report showing a
combined post-merger market share of 13%. This was because the report
included the informal sector in its analysis. According to the report, the self-
storage market in South Africa is in its infancy and is rapidly growing. It
includes numerous operators in the formal sector, in the form of industrial
parks where storage facilities have been constructed, to the informal sector in
the form of pre-fabricated facilities, containers, document warehouses and
storage facilities offered by furniture removal companies.
13. It is not necessary to conclude on the relevant market as the proposed
transaction is unlikely to substantially prevent or lessen competition
irrespective of whether the market is defined narrowly or broadly. As indicated
above, if narrowly defined, there would be no overlap between the self-
storage properties of the merging parties. If broadly defined, on the
Commission's calculation, the parties' post-merger market shares would be
57% (based on GLA), whereas the parties estimate their post-merger market
shares to be 13%
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! The Commission initially accepted the merging parties' revised report indicating a 13% post-merger market 1
share but at the hearing reverted to its original calculations, indicating that it had had insufficient time (before it
was due to refer its recommendation to the Tribunal) to conduct any further market analysis following the
revised report.
14. While on the Commission's calculations, the merging parties may enjoy high
market shares, it is unlikely that the merged entity will have market power as
there are numerous other rentable self-storage properties located in Centurion
which are likely to constrain the merging parties from engaging in anti-
competitive behaviour. According to the parties, some competitors operate, on
average, between 5 and 20% below capacity. Thus the availability of other
alternative competitors presents customers of the merging parties with some
degree of countervailing power.
15. Moreover, barriers to entry into self-storage are low. There are no regulatory
barriers to entry. The main requirements for entry are access to land zoned for
industrial or agricultural use and capital. There is vacant land available in and
around Centurion. The capital investment needed to enter into the market is
also relatively low. The parties indicated that a new entrant could enter the
market within a period of 6-12 months. The Commission's investigation
confirmed this.
16. The Commission received concerns from one of the parties' competitors who
was of the view that the merged entity would, post-merger, increase the
rentals payable for the target property by upgrading the properties to “A”
Grade properties. For reasons set out above, we are of the view that the
merger does not raise any competition concerns.
Conclusion
17. In light of the above we conclude that the proposed transactions are unlikely
to substantially prevent or lessen competition in the market for rentable self-
storage space. In addition, no public interest issues arise from the proposed
transaction. Accordingly, we approve the proposed transactions
unconditionally.
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____________________ 27 September 2013
Mondo Mazwai DATE
Anton Roskam and Imraan Valodia concurring
Tribunal Researcher: Derrick Bowles
For the merging parties: Vani Chetty
For the Commission: Themba Mahlangu and Lana Norton
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