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[2019] ZACT 5
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Ethos Fund VII v Echotel Proprietary Limited (LM230Jan19) [2019] ZACT 5 (18 February 2019)
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case
No: LM230Jan19
In
the matter between
Ethos
Fund VII
Primary Acquiring Firm
And
Echotel
Proprietary Limited
Primary Target Firm
Panel
: Y Carrim (Presiding Member)
:
M Mazwai
(Tribunal Member)
: I Valodia (Tribunal Member)
Heard
on
: 06 February 2019
Order
Issued on : 06
February 2019
Reasons
Issued on : 18 February 2019
REASONS
FOR DECISION
Approval
[1]
On
06 February 2019, the Tribunal unconditionally approved a transaction
in terms of which Ethos Fund VII ("Ethos") acquired
joint
control of Echotel (Pty) Ltd ("Echotel").
[2]
The
reasons for the approval follow.
Parties to the transaction
Primary
Acquiring Firm
[3]
Ethos
is a private equity investment fund comprising various local and
foreign investors. Ethos is controlled by Ethos {Pty) Ltd
("Ethos
Management"), which acts as its discretionary fund manager. In
addition to Ethos Fund VII, Ethos Management is
a discretionary
manager to Ethos Fund V, Ethos Private Equity Fund VI, and Ethos
Technology Fund. Ethos and its controller will
collectively be
referred to as the 'acquiring group'.
[4]
Ethos
invests in medium to large companies in multiple industries in sub
Saharan Africa, with the intent of controlling and
participating in
the active management of such acquisitions.
Primary
Target Firm
[5]
The
primary target firm is Echotel trading as Echo SP. Pre-transaction,
Echotel was jointly controlled by Ethos Mid-Market Fund
I ("EMMF"),
Diplonamix Investments (Pty) Ltd ("Diplonamix"), Anthony
Richard Southgate ("Southgate"),
and Grant Wayne Thom
("Thom").
[6]
Echotel
provides ISP services via a multi-carrier converged network. Echotel
is an independent aggregator of communication and cloud
computing
services.
[1]
Proposed
transaction and rationale
[7]
In
terms of the transaction, Ethos will acquire 33.7% of the issued
share capital of Echotel resulting in Ethos being the largest
shareholder of Echotel. Post transaction, Ethos will enjoy joint
control over Echotel, with EMMF and Diplonamix exercising
minority
protections by way of vetoes over key company resolutions.
[2]
[8]
In
terms of rationale, Ethos submitted that Echotel holds a strong
position within a high growth market and this transaction is
congruent with its investment strategy. Echotel submitted that it
sought to undertake acquisitions throughout Africa and required
the
arrangement with Ethos to be adequately financially capacitated.
Relevant
market and impact on competition
[9]
The
Commission considered the activities of the parties and found that
the transaction does not result in any horizontal overlaps
as no firm
within the acquiring group holds an interest in a business conducting
activities that are substitutable or competing
with that of the
target firm.
[10] The
Commission found that the proposed transaction would not give rise to
any vertical overlaps
as there is no pre-existing business
relationship between the parties.
Public
interest
[11]
The parties to the transaction confirmed
that the transaction would not have any adverse effects on
employment. The transaction
raises no other public interest
concerns.
[3]
Conclusion
[12]
In light of the above, we concluded that
the transaction is unlikely to substantially prevent or lessen
competition in any relevant
market. In addition, no adverse public
interest issues arise from the transaction. Accordingly, we
unconditionally approved the
transaction.
Ms.
Yasmin Carrim
Ms.
Mondo Mazwai and Prof. lmraan Valodia concurring.
18 February 2019
Date
Tribunal
Case Manager
: Andiswa
Nyathi
For
the Merging Parties
: Robert
Wilson of Webber Wentzel
For the Commission
:Yolanda Okharedia and Wiri Gumbie
[1]
Echotel provides internet services to the South African market as an
internet transit provider, routing traffic from one ISP's
network to
another. Echotel's offerings include VPN, VoIP, hosting, security
and hardware services.
[2]
Transcript page 4, line 4.
[3]
Ethos Management submitted that it will not integrate the operations
of Echotel into any of its existing portfolio companies,
and Echotel
will continue to be operated on a stand-alone basis post-merger.
Therefore, the transaction would not result in any
duplication of
roles within the acquiring group.