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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM120Nov21
In the matter between:
SWANVEST 120 PROPRIETARY LIMITED Acquiring Firm
and
INDWE BROKER HOLDINGS PROPRIETARY
LIMITED
Target Firm
[1] On 8 April 2022, the Tribunal conditionally approved a large merger in terms
of which Swanvest 120 Proprietary Limited (“Swanvest”)1 intends to acquire
additional 76% of the issued share capital of Indwe Broker Holdings
Proprietary Limited (“Indwe”)2.
1 Swanvest is a private company incorporated in accordance with the laws of South Africa.
2 Indwe is a private company incorporated in accordance with the laws of South Africa. Indwe controls
Indwe Risk Services Proprietary Limited (“IRS”). IRS controls Indwe Financial Services Proprietary
Limited (trading as “Indwe Blue Star”).
Panel: Liberty Mncube (Presiding Member)
Mondo Mazwai (Tribunal Member)
Imraan Valodia (Tribunal Member)
Heard on: 04 April 2022
Date of last submission: 07 April 2022
Order issued on: 08 April 2022
Reasons issued on: 12 May 2022
REASONS FOR DECISION
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Transaction
[2] Swanvest currently holds a 24% interest in Indwe and following
implementation of the proposed transaction, Swanvest will hold solely control
Indwe.
Parties to the transaction and their activities
Primary acquiring firm
[3] Swanvest is an investment holding company, a wholly owned subsidiary of
Santam Limited3 and Swanvest, all firms it controls, all firms that control
Swanvest will be referred to in these reasons as the "Acquiring Group”.
[4] The Acquiring Group is a provider of financial services, in respect of long and
short-term insurance. Of relevance to the proposed transaction is the
Acquiring Group’s activities under the Short-Term Insurance Act, 1988
(“STIA”), and in particular, the Acquiring Group is a short-term insurer in
South Africa and provides various types of short-term insurance cover to
individuals and corporate/commercial clients.
[5] The Acquiring Group offers short-term insurance cover via direct sales
whereby the Acquiring Group sells short-term insurance cover directly to
clients through inter alia, call centre operations; and short-term insurance
brokers who are intermediaries that interact with various clients and sell a
particular insurer’s products (tied brokers) or independent brokers (i.e., not
controlled by a particular insurer) who sell several insurers products.
Primary target firm
[6] Indwe (together with its subsidiaries) comprises a short-term insurance broker
providing short-term insurance brokerage services to individual and
commercial clients.
3 Santam Limited is controlled by Sanlam Limited (“Sanlam”) as to 59.9%. Sanlam is a public
company and not controlled by any individual shareholder. Sanlam controls several firms, including,
Sanlam Life Insurance Limited, one of the selling firms. Sanlam also indirectly holds a 49% joint
controlling interest in Indwe.
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[7] Indwe is jointly controlled by ARC Financial Services Proprietary Limited
(“ARC”) (as to 51%), Swanvest (as to 24%) and Sanlam Life Insurance
Limited (as to 25%). ARC is controlled by Ubuntu-Botho Investments
Proprietary Limited (“Ubuntu-Botho”). Ubuntu-Botho is ultimately controlled by
various Motsepe Family Trusts which are under the control and benefit of Mr.
Motsepe.
[8] Indwe and all firms that it controls shall be referred to as the “Target Group”.
The majority of the Target Group’s business is underwritten by Santam
Limited, with the balance being underwritten by other short-term insurers.
Relationship between the parties
[9] The Competition Commission (“Commission”) in its assessment found there is
a horizontal overlap in the activities of the merging parties in respect of short-
term insurance brokerage services.
[10] The proposed transaction, however, results in the Target Group moving from
being jointly controlled, to being unilaterally controlled (i.e., 100%), by the
Acquiring Group.
[11] The Commission also found that the proposed transaction results in a vertical
overlap because the merging parties are active at the different levels of the
short-term insurance value chain. In particular, the Target Group provides
independent short-term insurance brokerage services whilst the Acquiring
Group underwrites short-term insurance cover offered by the Target Group
and other brokers.
Relevant markets
Product market
[12] In identifying the relevant product markets, the Commission had regard to the
acquisition by African Rainbow Capital Proprietary Limited and Sanlam Life
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Insurance Limited of controlling shares in Indwe from Swanvest4, wherein the
Commission identified a market for the provision of short-term insurance and
this approach was also followed by the Tribunal.
[13] The Commission also considered the merger between Swanvest 120 (Pty) Ltd
and Indwe Broker Holdings Limited (“Swanvest/Indwe merger”)5 wherein the
Commission and the Tribunal considered a separate market for short-term
insurance broking.
[14] We have not received any information suggesting a departure from the
previous Tribunal approach. In current case, we focus our assessment on the
provision of short-term insurance and a market for the provision of short-term
insurance broking. We do not find it necessary to conclude on the scope of
the relevant product markets.
Geographic market
[6] Regarding the market for the provision of short-term insurance and the market
for short-term insurance broking, the Tribunal has previously concluded that
the relevant market is national.6 We did not receive any evidence suggesting
a departure from the above approach and therefore we considered the
relevant geographic markets to be the upstream national market for the
provision of short-term insurance products and the downstream national
market for the provision of independent short-term insurance brokerage
services.
[7] Therefore, we do not find it necessary to conclude on the scope of the
relevant geographic markets.
Competition Assessment
Horizontal unilateral effects
[8] The Acquiring Group already controls the Target Group pre-merger, the
merger does not give rise to any market share accretion or a change in the
4 Commission Case No.: 2015Oct0549 and Tribunal Case No.: LM171Nov15.
5 Commission Case No.: 2010Aug5312 and Tribunal Case No.: 60/LM/Sep10.
6 Tribunal Case No.: LM171Nov15 and Tribunal Case No.: 60/LM/Sep10.
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competitive landscape. We do not consider it likely that the merger will give
rise to a substantial lessening of competition.
Vertical effects
[9] The merger does have a vertical dimension. We assessed whether the
merger is likely to result in competitors of the Target Group (i.e., independent
short-term insurance brokers) being foreclosed from accessing short-term
insurance products.
[10] The Acquiring Group has a market share of approximately and the
Commission found that even though the Acquiring Group is the largest insurer
for short-term insurance services, it is unlikely that it will foreclose
downstream competitors of the Target Group, as they will be able to still
procure short-term insurance services from the remaining players in the
market which hold approximately of the short-term insurance market.
Also, the Commission estimated that the Target Group accounts for
approximately of the Acquiring Group’s short-term insurance revenue.
[11] On the above evidence, we conclude that it is unlikely that post-merger, the
Acquiring Group will not have the ability to foreclose other independent
brokers, access to inputs and we are of the view that the proposed transaction
is unlikely to result in substantial lessening of competition concerns.
[12] We assessed whether the merger is likely to result in competitors of the
Acquiring Group (i.e., short-term insurance providers) in the upstream market,
being denied access to the Target Group as a customer.
[13] The Commission’s interactions with STIA insurers such as Hollard, Telesure,
OUTsurance and Guardrisk established that post-merger, there remain ample
alternative independent short-term insurance brokers.8
7 According to the FSCA’s annual report of 2020-2021.
(https://www.fsca.co.za/Annual%20Reports/FSCA%20Annual%20Report%202020-21.pdf ), there
were approximately 75 licensed short-term insurance insurers in South Africa. Therefore, there
appears to be ample alterative short-term insurance underwriters available for the Target Group’s
rivals.
and the and the
market which hold approximately of the short-term insurance market.
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[15] The Commission’s recent investigations such as Jacana Capital Proprietary
Limited and Mpumalanga Risk Acceptances Proprietary Limited 9 suggests
that there are at least 6000 independent short-term insurance brokers active
in South Africa.
[16] It was estimated that the Target Group has market share, and the
Acquiring Group has (via Snyman van der Vyver) market share as
regards the provision of independent short-term insurance brokerage
services.
[17] Based on the above, we are of the view that the proposed transaction is
unlikely to result in substantial lessening of competition concerns.
Third parties’ views
[14] During investigation, the Commission received various concerns from
competitors.
[15] The concerns included that the proposed transaction will result in the Target
Group becoming an STIA broker ‘tied’ to the Acquiring Group and may result
in the Acquiring Group no longer underwriting STIA business with other
independent brokers; the trend of large STIA insurers acquiring independent
brokers reduces the market within which independent brokers can contest; the
Acquiring Group will be able to share confidential information (e.g., client
information) from its interactions with other independent brokers, with the
Target Group; and that the merger is inconsistent with the Financial Sector
Conduct Authority (“FSCA”) requirements regarding conflict of interest as
post-merger, the Target Group will be unable to provide independent advice
8 Such as March, AON, PSG, FirstRand, ABSA, Standard Bank, Mango5 Ins. Cons, Insurance
Supermarket, LIBRA, Optimum, Deo Gratia, Protektum, Pleroma, IEMAS, Rand Pro, Motion
Insurance, SAPCOR, Louis Malherbe, Multirisk, FSP Solutions and many others.
9 Commission case no. 2020Jun0062.
10 Based off the KPMG Survey of the South African Insurance Industry 2021 – October 2021 as well
as the best estimates of the merging parties.
11 Based off the KPMG Survey of the South African Insurance Industry 2021 – October 2021 as well
as the best estimates of the merging parties.
market share, and the
market share as
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to clients as to the best STIA cover for their needs, given that only the
Acquiring Group’s offerings will be available.
[16] In assessing the third-party concerns, the Tribunal sought clarity from the
merging parties and the Commission as to why information exchange is not a
concern in the proposed transaction. The merging parties explained12 that
there is no incentive for Santam Limited to share the short-term insurance
brokerage competitor’s confidential information with Indwe and as the
Acquiring Group controls the Target Group pre-merger and the merger does
not change this position, the merging parties submitted that it would be to their
commercial detriment to disclose confidential information of the independent
brokers to whom they provide underwriting, given that independent brokers
account for the vast majority of the Acquiring Group’s STIA revenues.
[17] The Commission explained that the information exchange concern does not
arise specifically because of the merger. Put differently, as Sanlam already
controls Indwe pre-merger, that concern (to the extent that it is material) exists
pre-merger. Also, the Commission’s assessment concluded that there is
unlikely to be an incentive for Sanlam to engage in information exchange as
that strategy is likely to have commercial and reputational implications for
Sanlam.
[18] The Commission interacted with the FSCA, which has indicated that it was
satisfied that the proposed transaction does not raise any conflict of interest
as all STIA providers and brokers are expected to treat customers fairly.
Moreover, as part of the Prudential Authority’s (“PA”) approval process (the
PA approved this transaction on 15 December 2021), the merging parties are
required to provide clients of the Target Group with the option to remain with
their existing short-term insurance insurer, or to transfer to the Acquiring
Group’s STIA cover. This process is under the oversight of the PA which
Group’s STIA cover. This process is under the oversight of the PA which
confirmed its satisfaction that the merging parties had provided clients with
the opportunity to exercise this option.
12 Email from ENS Africa on behalf of the merging parties dated 7 April 2022.
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[19] Based on the above evidence, our view is that the proposed transaction does
not raise material concerns.
Public Interest
Effect on Employment
[20] The merging parties submitted that the proposed transaction will not give rise
to any job losses (including forced retrenchments and redundancies) in South
Africa.13
[21] Considering the above and the fact that the acquiring group already controls
the target group pre-merger, the proposed transaction is unlikely to result in
employment concerns.
Effect on the promotion of a greater spread of ownership
[22] The Target Group is held as to 57% by Historically Disadvantaged Persons
(“HDPs”). The Acquiring Group is held as to 30.36% by HDPs.
[23] The Commission found that the proposed transaction will result in the
reduction of HDPs at the Target Group and requested the merging parties to
consider an employee share ownership program ("ESOP") or a transaction
that would increase HDPs ownership levels within the Target Group.
[24] The merging parties argued that the proposed transaction does not raise any
public-interest concerns that justify remedial action and submitted that the
proposed transaction facilitates a greater spread of ownership in that ARC’s
exit from the Target Group, facilitates ARC’s investment in the transferred
businesses14 which are subsidiaries of the Target Group pre-merger, whereby
Indwe will undergo a restructuring in terms of which it will dispose of its
current controlling shareholding in Indwe Risk Solutions Proprietary Limited
and Acquideas Proprietary Limited, as well as the Indwe Risk Solutions
Business (which makes up the corporate lines portion of the Indwe business)
13 As stated in the merging parties’ ‘Joint Competition Report’ at paragraph 10.2.1 (p64 of the Merger
Record).
14 The Commission assessed and satisfied itself that the turnover and assets of the businesses that
are transferred by Indwe fall below the threshold of an intermediate merger.
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(the “Transferred Businesses”). The Transferred Businesses will result in the
formation of a new independent STIA broker, which will be held as to by
ARC and by workers.
[25] The merging parties have, however, committed to increasing their present R6
million per year investment in its HDP insurance broker development program
by at least an additional R2.2 million per year for a three-year period (R6.6
million commitment) post-merger. This will facilitate Indwe embarking on a
similar programme aimed at developing at least 10 HDP insurance brokers.
[26] The Tribunal enquired as to how the shareholding is to be held by ARC
and by workers in the Transferred Business is to be reckoned and
whether this shareholding is in addition to the 30.36% shareholding held by
the Acquiring Group or is it included. The Commission explained that post-
merger, ARC, independent from Sanlam, will hold an interest in the
Transferred Businesses. Sanlam has no shareholding in the Transferred
Businesses.
[27] The merging parties submitted that ARC will hold a interest (with
being held by workers) in the new brokerage. Notably, the Acquiring Group
will not hold any interest in the new brokerage. The 30.36% shareholding
does not take into consideration the percentage shareholding to be held by
ARC and employees in the new brokerage. The acquiring group will not hold
an interest in the new brokerage post-merger and in this regard the proposed
transaction does promote a greater spread of ownership.
[28] Given the submissions by the merging parties, we left the question open on
whether the tendered conditions offset the dilution in the target group’s pre-
merger HDP shareholding.
[29] We find that the commitments on the development of HDP brokers offered by
the merging parties has a net positive effect on public interest and parties
offset any significant public interest concerns raised by the proposed
transaction.
Other public interest issues
and by workers in the Transferred Business is to be reckoned and
Other public interest issues
and by workers in the Transferred Business is to be reckoned and
[27] The merging parties submitted that ARC will hold a interest (with
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[30] The proposed transaction raised no other public interest concerns.
Conclusion
[31] In order to give effect to the above, the merging parties, in agreement with the
Commission, tendered the set of conditions annexed hereto as Annexure
“A” which the Tribunal has imposed as conditions to the approval of the
merger.
[32] In light of the above, we conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market.
Furthermore, the proposed transaction raises no substantial public interest
concerns.
[33] Accordingly, we conditionally approve the proposed transaction.
12 May 2022
Professor Liberty Mncube Date
Ms Mondo Mazwai and Professor Imraan Valodia concurring
Tribunal Case Manager: Juliana Munyembate
For the Merging Parties: Natalia Lopes and Hayley Lyle of ENSafrica
For the Commission: Wiri Gumbie, Nonhlanhla Msiza and Yolanda
Okharedia