COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM162Dec22
In the matter between:
RMB Ventures Eight (Pty) Ltd Acquiring Firm
and
Mafika Engineering (Pty) Ltd, Mafika SA (Pty) Ltd
and Balcova Trading CC
Target Firms
REASONS FOR DECISION
Approval
[1] On January 2023, the Competition Tribunal (“the Tribunal”)
the large merger wherein RMB Ventures Eight (Pty) Ltd (“RMBV”) intends to acquire
% interest in Mafika Engineering (Pty) Limited (“Mafika”), Mafika SA (Pty) Limited
(“Mafika SA”) and Balcova Trading CC (“Balcova”), collectively referred to as “the
Mafika Engineering Group of Companies.” Post-merger RMBV will obtain negative
control through minority protection rights in terms of section 12(2)(g) of the Competition
Act 89 of 1998, as amended (“the Act”).
The Parties
Primary acquiring firm
[2] The primary acquiring firm is RMB Ventures Eight (Pty) Limited ("RMBV"). RMBV is
controlled by
is in turn controlled by and
and is in turn controlled by
30
is in turn controlled
by RMBV does not control any entities.
[3] RMBV is a private equity investor that predominantly invests in established African
businesses with demonstrated track records. The nature of RMBV's involvement is
essentially to provide strategic rather than operational input, leaving it up to
management to run the daily business operations. RMBV uses FirstRand Limited's
extensive network of skills and experience within South Africa and across the continent
to unlock opportunities for its investee companies.
Primary target firms
[4] The primary target firms are Mafika Engineering (Pty) Limited ("Mafika Engineering"), 1
a private company incorporated in South Africa, Mafika SA (Pty) Limited ("Mafika SA"),2
a private company incorporated in South Africa and Balcova Trading CC ("Balcova"), 3
a close corporation incorporated in South Africa.
[5] Mafika Engineering and Mafika SA are independent rebuilders and remanufacturers of
high horsepower ("HHP") diesel engines which are utilised in front-line mining
equipment, such as haul- trucks, dozers, and excavators. Mafika Engineering's engines
are rebuilt to Original Equipment Manufacturer ("OEM") specifications and the entire
process is conducted in-house. Mafika Engineering further provides field support to its
customers through a team of qualified mechanical technicians. Balcova houses the
properties that are Mafika Engineering and Mafika SA’s workshop and head office.
Proposed Transaction
[6] The proposed transaction entails RMBV acquiring up to % interest in the Mafika
Engineering Group of Companies. In terms of section 12(2)(g) of the Act, RMBV will
obtain negative control through minority protection rights. In particular, the Commission
noted that
1 Mafika Engineering is not directly or indirectly controlled by any firm and does not directly or indirectly
control any other entity. The shareholding of Mafika Engineering is ( %),
( %) and ( %).
control any other entity. The shareholding of Mafika Engineering is ( %),
( %) and ( %).
2 Mafika SA is a wholly owned subsidiary of Mafika Empowered Holdings (Pty) Limited, which, in turn,
is a wholly owned subsidiary of TEGS (Pty) Limited. Mafika SA does not directly or indirectly control
any other entity.
3 Balcova is not directly or indirectly controlled by any firm and does not directly or indirectly control
other entity. The shareholding of Balcova is ( %), ( %) and
( %).
Rationale for the transaction
[7] “RMBV is a private equity investor that acquires minority stakes in private companies
with the aim of earning a financial return for the FirstRand Group. RMBV sees the
Mafika Engineering Group of Companies as a business that meets RMBV's investment
criteria and falls within RMBV's circle of competence. RMBV believes that, as an equity
investor, its brand, reputation, investment experience and internal networks could be
beneficial to Mafika Engineering Group of Companies.”
[8] “Mafika Engineering Group of Companies has experienced significant growth in recent
years. In order to sustain the growth and realise future prospects, the shareholders
recognised the need to partner with RMBV with the primary objective of maintaining
such expansion. Mafika Engineering needs to scale up rapidly and sustainably. In order
to achieve this, Mafika Engineering will benefit from access to both the strategic
experience and funding which RMBV provides.”
Competition assessment
[9] The Commission considered the activities of the merging parties and found that there
is no horizontal overlap between the activities of the merging parties. This is because
the acquiring firm is a private equity investor and does not own/control any firm that
rebuilds and remanufacture HHP diesel engines.
[10] The Commission also considered the market share of Mafika Engineering Group of
Companies,4 in the relevant market and found that it is too low to raise substantial
competition concerns. In addition, the Commission found that the proposed transaction
does not result in any vertical overlap. The merging parties submitted that as a result,
the proposed transaction will not result in any market concentration or increase in
market share and will not increase the ability of the merged entity to influence a
competitive outcome in the market.
4 ( %).
[11] For completeness, the merging parties submitted that there are approximately
HHP engines of all makes in operation in South Africa. Mafika Engineering Group of
Companies has capacity to rebuild about engines per year. This equates to a total
SA market share of %. The incumbent and dominant OEM's themselves
collectively hold over % of South Africa market share.
[12] Based on the above, the Commission is of the view that the proposed transaction is
unlikely to result in any substantial prevention or lessening of competition in any market.
Public interest
Effect on employment
[13] The employees of RMBV are not unionised and are represented by Mr Raj Rawjee.
The Commission engaged the employee representative of RMBV. RMBV's employee
representative submitted that employees were notified and have not raised any
concerns.
[14] The employees of Mafika Engineering Group of Companies are not unionised and are
represented by Mr Lebohang Mogudi. The Commission engaged the employee
representative of Mafika Engineering Group of Companies, Mr Lebohang Mogudi, who
submitted that employees were notified and have not raised any concerns.
[15] The merging parties submitted that the proposed transaction will not have an adverse
effect on employment in South Africa. After considering the above, the Commission did
not find any evidence to suggest that the merging parties intend on retrenching
employees as a result of this merger. Therefore the Commission is of the view that the
proposed transaction is unlikely to result in any negative effects on employment.
Spread of ownership
[16] The merging parties submitted that Mafika Engineering is currently % black
owned, of which % is held by black women. RMBV also has a comparable level
of shareholding by HDPs being % black owned of which % is held by black
women.
[17] The merger parties further submitted that Mafika Engineering intends to further improve
its current BEE status by including additional shareholders who are HDPs, females and
its current BEE status by including additional shareholders who are HDPs, females and
youth in its structure. In this regard, the parties submitted that Mafika Engineering and
Balcova intend to increase their HDP ownership to a % BEE ownership with an
increase in the shareholding being held by black women and youth.
[18] The Commission noted that the merger parties have notable HDP ownership (including
ownership by black women). The Commission has also confirmed that Mafika
Engineering has a firm intent to increase the shareholding held by HDPs, this was
confirmed by their commercial rationale which further affirms their intention to do so.
[19] Considering the above, the Commission is of the view that the proposed transaction
does not raise any substantial public interest concerns.
Conclusion
[20] For the above reasons, we find that the proposed transaction is unlikely to substantially
prevent or lessen competition in any relevant market. Accordingly, we approve the
proposed transaction unconditionally.
31 January 2023
Prof Imraan I. Valodia Date
Ms A Ndoni and Ms S Goga concurring
Tribunal Case Manager: Makati Seekane and Theodora Michaletos
For the Merging Parties: Lucinda Verster of Fairbridges Wertheim Becker
For the Commission: Nhlakanipho Mbhense and Tamara Paremoer