COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM001Apr23
In the matter between:
Reunert ICT Holdings (Pty) Ltd Acquiring Firm
and
IQ Business (Pty) Ltd Target Firm
Approval
[1] On 08 June 2023, the Competition Tribunal (“Tribunal”) unconditionally
approved the large merger between Reunert ICT Holdings (Pty) Ltd ( “Reunert
ICT”) and IQ Business (Pty) Ltd ( “IQ Business”). Post-merger, Reunert ICT will
control IQ Business.
Panel : Jerome Wilson SC (Presiding Member)
: Prof. Fiona Tregenna (Tribunal Panel Member)
: Dr Thando Vilakazi (Tribunal Panel Member)
Heard on : 08 June 2023
Order issued on : 08 June 2023
Reasons issued on : 09 June 2023
REASONS FOR DECISION
Parties to the transaction and their activities
Primary acquiring firm
[2] The primary acquiring firm is Reunert ICT, a wholly owned subsidiary of Reunert
Limited (Reunert). Reunert is a public entity listed on the Johannesburg Stock
Exchange and it is not controlled by any firm. Reunert, and all the companies
controlled by it, are referred to below as the “Reunert Group”.
[3] Reunert manages a portfolio of businesses in various sectors , including
Electrical Engineering, Information Communications and Technology (ICT),
Applied Electronics and other related fields.
[4] Of relevance to this transaction are Reunert’s activities in the ICT sector,
specifically in relation to IT consulting services and IT software development
services. “IT consulting services” refers to advisory and implementation services
aimed at helping clients to utilise information technology and digital assets to
achieve their business goals. “IT software development services” refers to the
development of software products to meet clients’ needs , including web
applications, mobile applications and/or ecommerce platforms.
[5] Reunert’s IT consulting and IT software development services are conducted
through Plus1x Solutions (Pty) Ltd (“+OneX”). +OneX assists businesses with
identifying data sets, methods of analysis and technologies to reduce the cost
of developing and operating new data products and services.
Primary target firm
[6] The primary target firm is IQ Business. IQ Business is not controlled by any
individual shareholder.
[7] IQ Business controls the following firms in South Africa: IQ Business Insights
(Pty) Ltd, Nudge Now (Pty) Ltd and Tamirox (Pty) Ltd.
[8] IQ Business is an independent management consulting firm. Its main activity is
the provision of business solutions through IT consulting and IT software
development services. IQ Business also offers management consulting services
to businesses to improve the effectiveness of their business strateg ies,
to businesses to improve the effectiveness of their business strateg ies,
organisational performance and operational processes.
Proposed transaction and rationale
Transaction
[9] In terms of the Sale of Shares and Claims Agreement, Reunert ICT is acquiring
74.2% of the total issued ordinary shares and “B” ordinary shares of IQ Business.
The remaining shares in IQ Business will be held by [shareholder names listed]
management.
Rationale
[10] According to Reunert ICT, the acquisition of IQ Business will provide the Reunert
Group’s ICT segment with additional scale and increase its earnings from this
segment. In combination with Reunert ICT’s +OneX, this merger will expand the
Reunert Group’s offerings as an independent management & technology
consultancy and solutions & systems integrator in the South African market.
[11] According to Reunert, this additional scale will enable it to compete successfully
against the likes of PWC, Deloitte, KPMG, EY, and other integrated ICT and
consulting firms. In addition, t he acquisition will add t echnology and
management consulting capability, as well as complementary services such as
data management capability, software development and data services , to
Reunert ICT’s existing offerings in the ICT segment.
[12] The Competition Commission (“Commission”) found that the offerings of IQ
Business are largely complementary to those of Reunert ICT, and that the
proposed transaction is likely to enhance the offerings of Reunert ICT.
[13] From the seller s’ perspective, two private equi ty fund shareholders
(Capitalworks Fund II SPV Partnership and the South African Investment
Partnership III), have identified the transaction as an attractive opportunity to exit
IQ Business.
Relationship between the parties
[14] The Commission found that there is a horizontal overlap in the activities of the
merging parties as Reunert ICT and IQ Business are both broadly active in the
provision of IT consulting and IT software development services in South Africa.
[15] The Commission also noted that the Reunert Group (through +OneX) facilitated
[15] The Commission also noted that the Reunert Group (through +OneX) facilitated
a marketing campaign via Meta for IQ Business in February 2023 for
approximately R20 000. Given the de minimis value of this campaign, and its
finding (discussed below) that the merging parties are very small players in the
industry, the Commission found that the merger is unlikely to raise any vertical
foreclosure concerns and therefore did not assess this aspect further.
Relevant markets
[16] The merging parties submit ted that there is a broad market for management
consulting with several sub-segments, and that their activities overlap in relation
to the provision of (i) IT consulting services and (ii) IT software development
services.
[17] The Commission found that the parties are only active in the provision of IT
consulting services and IT software development services, and that it is
therefore not necessary to consider the broad management consulting services
market. The Commission also noted that, in the IQ Business (Pty) Ltd/ Tamirox
(Pty) Ltd merger,1 the effects of the proposed transaction were assessed in the
markets for (i) IT consulting services and (ii) IT software development services.
[18] The Commission was of the view that it is not necessary to conclude on the
relevant product markets in this case as the merger does not raise any
competition concerns on any definition of the relevant market(s). However, for
purposes of its analysis, the Commission assessed the effects of the proposed
transaction in relation to the provision of (i) IT consulting services and (ii) IT
software development services.
[19] As regards the relevant geographic markets, the merging parties submitted that
they are national. The Commission agreed with this approach, stating that it was
in line with the approach followed in the IQ Business/ Tamirox merger.
Competition assessment
IT consulting services
[20] Based on data published by Statista, the Commission found that Reunert ICT
has a share (based on revenues) of approximately 0.3% and IQ Business has a
share of approximately 20.5% in the provision of IT consulting services in South
Africa, with the result that the post-merger share of the merged entity will be
approximately 20.8%.
approximately 20.8%.
[21] The Commission also found that t here are various other significant players
providing IT consulting services in South Africa, including Allied Electronics,
Adapt IT, EOH, BSG, Entelect, A lviva Holdings, PBT Group and others. In
1 Tribunal case number: LM013Apr21.
addition, the Commission found that large management consulting firms such
as Bain, McKinsey, KPMG, EY, Deloitte and PWC also provide IT consulting
services as part of their management consulting services.
[22] Having regard to the above , the Commission concluded that the merger is
unlikely to result in competition concerns in th e provision of IT consulting
services.
IT software development services
[23] Based on the revenues of listed entities providing IT software development
services, the Commission found that the merging parties have a share of less
than 1% each in the provision of such services. The Commission noted that
these shares are likely to be overstated as they do not include all players in the
market, given the paucity of information that is available in that regard.
[24] The Commission also found that there are various other significant providers of
IT software development services in South Africa , including Alviva Holdings,
Allied Electronics Corporation, Adapt IT, PBT Group and EOH (amongst others).
[25] Having regard to the above , the Commission concluded that the merger is
unlikely to result in competition concerns in the provision of IT software
development services in South Africa, as there are significant competitors who
will continue to constrain the merging parties.
[26] The Commission also contacted customers of the merging parties regarding the
proposed transaction. T hese customers did not raise any concerns regarding
the merger and listed various alternative suppliers from which they are able to
obtain the services provided by the merging parties.
[27] Based on the above, the Tribunal agrees with the Commission’s conclusion that
the merger is unlikely to result in a substantial lessening or prevention of
competition in any relevant market. Given the facts in this case, it is unnecessary
for the Tribunal to conclude on the definition of the relevant market(s).
Public interest assessment
Effect on employment
Public interest assessment
Effect on employment
[28] The Commission noted that the merging parties have provided an unequivocal
statement that the proposed transaction will not have a negative effect on
employment as no retrenchments or redundancies are envisaged as a result of
the proposed transaction.
[29] The Commission also contacted the employee representatives of both merging
parties who confirmed that the employees have been notified of the proposed
transaction and have not raised any concerns in relation to it.
Effect on the spread of ownership
[30] The Commission found that Reunert has an HDP ownership of 52.14% while IQ
Business has an HDP ownership of 25 [%]. Post-merger, the HDP ownership of
IQ Business will be 38.69% (74.2% * 52.14%). As such, the Commission found
that the HDP ownership in IQ Business will increase by 13.69 [%] as a result of
the merger.
[31] The Commission concluded, on this basis, that the proposed merger does not
raise any concerns under section 12A(3)(e) of the Competition Act.
[32] The Commission also found that the proposed transaction does not raise any
other public interest concerns.
[33] Based on the above facts, the Tribunal agrees with the Commission’s conclusion
that the proposed transaction does not raise any public interest concerns.
Conclusion
[34] For the reasons set out above, the Tribunal approves the proposed transaction
unconditionally.
09 June 2023
Jerome Wilson SC Date
Concurring: Prof. Fiona Tregenna and Dr Thando Vilakazi
Tribunal case manager
: Baneng Naape
For the merging parties
: Ahmore Burger-Smidt of Werksmans Attorneys
For the Commission
: Raksha Darji and Wiri Gumbie
Signed by:Jerome Wilson
Signed at:2023-07-27 12:02:13 +02:00
Reason:Witnessing Jerome Wilson