The level of complexity and challenges in carrying out a cross-border acquisition in South Africa is medium.

Typical due diligence issues

In South Africa, it is not uncommon to undertake due diligence investigations in friendly takeover bids. A buyer will generally seek to conduct due diligence on a company or its business to ascertain, as far as practicable, the nature and value of the assets and liabilities of the company, and to confirm any risks to which the company may be exposed.

There are no specific rules governing these due diligence processes. The scope and extent of the due diligence investigation will depend on, among other things, the nature of the transaction, the time available to conduct the investigation, the need to preserve confidentiality, and the level of cooperation of the target board. In light of the recent amendments to the Companies Act, which introduce enhanced disclosure and transparency requirements, due diligence information should now include details relating to the beneficial ownership of the target.

In relation to affected transactions, competing bidders are typically entitled to equal access to information. Therefore, information made available by the target to one bidder must also be made available to a competing bidder.

An affected transaction is defined in detail in the South African Companies Act but in essence includes a disposal of the majority of assets or undertakings, amalgamations or mergers, schemes of arrangements, mandatory offers and squeeze-outs, and involves a regulated company such as public and state-owned companies and certain private companies.

Pricing and payment

Generally, in the case of private share deals and asset deals, it is not legally required to have an independent appraisal report to support the valuation of the target company or the assets of the target company.

The South African company law does, however, provide minority shareholders, who have voted against a transaction, with an appraisal right in certain circumstances, in terms of which such dissenting shareholders may demand to be paid fair value for their shares.

Although the consideration for an acquisition normally consists of, or largely includes, cash, it is not uncommon for the consideration also to be or to include shares of the buyer, loan notes or other debt instruments, or other forms of property, or a combination thereof. In respect of cash payments, these are typically paid in South African rand, and are subject to South African exchange control regulations (where applicable, as set out below), and are commonly made by electronic funds transfer including via the SWIFT international payment system. Certain pricing or payment structures (including distributions, financial assistance and share repurchases) may be subject to the solvency and liquidity test under South African company laws.

Signing/closing

Apart from approvals related to specific regulated industries (e.g., energy companies, financial institutions, mining companies and insurance companies), exchange control approvals related to foreign investments, antitrust approvals (as set out below) and the approval of the independent body that governs affected transactions (the Takeover Regulation Panel), in the limited circumstances set out below, government approval is not required as a condition to closing, and a simultaneous signing and closing of a transaction is possible.

In particular industries where a license, permit or concession is required to operate a business, the approval of the relevant South African authorities will generally be required for the transfer of such license, permit or concession (in the case of a sale of business) or a change of control of the licensee or holder of a permit or concession (in the case of a sale of shares or merger). Industries where such approvals are likely to be required include the mining, telecommunications and banking industries. Parties may therefore agree to certain conditions precedent, or a transaction may be subject to mandatory approvals that may require a separation between signing and closing.

In the absence of any approvals whatsoever, including antitrust approval, transactions may be structured with simultaneous signing and closing.

Foreign investment restrictions

Foreign investments are not currently restricted in South Africa, although there is a draft law or proposal in place. The Competition Amendment Act introduced a foreign investment review regime, under which, acquisitions by foreign entities involving assets or businesses operating in sectors that are designated as “strategically important to South Africa’s national security interests”, will be required to undergo a foreign investment review approval process. Currently, these provisions have yet to become operative, and it remains uncertain when the regime will come into effect.

Antitrust/merger control

South Africa has a mandatory and suspensory merger control regime which means that transactions which meet the relevant criteria need to be notified to the competition authority and cleared before they can be completed. For further information, see the more detailed section on "Antitrust/merger control".

Foreign exchange controls

The Financial Surveillance Department of the South African Reserve Bank regulates and monitors transactions involving the inflow and outflow of foreign exchange across South Africa's borders. In an M&A context, the requirement for exchange control approval is most often encountered in relation to the following transactions:

• The outward repatriation of currency from South Africa or any transactions that give rise to recourse by a South African non-resident to South Africa.

• The purchase of, or subscription for, shares in a South African resident company by a non-resident. In such cases, the share certificate must be endorsed as “non-resident” by an authorized dealer within 30 days of the purchase or subscription for shares to ensure the repatriation of dividends or sale proceeds in future.

• The grant of "financial assistance" (including inward foreign loans or credits) by a non-resident to a resident. Such loans must be approved or placed on record with an authorized dealer, and the terms must comply with arm’s-length principles.

• Guarantees, suretyships, indemnities or other forms of security, provided by South African residents in favor of non-residents, resulting in the creation of obligations (or potential obligations) for the resident to make payments offshore.

• Agreements whereby a resident is obliged to pay royalties, license or patent fees to a non-resident.

In the absence of prior approval for certain cross-border transactions, the South African target company/borrower may not be permitted to remit funds to non-resident shareholders/lenders.

The procedure for seeking approval from the exchange control authorities primarily involves the submission of a written application and supporting documents through one of South Africa's licensed foreign exchange dealers (i.e. licensed commercial banks appointed by the South African Reserve Bank) appointed as authorised dealers by the South African Reserve Bank. In some cases, the authorised dealer may refer the application to the Financial Surveillance Department for specific consent.

Takeover regulation panel

The Takeover Regulation panel was established under the South African Companies Act. It is an independent body that governs affected transactions (as defined in the South African Companies Act) undertaken by regulated companies. Regulated companies include public companies, state-owned companies and, in certain circumstances, private companies.

Every transaction involving a regulated company must obtain a compliance certificate from the Panel before it may implement a fundamental transaction. This applies to all affected transactions, including takeovers and may apply to private transactions in limited circumstances.

Other regulatory or government approvals

Broadcasting and electronic communications

The Electronic Communications Act establishes a clear advantage favoring South African residents over "foreign nationals". It stipulates that a foreign national may not, directly or indirectly, exercise control over or have a commercial interest in more than 20% of a commercial broadcasting licensee. It also states that no more than 20% of the directors of a commercial broadcasting licensee may be foreign nationals. While recent policy proposals, including the Draft White Paper on Audio and Audio‑Visual Content Services published in 2025, contemplate increasing these thresholds to encourage foreign investment, the existing statutory limits remain in force unless and until amended legislation is enacted.

The Electronic Communications Act also places an obligation on an applicant for certain electronic communications licenses to demonstrate that it is at least 30% owned by historically disadvantaged South Africans.

Insurance

In addition to the limitations placed on owners in terms of the Financial Sector Regulation Act, the Insurance Act provides that an insurer must notify the prudential authority of the South African Reserve Bank (the Prudential Authority) of any regulated arrangements (such as those resulting in a change of control) affecting significant owners.  The Prudential Authority is thereafter empowered to, among other remedies, request further information and approve the arrangement before it is implemented.

Air services

The Air Services Licensing Act provides that only South African residents or South African companies (of which at least 75% of the voting rights must be held by South African residents) may be issued an air services license. An exemption from these thresholds can, however, be granted by the Minister of Transport.

Mining and minerals

Under the Mineral and Petroleum Resources Development Act, an application for a prospecting right, mining right or associated rights may be refused by the Minister of Mineral Resources under certain circumstances. This includes where the granting of the right could result in an "exclusionary act", the prevention of fair competition, a concentration of the specific minerals under the control of the applicant, or where the mining will result in unacceptable pollution, ecological degradation or damage to the environment such that an environmental authorization cannot be issued. In terms of the Mining Charter, an applicant for a mining right must demonstrate that 30% of its shareholding is held by historically disadvantaged South Africans.

Banks

No entity (either local or foreign) may, without prior written approval of the Prudential Authority, a division of the South African Reserve Bank, acquire shares or voting rights in a bank or its controlling company if it would result in that entity and its associates together holding more than 15% of the issued share capital or voting rights of the bank or its controlling company. Where an entity has held 24% of the issued share capital or voting rights of the bank or its controlling company for a period of 12 months, that entity may, subject to the prior written approval of the Prudential Authority acquire more than 24% but not exceeding 49% of the issued share capital or voting rights of the bank or its controlling company. Where an entity has held 49% of the issued share capital or voting rights of the bank or its controlling company for a period of 12 months, the entity may, subject to the prior written approval of the Minister of Finance through the Prudential Authority acquire more than 49% but not exceeding 74% of the issued share capital or voting rights of the bank or its controlling company. The Prudential Authority or the Minister of Finance, as the case may be, has the discretion to grant permission for the acquisition of share capital or voting rights as set out above without the applicant having held the relevant percentage of share capital or voting rights for a period of 12 months.

An entity seeking to acquire a controlling share of equity in a bank must be: (i) a public company which is registered with the Companies and Intellectual Property Commission as a controlling company in respect of a bank; (ii) another bank; or (iii) another institution that has been approved by the Prudential Authority and which conducts business similar to the business of a bank in a foreign country.

Other financial institutions

The Financial Sector Regulation Act regulates "significant ownership" of certain types of financial institutions other than banks, such as a manager of a collective investment scheme, a long-term insurer, a short-term insurer or a financial market infrastructure (such as a securities exchange or securities depository). A person may not affect any arrangement that would result in that person, together with any related persons, becoming a "significant owner" of such a financial institution, without the prior approval of the responsible authority for the financial sector law in terms of which the financial institution is required to be licensed. A significant owner is a person who "directly or indirectly, alone or together with a related or interrelated person, has the ability to control or influence materially the business or strategy of the financial institution". This is evidenced, amongst other things, by (i) the power, directly or indirectly, alone or together with interrelated or related person to appoint 15% of the members of the governing body of the financial institution; or (ii) holding 15% or more of the issued share capital of the financial institution and/or the ability to exercise or control the exercise of at least 15% of the voting rights attached to the securities of the financial institution.

In addition, a significant owner of a financial institution which has been designated as a "systemically important financial institution" by the South African Reserve Bank, may not, without having obtained the prior written approval of the responsible authority for the financial sector law in terms of which the financial institution is required to be licensed, effect any arrangement that will result in the person, alone or together with a related or interrelated person, ceasing to be a significant owner of the financial institution.

Black economic empowerment

The Broad-Based Black Economic Empowerment Act (“BBBEE”) has as its main objective the economic empowerment of historically disadvantaged South Africans. It sets out a scoring matrix that rates an entity's compliance against five metrics, namely: (i) ownership; (ii) management control; (iii) skills development; (iv) enterprise and supplier development; and (v) socio-economic development. Compliance with BBBEE legislation in South Africa is not mandated by law, other than in specific sectors such as the information technology and mining sectors. However, having a higher BBBEE rating provides entities with a competitive advantage, particularly when contracting with the government of South Africa or state-owned entities, which will require their suppliers to have a sufficient BBBEE rating.

In the private sector, BBBEE instead works on an incentive basis, as a higher BBBEE rating will make an entity more competitive in the South African market. Therefore, the point of departure for BBBEE in South Africa is that an entity will aim for a higher BBBEE rating level in order to either contract with organs of state and public entities, or to attract private sector customers looking to improve the enterprise and supplier development element on their own BBBEE scorecard (as this element of the BBBEE scorecard allocates points based on the extent to which the entity in question procures goods and services from empowering suppliers with strong BBBEE levels).

Certain industry sectors are subject to stricter BBBEE requirements. For example, the BBBEE rules applicable to the mining sector require that a percentage of the shares of a company that applies for a mining right be held by historically disadvantaged South Africans, failing which the mining right may not be granted. Following the Mining Charter, 2018 coming into effect – (i) an existing mining right holder is required to have a 26% BBBEE shareholding for the duration of the mining right; (ii) a pending or new applicant for a mining right is required to have a minimum of a 30% BBBEE shareholding.

Accordingly, in structuring an acquisition or takeover bid , it is important to take account of the effect of the transaction on the target's BBBEE rating , especially in the case of a 100% takeover where the target's existing BBBEE shareholders are to exit, creating a potential need for a replacement BBBEE shareholder or other mechanisms to be introduced at the time or shortly after implementation of the transaction (which need will be determined by the target's client base and the contractual undertakings to which it is subject). In these circumstances, it is not uncommon for the bidder to be a consortium that includes a BBBEE shareholder. It is worth noting that the BBBEE legislation contains additional ownership structuring options (which depart from the general requirement to introduce direct or indirect black ownership in the local entity) that are specifically available to multinationals.

Sale of shares

A change in the ownership of a corporate entity through the sale of some/all of its shares will not interrupt or interfere with the contracts of employment in existence between the employees and the corporate entity at the time of the sale. This is because the identity of the employing entity remains unchanged. Accordingly, the employees' employment continues uninterrupted and with the same employing entity.

A share sale does not preclude the company from embarking on a retrenchment exercise of its workforce, for valid operational requirements, subject to any conditions pertaining to retrenchment which may be placed on the acquiring party by the South African competition authorities.

Transfer of business as a going concern

A transfer of a business as a going concern can take various forms, such as a merger, takeover or carve-out. Where there is the transfer of a business as a going concern, employment is automatically transferred when the going concern changes hands. In these instances, one employer is substituted for the other employer. The employees' length of service is uninterrupted. The new employer must provide the employees with terms and conditions that are on the whole not less favorable than their previous terms and conditions. The old and new employers must agree, and disclose to the employees, as to a valuation as at the date of transfer of: (i) the leave pay accrued to the transferred employees of the old employer; (ii) the severance pay that would have been payable to the transferred employees of the old employer in the event of a dismissal by reason of the employer's operational requirements; and (iii) any other payments that have accrued to the transferred employees but have not been paid to employees of the old employer. Furthermore, the old and new employers must conclude a written agreement specifying which employer is liable for paying any of the above amounts and the apportionment of the liability between them. This agreement must then be disclosed to the employees.

Where the business is transferred as a going concern, any dismissal of an employee as a result of the transfer or a reason related thereto would be automatically unfair and may attract a penalty of up to 24 months' remuneration as compensation and/or reinstatement of the relevant employees.

Asset sales which do not constitute a sale of a business as a going concern

Whether a business transfers as a going concern is a factual enquiry, based on the substance of the transaction, rather than the form. Our courts have found that the relevant enquiry is to determine whether a discrete economic entity will transfer. This may comprise various components which make up a business, including assets, goodwill, workforce, management staff and the manner in which the business is organized and performed, the operational resources available to the business, etc. None of the components are indicative of a business alone.

If a business is not transferred as a going concern, employees must transfer by termination and hire.

The parties are free to determine the best way to terminate employment. For example, employees may resign or be dismissed for operational requirements. Employees are only entitled to statutory severance if their employment is terminated for their employer’s operational requirements. Employees are not entitled to statutory severance (one weeks’ pay per completed year of service) if they unreasonably refuse an offer of employment with their employer or another employer.

The terms and conditions of employment with the new employer are subject to negotiation between the parties. Employees are more likely to agree to transfer their employment where the terms and conditions offered by the new employer are similar to those with the old employer.

Sale of shares

Securities transfer tax (STT) (0.25% of the higher of purchase consideration and fair market value of the shares being transferred) will be levied against the target company, which bears the statutory obligation to pay the tax to the South African tax authorities. The securities transfer tax is payable on the transfer of all shares in companies incorporated in South Africa as well as foreign companies listed on the South African stock exchange. For listed securities, the taxable amount is the greater of the consideration paid for the security or the closing price of that security. The company that issues the unlisted securities is liable to pay the STT whereas the member or participant (as defined in the STT Act) will be liable for the STT on the transfer of listed securities. However, there is a statutory right to claim back this tax liability from the buyer or the person to whom the security was transferred. Alternatively, a different payment arrangement may be reached by the parties to the transaction. This could include sharing the tax or one party reimbursing the other.

Transfer of business as a going concern

The supply or sale of a business as a going concern, in simple terms, means that the enterprise/business (or part thereof) is capable of being operated as a stand-alone business at the time that it is acquired by the recipient of the supply. Under normal circumstances, if the supplier is a VAT vendor, the supply would attract VAT at the standard rate of 15%. However, in order to dispose of a business as a going concern at the rate of 0%, the following requirements must be met:

• The supplier and the buyer must be registered VAT vendors.
• The supplier and buyer must agree in writing that the business or part thereof is disposed of as a going concern as well as what is being disposed of is an income earning-activity on the date of transfer thereof.
• The core assets that are necessary to carry on that business must be disposed of.
• The supplier and recipient at the time of the conclusion of the agreement must agree in writing that the consideration agreed upon for the supply includes VAT at the rate of 0%.

OECD's Two Pillar Solution

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has put forward a so-called Two-Pillar Solution to address the tax challenges arising from the digitalization of the economy. Pillar Two is intended to introduce a global minimum effective rate of tax of 15% for large businesses in each jurisdiction where they operate and will lead to fundamental changes in the international tax system. It is currently being implemented in a large number of jurisdictions. In South Africa, it is effective from 1 January 2024 and applies to fiscal years beginning on or after that date.

Groups will need to consider how the Pillar Two rules could impact the life cycle of M&A transactions from the pre-acquisition phase (including transaction planning (such as the choice of acquisition structure and financing) and due diligence of the target group), the acquisition phase (such as contractual risk allocation around Pillar Two) to the post-acquisition phase and the impact of Pillar Two on any post-acquisition integration.

For information on post-acquisition integration matters, please see our Post-acquisition Integration Handbook.