SOUTH AFRICA Law and Practice Contributed by: Ulrike Naumann, Alison Mellon, Joshua Janks and Aneria Bouwer, Bowmans
1. Market 1.1 Major Lender-Side Players
1.2 Corporates and LBOs As in other markets, acquisition transactions in South Africa involve either corporates or private equity buyers. Positive trends in inflation and energy stability over the past year, under a new government of national unity (GNU), suggest a notable improvement in growth projections for the South African economy in 2025. This has sparked greater optimism and investor confi- dence in the South African market. Despite the expected upturn in economic growth, corporates continue to hold onto cash in the face of South Africa’s evolving market dynamics. However, corporates with strong cash reserves are also seizing the opportunity to make reasonably priced acquisitions, especially in the renewable energy and power, technology, media and telecommunications, pharma and health- care, retail, materials and financial sectors. Because of domestic economic pressures and a weaker local currency, South African companies remain undervalued and therefore of interest to private equity buyers, both local and interna- tional. The governing law for most documents in acquisition financing transactions (regardless of whether the transaction is a corporate loan or leveraged buyout) will be South African law. There are a few exceptions to this principle. Where a South African target company has sub- sidiaries in other jurisdictions providing securi- ty, those specific documents may be governed by the law of a foreign jurisdiction. In addition, certain types of financing which are less typical 2. Documentation 2.1 Governing Law
The South African market has several local com- mercial and investment banks responsible for the vast majority of arranging and underwriting of acquisition financing in South Africa. These banks will usually syndicate the debt to other local banks and other institutional investors, such as pension funds, insurance companies and asset managers. These institutional inves- tors may become involved directly in acquisi- tion financing but these transactions comprise a smaller percentage of acquisition financing in South Africa. State-owned lending institutions also play a role in financing acquisitions in a development context, such as a transaction which promotes “transformation” policies. It is common for acqui- sition finance transactions where the target is a South African company to be structured to meet transformation objectives as set out in legislation and policy. The Broad-Based Black Economic Empowerment Act, 2003 and accompanying codes (BEE) often require ownership by black persons (as such term is defined in legislation). There will often be special financing arrange- ments by banks or, at times, the target company to ensure the acquisition of equity by the black shareholders. International banks play a role in acquisition financing domestic transactions, although the domestic financing transactions are mostly led by South African commercial and investment banks. Law firms may be required to advise international banks in transactions which, not- withstanding the target being located in a differ- ent jurisdiction, involve target group companies providing security over assets in this jurisdiction.
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