Merger Control Provisions: The case of Creeping Acquisitions

Teboho Bosiu

Part of the focus of the proposed amendments to the Competition Act is on preventing creeping concentration. Creeping concentration results from a series of mergers and acquisitions that individually do not raise market power substantially, but do so collectively. Firms can increase market share through mergers and acquisitions, and consequently increase market power and concentration in markets. While the current merger provisions require competition authorities to assess potential effects of individual mergers on competition, the assessment does not capture the gradual accumulation of market power from a series of merger transactions. For example, a firm acquiring a smaller entity such that the post-merger market shares increase by only 5% may not raise competition concerns under the current provisions. However, a series of such transactions which increase the post-merger market shares by a substantial amount may trigger more competition scrutiny under the proposed revision of the Act.

Several mergers in South African industries (such as in private hospitals) may have been prohibited had the gradual accumulation effect of concentration been considered. The current provisions have essentially led to competition authorities approving mergers that ultimately resulted in concentrated industries, as there was no provision to prohibit these transactions. This article assesses the potential effectiveness of the proposed creeping concentration provisions to the Competition Act.

The proposed creeping mergers provisions

High concentration is reinforced by high barriers to entry for new and emerging rivals including through various structural features and strategic conduct.[1] In this context, mergers involving the acquisition of potential challenger firms are problematic. The benefits of scale notwithstanding, close scrutiny of creeping mergers that tend to increase concentration is crucial for breaking barriers to entry and opening the economy to more rivals, particularly in the context of highly concentrated industries.

On 1 December 2017, the government published the draft Competition Amendment Bill for public comments. Amongst other issues, the Bill seeks to provide for explicit scrutiny of creeping concentration and prevent the erection and maintenance of strategic barriers to entry when mergers are considered. The amendments require the “disclosure of merger activity engaged in by the merging parties in the preceding three years to identify markets in which, and by which, creeping concentrations are being pursued” to ensure appropriate investigations and consideration by competition authorities. These provisions (section 12B, subsection 3) effectively empower the authorities to treat a series of transactions that occurred in the past three years as having occurred simultaneously on the date on which the latest of them occurred. The usual process of assessing market power and any other competition issues is then followed, but based on the effects of the series of transactions rather than just a single transaction.

The new provisions follow a number of concerns raised in the past by the Competition Tribunal, spanning across sectors such as retail, healthcare and media. During the merger between Phodiclinics (Pty) Ltd and Protector Group Medical Services (Pty) Ltd in the healthcare industry, the Tribunal concluded that the transaction itself would not have a significant effect on competition despite submissions indicating that creeping mergers by the three major private hospitals (Life, Netcare and Mediclinic) had resulted in increased concentration in the sector. In the merger between Edgars and Rapid Dawn, the Tribunal flagged the potential effect of the creeping acquisitions of smaller players on competition in the retail sector. Moreover, during the 2011 merger between Media24 and Natal Witness in the media industry, the Tribunal went a bit further by imposing a condition requiring Media24 to notify all small mergers relating to independent publishers.  This followed the Tribunal’s observation regarding a pattern of un-notified mergers between large and small independent publishers. However, the Act at the time did not allow for the assessment of the combined effect of past mergers. Thus the proposed amendment to consider a series of transactions is a necessary intervention in empowering the authorities to proactively address creeping concentration.

Possible issues with the proposed amendments

Their timeliness and importance notwithstanding, the new provisions raise a number of concerns which may render them ineffective, or lead to unintended consequences. First, there is no theoretical framework and sufficient international comparators to provide guidance in choosing the three year timeframe. The time period in Finland is two years, while there are no specific time frames in Mexico and Hungary. Nonetheless, the proposed three year time period is quite short and the short timeframes can raise moral hazard issues. That is, a firm can strategically delay a merger until the proposed timeframe lapses, whilst a longer timeframe can probably prevent such behaviour by raising opportunity costs of delaying the merger. Moreover, large firms that have gradually increased market power through acquisitions in the years preceding the three year period, where they have not engaged in any acquisition during the past three years, can easily escape competition scrutiny. For instance in the healthcare industry, of the several acquisitions Netcare made between 1998 and 2008, the acquisitions made in 2008 would still have escaped the creeping mergers provision scrutiny because of the six year period that lapsed since the last acquisitions made in 2002.[2]

Second, taking a longer time period also has its drawbacks. For instance, assessing the effect of a series of transactions that took place over a long period of time could cause uncertainty for businesses and negatively impact on investment due to market dynamics that are changing overtime. That is, since market dynamics such as consumer preferences and technological conditions change over time, too long a period of time can complicate market definition and analysis and the level of certainty for businesses filing merger transactions.

Lastly, the new creeping mergers provisions have the potential to more adversely impact on parties to the current transaction than those to the previous series of transactions. For instance, the authorities are unlikely to impose structural remedies (i.e., divestiture) that results in parties divesting some of the assets acquired in previous transactions, as these would have been approved by the authorities in the first place. That is, suppose company X intends to acquire company Z, having acquired Y in the past three years. If the combined effect of merged company XYZ raises substantial competition issues, the competition authorities are unlikely to order the divestiture of the stake in Y because the merger between X and Y would have been approved by the authorities and significant changes implemented. Instead, authorities are likely to block or impose structural remedies on the current merger with Z.

In this regard, a merger occurring after a series of transactions is more likely to be subjected to stringent conditions, or prohibited under the proposed creeping merger provisions. This could be tantamount to penalizing some firms for decisions they were not party to, and could have negative implications for entrepreneurs and companies that may want to take advantage of an opportunity to sell off an enterprise once it is successful.


Concentration can be caused by mergers and acquisitions, amongst other factors. In particular, creeping concentration results from a series of mergers and acquisitions that individually do not raise market power substantially, but collectively do. The proposed creeping mergers provisions seek to provide for explicit scrutiny of transactions falling within this category. While this is an important and welcome development given the record in South Africa, the article highlights important considerations that need to be taken into account in evaluating such transactions, including the effects on certainty and investment, and the length of the time period set to evaluate a series of past mergers.  

[1] For instance; dominant incumbents lobbying for stringent regulatory requirements at the expense of new entrants; collusive behaviour by incumbents; and high sunk costs necessary for entrants to effectively compete.

[2] Netcare made various acquisitions in 1998, Umhlanga and Medicross in 2001, Margate in 2002, and CHG and Linkswood in 2008