Most deal delays in South Africa are not caused by the issues that make headlines – pricing disagreements, regulatory intervention, or financing falling away. They are caused by legal and structural problems that were visible early and not addressed. The result is a process that drags, conditions that multiply, and a closing that costs more than it should.
For investors who do this repeatedly, the pattern is recognisable. Here are five questions that, asked early enough, predict whether a transaction is likely to close cleanly – and where the problems will come from if it doesn’t.
- Does the ownership structure match the deal structure?
The question sounds basic. It isn’t. In founder-led businesses – which represent a significant proportion of the South African mid-market – IP, key contracts, and even revenue can sit in structures that are not the company being acquired. Founders build things fast and formalise them late. By the time an investor arrives, the legal and commercial picture often does not match the operational one.
Understanding where value actually sits – and whether it is owned by the right entity – is the first structural question. If the answer is unclear at term sheet stage, it will become expensive to resolve at due diligence.
- Is there a clear governance record?
Boards that have not been functioning, minutes that have not been kept, and resolutions that were never properly passed create a due diligence problem that is harder to fix than most investors expect. The issue is not just cosmetic: gaps in governance records can affect the validity of prior decisions, the enforceability of existing contracts, and the ability of incoming investors to rely on representations made by management.
Governance hygiene is a leading indicator of how well-run a business is at the operational level. Investors who skip this question early typically regret it.
- What does the cap table actually say, and are all the shareholders aligned?
Cap table disputes, undefined rights between founder shareholders, and informal arrangements that were never reduced to writing are among the most common causes of deal delay in the South African market. They surface in due diligence, they require resolution before closing, and they are almost always more complicated to fix under transaction pressure than they would have been a year earlier.
The second part of this question – are all the shareholders aligned – is equally important. A majority shareholder who wants to sell and a minority shareholder who does not creates a dynamic that no transaction structure fully resolves. Understanding the alignment picture before committing to a process is worth the conversation.
- Is the target’s regulatory and compliance position defensible?
South Africa’s regulatory environment across employment, tax, BEE, sector-specific licensing, and data protection has become materially more complex over the past decade. Businesses that grew quickly in an earlier environment often carry compliance gaps that were immaterial then and are not immaterial now.
The question for investors is not whether the target has a perfect compliance record – few mid-market businesses do. The question is whether the gaps are quantifiable, whether they are remediable, and whether the risk can be allocated appropriately in the transaction documents. An undisclosed compliance issue that surfaces post-closing is a different problem entirely.
- Can the post-close governance transition actually be executed?
The legal work does not end at closing. For investors, the first 90 days post-close are when the transaction thesis either starts to be validated or starts to unravel. Governance transition – board composition, information rights, reporting cadence, founder alignment mechanisms, LP reporting obligations – needs to be designed into the deal, not improvised after it.
Founder resistance to post-investment reporting is a named risk in the South African private equity market. It is also a predictable one. The investors who manage it best are the ones who address it contractually and relationally before closing, not after the first missed report.
What this means practically
These five questions are not a checklist for due diligence. They are a filter for early-stage deal assessment. If the answers are unsatisfactory at term sheet stage, the choice is not between proceeding and not proceeding – it is between pricing the risk appropriately and building the right remediation conditions into the structure, or discovering those same issues six months later under time and cost pressure.
The transactions that close on time and on terms tend to be the ones where the structural questions were asked – and answered – early.
Caveat Legal works with fund managers, deal teams and transaction advisors on South African private equity and venture transactions, from early-stage deal assessment through to post-close governance. If you are working on a deal and want a structurally-minded legal perspective before you get deep into process, get in touch.
