South African deals don’t become difficult because valuations are ambitious or because the parties can’t agree on price. They become difficult because the transaction runs into execution realities that were visible from the start but never properly resolved – and by the time they surface formally, the investor has leverage they didn’t have at signing and the target has lost control of the timeline.
For fund managers and investors doing deals in this market regularly, the patterns are familiar. What separates the transactions that close cleanly from those that drag is not the quality of the SPA drafting. It is the quality of the pre-close work – specifically, whether the execution realities were identified, owned, and managed as part of the deal structure rather than deferred to the post-close period.
These are the five questions that, in our experience, most reliably predict which category a deal will fall into.
1) What regulatory approvals are actually required – and who owns the critical path?
The question is not what should happen before closing. It is what must legally happen, what the realistic timeline is, and whether that timeline is compatible with the commercial commitments the parties have made.
In South Africa, the regulatory approval stack for a transaction can include Competition Commission notification under the Competition Act where the thresholds are met – and the intermediate merger threshold of R600 million combined annual turnover means that a significant proportion of mid-market deals require filing. It can include sector-specific approvals where the target operates in financial services, energy, healthcare, or other regulated sectors. It can include SARB exchange control approval where foreign capital is moving into or out of South Africa, or where the transaction involves the acquisition of shares in a South African company by a non-resident. And it can include BEE-related approvals or notifications where the transaction materially affects the target’s ownership structure and the target has regulatory licences or government contracts that carry BEE compliance conditions.
Each of these has a different timeline, a different risk profile, and a different consequence for failure. Competition Commission intermediate merger approval can take three months on a straightforward matter and significantly longer if there are market concentration concerns. SARB approval processes have their own pace. The deal that assumes a three-month close without mapping the approval stack is not a realistic deal – it is a timeline that will be revised.
The discipline that prevents this is treating regulatory approvals as a gated workstream from the term sheet stage, not as a closing mechanic to be managed later.
2) Which contractual relationships carry change-of-control risk – and have they been mapped?
In almost every transaction, one or two contracts carry disproportionate risk relative to the rest of the portfolio. The question is whether that risk has been identified, quantified, and managed before the buyer’s advisors find it in due diligence – because the timing of discovery determines whether it is a manageable issue or a negotiating lever.
Change-of-control provisions in customer agreements, key supplier contracts, property leases, software licences, and financial facilities can each trigger consent requirements, termination rights, or step-in rights on a sale. The practical consequences range from manageable – obtaining consent from a counterparty who is commercially aligned with the transaction – to deal-threatening, where a key customer agreement can be terminated on notice if consent is withheld and that customer represents a material proportion of revenue.
Government and parastatal contracts in South Africa carry a specific version of this risk. BEE compliance conditions attached to public sector contracts may not survive a change of ownership if the new ownership structure affects the target’s verified BEE level. This is not a hypothetical – it is a documented risk in transactions where the target has significant public sector exposure and the buyer is a foreign investor or a domestically owned entity with a different BEE profile.
Map the contracts before the process opens. Know which ones carry consent requirements, what the practical likelihood of consent being withheld is, and what the commercial contingency is if a key contract doesn’t survive the transaction. That knowledge shapes deal structure – whether the transaction is structured as a share sale or an asset sale, how conditions precedent are framed, and what the warranty and indemnity profile looks like.
3) What is the people and knowledge risk – and is it actually mitigated or just acknowledged?
People risk in SA transactions is frequently acknowledged in due diligence and insufficiently mitigated in deal structure. The distinction matters because acknowledging risk produces a finding in the due diligence report. Mitigating it produces a deal structure that protects value post-close.
The specific people risks that most reliably affect post-close performance are key person dependency – where one or two individuals carry relationships, institutional knowledge, or technical capability that is not documented or transferable without their active participation; IP ownership gaps with contractors and developers, which in South African law default to the individual rather than the business in the absence of a signed assignment; and employment disputes and CCMA matters, both current and historical, that create contingent liability and signal broader people management issues to the buyer’s team.
The structural responses to these risks – retention arrangements, long-stop periods tied to key staff continuity, IP assignment clean-up as a pre-close condition, escrow arrangements sized to cover employment contingencies – need to be designed into the deal structure at term sheet stage, not bolted on during SPA negotiation when both parties are anchored to positions and the cost of structural changes is highest.
4) Are the financial and tax basics clean enough to support the narrative – and the warranty package?
Fund investors buying into SA businesses frequently encounter a specific information quality problem: the management accounts are prepared on a basis that doesn’t reconcile cleanly to the audited financials or the tax returns, related-party transactions have not been properly documented or priced at arm’s length, and the normalisation adjustments required to get from reported EBITDA to true run-rate earnings are material and contested.
In South Africa, the tax due diligence items that most consistently create deal friction are SARS compliance status – outstanding assessments, disputed positions, or VAT and PAYE arrears that create crystallised liability; transfer pricing documentation where the target is part of a group with cross-border transactions, which SARS scrutinises actively; and the tax treatment of related-party loans and distributions, which affects both the target’s historical tax position and the investor’s post-close structuring.
The warranty and indemnity package that a sophisticated investor will require reflects the quality of the financial information available. Where the financials are clean, well-documented, and reconcilable, the W&I package is tighter and the target’s exposure is more manageable. Where the financials require extensive normalisation, carry unresolved tax positions, or show related-party transactions that weren’t properly documented, the investor’s protection requirements expand – and the investee’s retained exposure expands with them.
5) Does the first-90-day execution plan actually exist – with owners and dates?
The deals that lose value post-close are almost always the ones where the investor assumed that execution complexity would resolve itself once the deal was done. In SA, it rarely does – and the cost of that assumption is paid in management distraction, relationship disruption, and operational underperformance during the period when the business needs to be running at full capacity to justify the deal price.
A credible first-90-day execution plan is not a strategy deck. It is a specific, owned action list covering which regulatory consents are still pending and who is obtaining them, which contracts require re-papering or novation following the investment, what employment documentation needs to be updated or regularised, what the billing and operational continuity plan is for the first invoicing cycle post-close, and how the management team transition is being handled – including who is communicating what to key customers and suppliers, and when.
The investors who close SA transactions cleanly and integrate them successfully are not the ones who negotiate the hardest on price. They are the ones who go into close with a realistic, owned execution plan and a legal and advisory team that understands the SA-specific mechanics well enough to anticipate the problems before they happen.
Bottom line: In South Africa, deal certainty is genuinely scarce and genuinely valuable. The investors who consistently create it – across competition approvals, contractual consents, people risk mitigation, financial clarity, and post-close execution – don’t do it by taking bigger risks. They do it by removing the predictable ones early enough that they control the process rather than being controlled by it.
Caveat Legal works with fund managers, investors, and transaction advisors on SA and regional deal execution – from term sheet through to post-close integration. If you are working on a transaction and want to pressure-test the execution risk before it becomes a timeline problem, get in touch.
