South African CompCom: Approves Capitec Sasfin Sale of Rental Finance Unit

• The South African Competition Commission has approved the sale of Capitec Rental Finance (CRF) to Sasfin Capital.
• Capitec acquired CRF in 2019 but later deemed it non-strategic to its core business priorities, as stated in its interim financial statements.
• The Commission found the transaction unlikely to harm competition but imposed a moratorium on merger-related retrenchments for a specified period.
• Sasfin Capital already operates in the asset-backed equipment rental finance sector for SMEs and corporate clients.
• Capitec reported 52% growth in its business banking unit on the same day the approval was granted, indicating strategic focus on core areas.

Despite the absence of competition concerns, the Commission addressed potential employment impacts by securing an agreement from both Capitec and Sasfin.

The South African Competition Commission has formally approved the sale of Capitec Rental Finance (CRF) to Sasfin Capital, a subsidiary of Sasfin Holdings, which has transitioned into an investment-holding company with its rental finance operations now conducted under the Sunlyn brand. This significant transaction involves the transfer of CRF, a specialized unit that facilitates access to movable business equipment for small and medium-sized enterprises (SMEs) by offering leasing solutions that circumvent the need for substantial upfront capital outlays.

Sasfin Capital, through its various subsidiaries, is already an established player in the financial services sector, providing asset-backed equipment rental finance. The integration of CRF into Sasfin's existing operations is expected to consolidate and enhance its offerings in this niche market.

Capitec's journey with CRF began in 2019 when it acquired the rental unit as part of its broader strategy to diversify into business banking through the purchase of Mercantile Bank. However, the bank subsequently re-evaluated the unit's alignment with its core business objectives.

According to Capitec's interim financial statements, which were released on September 30 and covered the period ending August 30, CRF was ultimately deemed non-strategic and not in line with the bank's primary priorities. The Capitec board concluded that the rental business would benefit significantly from being integrated with a specialist operator like Sasfin, which possesses dedicated expertise in the asset-backed equipment rental finance sector.

In its review of the proposed transaction, the South African Competition Commission determined that the sale of Capitec Rental Finance to Sasfin Capital was unlikely to substantially lessen or prevent competition within any relevant market. This finding indicates that the merger control South Africa process did not identify significant anti-competitive concerns arising from the change of ownership.

Despite the absence of competition concerns, the Commission addressed potential employment impacts by securing an agreement from both Capitec and Sasfin. This agreement includes a moratorium on merger-related retrenchments for a specified period, although the exact duration was not publicly disclosed. This condition highlights the Competition Commission's ongoing focus on safeguarding employment conditions, even in transactions that are otherwise deemed benign from a competition perspective.

Sasfin Group, through its subsidiaries, is well-versed in the asset-backed equipment rental finance space, catering to both corporate and SME customers. Their financing solutions encompass a wide array of essential business equipment, including renewable energy systems, energy-efficient technologies, and other critical technological assets.

The approval of the Capitec Sasfin sale coincides with positive developments within Capitec's broader business banking division. On the very day the Competition Commission granted its permission, Capitec reported a robust 52% growth in its business banking operations, underscoring the bank's continued expansion in this sector.

Capitec CEO Graham Lee provided insights into the bank's market position, noting that Capitec currently holds only 5% of South Africa's business banking market share and 3% of its credit market share. These figures suggest considerable room for growth within the unit, indicating that the Capitec divestment rental finance move allows the bank to sharpen its focus on core areas with higher strategic alignment and growth potential.

This transaction, therefore, not only represents a significant Capitec Rental Finance acquisition for Sasfin Capital but also exemplifies a strategic portfolio optimization trend within the dynamic South African financial services landscape.

Lawyers advising on M&A in South Africa should note the Competition Commission's continued focus on employment conditions, even in transactions deemed unlikely to substantially lessen competition, as evidenced by the imposed retrenchment moratorium. This case also highlights strategic divestment trends in the financial services sector.

Source: Original reporting via Moneyweb