Increasing control puts additional pressure on small and medium-sized mergers

The merger market has witnessed ever tighter regulation and control in recent years. The new, lower turnover thresholds under the Finnish Competition Act have been in force for just over a year, and competition authorities in different EU states keep an increasingly close eye on mergers. Competition authorities continue to develop their investigation methods and have demonstrated that they are ready to pursue new kinds of theories of harm with respect to competition.

Last year saw the cancellation of an increased number of mergers that had already entered Phase II investigation after the Finnish Competition and Consumer Authority FCCA resolved that the mergers could not be approved as is without commitments. The FCCA is in the process of updating its guidelines concerning commitments and merger prohibitions, and is expected to publish the new guidelines in the near future.

In these circumstances, the parties of a merger need to be even more careful in mapping out the merger’s effects and potential remedies as well as in anticipating the competition authorities’ new theories of harm and investigative priorities. The authorities’ possibility to assess mergers in narrowly defined product and geographic markets, together with the lowered thresholds, may lead to even fairly small mergers being risky.

Increased scrutiny also causes uncertainty due to the fact that the merging parties’ view of the market may not always coincide with that of the competition authorities. The costs incurred by the parties may become significant if the competition authority process or the ensuing judicial proceedings take a long time or if a long-advanced merger needs to be cancelled.

This manifests itself in the negotiations concerning risk allocation with respect to authority processes. Buyers in the M&A process increasingly require risk or cost sharing between the parties. As the merger market grows in volume, it can be anticipated that risk allocation negotiations will take on an increasingly important role. It remains to be seen how the system whereby Nordic competition authorities have the right to require a notification even when turnover thresholds are not met will develop and how this will affect mergers.

Nevertheless, companies should continue to pay attention to risk allocation terms and appropriate preliminary reviews in competition-sensitive mergers – even if the mergers are smaller.