On 19 January 2021, the 10th amendment to the German Act Against Restraints of Competition (“ARC”) entered into force. Besides many other new provisions – in particular targeting big tech companies and platforms – the new ARC will also change merger control in Germany:
Higher domestic revenue thresholds facilitate small and medium-sized M&A deals
The new ARC raises the domestic revenue thresholds which trigger mandatory merger control for M&A transactions. Transactions are now only subject to a mandatory merger control notification in Germany if one of the parties to the concentration generates at least EUR 50 million in Germany and another party to the concentration generates at least EUR 17.5 million in Germany. The global revenue threshold remains unchanged at EUR 500 million.
Worldwide(all parties to a concentration)
Domestic Threshold I(at least one party to a concentration)
Domestic Threshold II(another party to the concentration)
unchangedEUR 500 mn.
OldEUR 25 mn.
NewEUR 50 mn.
OldEUR 5 mn.
NewEUR 17.5 mn.
The threshold increase has an impact on small and medium scale transactions (including many real estate transactions or venture capital investments in start-ups), for which in the past, a filing requirement often existed simply because the transaction involved a powerful investor with large-scale revenues and a target that generated turnover of just over EUR 5 million in Germany. Under the new regime, the target needs to achieve at least EUR 17.5 million in domestic revenues which excludes many such transactions from a mandatory merger control notification.
Revenue calculation – acceptance of IFRS-standards and new calculation methods for transactions in the publishing sector
Under the new provisions, the parties to a merger may now calculate their revenues according to the IFRS standard. This may make life easier for many international investors, as the previous calculation requirements – which were based on the accounting principles in the German Commercial Code – were often difficult to reconcile with the internal accounting standards.
In the publishing sector – where the revenues of the parties involved had to be multiplied by eight – the new law reduces the multiplier to four. As a result, mergers in the publishing sector are only subject to notification if the merging parties have a combined worldwide turnover of at least EUR 125 million, with one of them exceeding domestic revenues in Germany of EUR 12.5 million and another one of 4.375 million.
De-minimis transactions – notification obligation, raised thresholds and bundled market analysis
Under the new regime, the Federal Cartel Office (FCO) is banned from prohibiting a transaction even though it may significantly impede competition on relevant markets, if such markets are very limited in scope, or so called de minimis markets. The de minimis threshold now has been raised from EUR 15 million to EUR 20 million of total annual revenues. Like before, these revenues must have been generated in markets that have existed for at least five years. Furthermore, the ARC also implements the FCO's longstanding case law that allows for a bundled market view of interconnected markets for the purpose of the revenue analysis on de minimis markets.
As a reaction to chains of successive transactions which do not trigger a notification obligation, but which in total may result in the gradual monopolization of certain markets – as allegedly happened in the waste disposal market – the FCO has the right to impose a general notification obligation on a particular company in certain sectors of the economy. However, this obligation is subject to strict standards and requires that: (i) the company that is subject to the filing obligation generated revenues of at least EUR 500 million, (ii) it has a market share of at least 15% in the relevant sector; (iii) there are objective reasons to assume that transactions carried out by this company might significantly impede competition in the relevant sector(s) in Germany; and (iv) the FCO has already performed sector inquiry procedures for the relevant industries. Provided that these conditions are met, a company that is subject to a notification obligation must notify each transaction in the relevant market, if the target generated worldwide revenues of at least EUR 2 million, with at least two-thirds of these revenues being generated in Germany.
Multi-step transactions and containment of split mergers
Following the changes already made by the 8th amendment to the ARC, the legislator further confirmed that several parts of a transaction are to be valued as a single merger if they (i) concern the same companies and (ii) take place within a period of two years. The aim of this clarification is to inhibit the splitting of transactions with the goal of filing only those parts of a transaction that are irrelevant from an antitrust law point of view. This clarification underlines the practice already followed by many of the FCO’s decision-making departments and is in line with the EU Commission’s interpretation of the relevant provision in the Consolidated Jurisdictional Notice.
No notifications on closing necessary
The parties to a merger no longer have to notify the FCO in writing that a notified transaction has also been closed. Nevertheless, there is an obligation to notify the FCO if the parties have forgotten to notify the FCO of a transaction that is actually subject to notification.
Extended Phase II review period
Finally, the phase II review period is extended from four to five months – a change that may be relevant only for larger mergers in sectors that are problematic from an antitrust perspective.
Conclusion – What investors should pay attention to
The ARC facilitates investments in Germany, especially in the small- and mid-size segment. Mandatory notifications with the FCO may be much less frequent in the future than in the past. Even if clearance was often quick, with the new ARC entering into force, signing and closing for many transactions may take place independently of the FCO's four-week initial review period.
However, investors must also be prepared for some innovations: In particular, it remains to be seen how extensively the FCO will make use of the possibility to examine successive transactions. There are also further restrictions for multi-step transactions. Splitting the acquisition structure (e.g., for tax reasons) into several steps and thus postponing the notification obligation to a later point in time – a process that was considered risky under the previously applicable ARC in view of the execution prohibition – may no longer be advisable under the new ARC.
* This GT Alert is limited to non-U.S. matters and law.