The Netherlands Authority for Consumers and Markets (ACM) wants to have the power to ban smaller mergers and acquisitions if they restrict competition. It appears to have private equity in mind, which is ‘stringing beads’ by acquiring small competitors, such as dental practices or nurseries. In its Commentary section, the Financieele Dagblad newspaper called for government support for this proposal. But we find it ill-considered and unnecessary.
ACM is authorised to assess transactions if the company to be acquired has a turnover of at least €30 million in the Netherlands. This assessment process can take from a month to a year. During that period, ACM assesses whether the transaction will have an adverse effect on competition. Companies are required to provide information and answer questions as part of that process. It is a costly process, also because companies often have to hire specialised lawyers. Companies furthermore have to pay €17,450 or €52,350 per transaction to cover the costs of the procedure.
Turnover thresholds
Some 130 mergers are reported to ACM every year, which are almost always approved. In only one or two cases a year does ACM impose a condition (such as the divestment of a business unit) or prohibit the merger. Two of such merger prohibitions, of Bergman Clinics/Mauritskliniek and Mediq/Eurocept, were recently annulled in court. The healthcare sector was subject to a reduced turnover threshold of €5.5 million until last year. It nevertheless became apparent that ACM imposed a condition or prohibited a healthcare merger less than once a year. This low number, combined with the administrative burden, was in fact reason for healthcare minister Ernst Kuipers to abolish the reduced turnover thresholds.
In light of these figures, there is little reason to extend ACM’s supervision to include smaller acquisitions. The €30 million turnover threshold was introduced 25 years ago because acquisitions of companies that fall below this threshold rarely cause problems. This included private equity-like companies that ‘string beads’. Mandatory reporting of such smaller acquisitions was considered an unnecessary administrative burden for both companies and ACM. The turnover threshold has not been raised in recent years. In fact, due to the high inflation, smaller takeovers already come under ACM’s supervision.
Smaller acquisitions
However, according to ACM, there are acquisitions that fall below the turnover threshold but may nevertheless cause competition problems. Recent acquisitions of veterinarians and GPs have given rise to unrest and questions, also in the media and in politics. It is unclear whether these smaller acquisitions are a problem and how big a problem they are. We do not believe that unrest in the media and in politics is a sound basis for a change in merger supervision. In light of the statistics, there is also no reason to assume that many smaller acquisitions are suddenly problematic.
ACM’s idea is giving rise to uncertainty and an even grater administrative burden for companies. Any merger or acquisition below €30 million potentially falls within the scope of this proposal. Companies will have to investigate to assess the risks and, in the event of doubt, submit a notification. That will lead to an increase in ACM’s workload, which can be absorbed only by hiring additional officers, since it will otherwise be detrimental to other procedures. It would be wiser first to properly investigate the true extent of the problem and the proportionality of reduced thresholds.
New instruments
As a result of a recent European ruling, ACM will also most likely be given the power to classify the acquisition of a small company by a dominant company as abuse, and to prohibit it. The Belgian regulator has already forced telecoms provider Proximus on that ground to sell an acquired competitor to a third party. Only one sentence needs to be removed from the Competition Act in order to do so: that an acquisition cannot be considered abuse of a dominant position. That is an effective tool to avoid possible gut feelings. Let ACM gain experience with this tool.
This does not mean that ACM is now left empty-handed. It has the authority to force companies to change their behaviour if they abuse a dominant position. ACM can therefore act against a company that is dominant after an acquisition and charges high rates, for instance. This standard of proof is slightly higher than that in merger control, but no acute problem will arise if ACM is unable to meet it. The capacity for such an abuse investigation can be better spent than on the official review of even more, even smaller and almost always non-problematic acquisitions.
This blog also appeared as an op-ed in the Financieele Dagblad. The PDF version of the article is available here.
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