German merger rules to be changed, as UK plans increase in merger fees

In its annual economic report (108-page / 1.25MB PDF), the German government laid out plans to modernise competition rules to allow competition authorities in the country to assess planned takeovers even where existing triggers on the notification of such deals to the authorities are not engaged.

Currently, businesses must notify competition authorities in Germany where they have agreed to acquire companies whose annual turnover exceeds set thresholds. Those deals are then subject to approval by the authorities. The merger control regime in Germany is only triggered at the moment when the annual revenues of all parties to the transaction are at least €500 million, as long as the revenue of at least one of the companies is €25m or more, and that of one other participating company is €5m or more. 

The reformed rules will allow the authorities to scrutinise deals where "the transaction value" is "particularly high", even where the sales threshold for merger control referrals are not met, according to the report.

The German government said the proposed changes would account for the fact that start-up companies can have "business ideas" that have "great economic significance" for acquiring businesses with existing market power and help them achieve "a macro-economically unwanted dominance".

Munich-based competition law expert Michael Reich of Pinsent Masons, the law firm behind Out-Law.com, said: "If this is implemented, much will depend on how this new 'transaction value' threshold will be defined. In any event, this will make the exit strategies for venture capital investors more difficult and ultimately may have the effect of punishing successful investments. Depending on how this will be implemented, it may hinder rather than help investments into German start-ups."

The proposals to change the merger control rules in Germany come after Germany's advisory body on competition law last year called for the rules to be updated to better reflect the potential impact on competition where amalgamating businesses have access to vast sets of "commercially valuable data".

The Monopolies Commission said existing rules contain "gaps" that mean that merger and acquisition deals that could "give rise to concerns from a competition policy perspective" are not subject to scrutiny by regulators.

"The acquisition of a company with low turnover cannot be captured under current notification requirements of EU and German law, even in cases where the acquired company holds commercially valuable data, or has a considerable market potential for other reasons," an English language summary of Monopolies Commission report (15-page / 354KB PDF) said. "Therefore, the Monopolies Commission recommends complementing the existing merger control thresholds based on turnover by additional notification requirements based on the transaction volume."

"Such an amendment is necessary to close legal gaps: acquisitions of companies that did not achieve high turnover in the past may give rise to concerns from a competition policy perspective.  In the digital economy, the purchase price often reflects the economic potential of an acquisition target better than the turnover generated previously," it said.

Separately, the UK government has set out plans to increase the fees companies must pay when their mergers are subject to a competition investigation (67-page / 1.35MB PDF).

The Department for Business, Innovation and Skills (BIS) said it will review existing merger fees and look to amend The Enterprise Act 2002 (Merger Fees) (Amendment and Revocation) Order 2012 to increase the fees payable.

BIS said it would look at "introducing an additional higher fee band for mergers involving acquisitions of enterprises with an annual UK turnover that exceeds £120 million to achieve greater cost recovery".

"BIS is currently reviewing the level of merger fees charged by the Competition and Markets Authority (CMA) when it reaches a decision on whether to refer a transaction for an in-depth review," competition law expert Guy Lougher of Pinsent Masons said. "The fees, which were last revised in 2012, vary from £40,000 to £160,000, according to the UK turnover of the target with the highest level of fees being due when the target has UK turnover above £120 million." 

"The current merger fees do not fully cover the CMA’s costs of reviewing transactions, and BIS is considering whether the fees should be increased again in order to be more cost reflective. Any material increase in the existing level of fees will be unwelcome for business, given that many countries do not charge at all for handling merger notifications, and that the existing fees are already non-trivial," he said.