Mergers and acquisitions deal making below threshold

What are M&A transactions? What happens when Mergers and acquisitions transactions take place below the threshold? What does the Court of Justice of the European Union say in the Towercast judgement on M&A transactions? At Gentile Law, expert lawyers in mergers and acquisitions, we explain in the following article

Proper advice in M&A transactions goes beyond negotiating and drafting the contract on behalf of the client. A 360-degree view is needed to foresee and anticipate any legal liabilities outside of the parties’ commercial relationship. This holds true more than ever in relation to competition issues that can potentially impact an M&A transaction.

Traditionally, competition matters only impacted bigger transactions, as the economic thresholds provided by competition laws are very high (e.g., one monetary threshold in Spain is a business volume of more than 10 million euros by the acquired entity). Nowadays, according to the latest European Court of Justice (“ECJ”) ruling, any M&A transaction that has adverse competition effects may be reviewed by national competition authorities, regardless of its economic value.

What should mergers and acquisitions look like in competition law?

The general rule in competition is that transactions which value is over the legal economic threshold must be previously authorized by the national competition authorities or the European Commission (the “Competition Authorities”), in its case. These types of transactions cannot be closed without such authorization.

What happens if M&A transactions do not pass the economic threshold?

Accordingly, transactions that do not meet the economic threshold can be closed by the relevant parties without the Competition Authorities’ authorization. This means that, in practice, a large number of M&A transactions performed within the medium-high to low markets are not reviewed at all. Thus, even if a transaction could have adverse competition effects, it may be performed by the parties.

Up to this point, both attorneys and parties involved in below-threshold transactions have put little thought on competition regulations to close their deals. However, this paradigm has definitely changed following the ECJ’s ruling.

What does the Court of Justice of the European Union say in the Towercast judgement on M&A transactions?

The ECJ’s judgment in Towercast now confirms that transactions falling below EU and national merger control thresholds may be subject to ex-post review by Competition Authorities. That is, even if the deal has been closed Competition Authorities may investigate and, in its case, act against the parties.

The condition, logically, is that such transaction must have adverse competition effects; namely, the transaction would need to create or strengthen the acquiring party’s dominant position. In other words, that only companies whose behavior depends on the dominant entity would be able to remain in the market.

Even if unlikely, this scenario can pose serious risks to the parties. Competition Authorities are invested with many executive and investigative powers. Moreover, competition-related sanctions are very expensive, disruptive, and may include criminal liability.

Hence, from an M&A attorney’s view, this entails that any transaction must be carefully analyzed from a competition perspective to ensure that there are no future, potential liabilities for the involved parties. Currently, below-threshold transactions with competition issues may be reviewed down the road by Competition Authorities, and proper, integral advice is required.

The ECJ Towercast ruling now gives serious food for thought to investors and M&A attorneys. Considering this new criterion in every transaction may be crucial in the future and is certainly useful for attorneys and investors that require a global perspective.

Gentile Law, expert lawyers in mergers and acquisitions

What happens when Mergers and acquisitions transactions take place below the threshold? At Gentile Law, expert lawyers in commercial law, we have years working in complex M&A transactions that require a global approach and are prepared to advise you on all kinds of questions you may have related this topic.

What happens when Mergers and acquisitions transactions take place below the threshold? At Gentile Law, expert lawyers in commercial law, we have been working for years on complex M&A transactions that require a global approach and we are prepared to advise you on all kinds of questions you may have related to this topic. Are you looking for experts in corporate transactions? At Gentile Law we will accompany you throughout the whole process.

Marta Batalla

martabatalla@gentile.law

+34 684 46 04 26