Company takeovers in the focus of antitrust authorities

The market is witnessing increasing consolidation, with major corporations rapidly acquiring regional SMEs. This trend has prompted closer scrutiny from competition authorities.

By Dr Florian C. Haus and Dr Denis Fehrmann

Entrepreneurs may choose to sell for various reasons, often due to a lack of suitable successors. Selling to a larger competitor can provide a pathway to preserve the business, secure succession, and maintain regional presence, effectively passing on a lifetime’s work

The consequences of such concentration do not have to be disadvantageous for customers. While a merger between competitors changes the market structure, the pooling of resources can improve competitiveness and ensure the survival of smaller units within corporate groups. The task of competition law is to identify potential risks to competition and take preventive action to counteract disadvantages.

Antitrust approval is not always required

In Germany, the Bundeskartellamt (Federal Cartel Office) assesses transactions based on specific turnover thresholds. If a major lift manufacturer is involved, the target company must have generated over €17.5 million in sales in the year prior to the transaction for approval to be required. Smaller deals typically do not necessitate approval.

Splitting up a company to sell it to one buyer is not possible since successive transactions are added up. The Bundeskartellamt then undertakes a market-specific inquiry, e.g. sale and installation of new lifts, maintenance and repair, modernisation and replacement. The regional dimension also receives the attention of the Bundeskartellamt here, with the market circumstances in the catchment area of the target company being reviewed.

Implications for Deal Execution

When antitrust approval is necessary, it influences the transaction timeline. Purchase agreements are usually signed quickly, with completion and payment deferred until approval is granted—typically within about a month. This creates a period of uncertainty, during which employees are informed, and the buyer may be introduced publicly, but the seller remains in operational control until clearance.

Moreover, as soon as the approval of the Bundeskartellamt has been applied for, the project can be found on the Bundeskartellamt website.

Additional Contractual Considerations

Due to the interval between signing and closing of the transaction, there is a need for additional contractual regulations.

Subject to the merger approval, the buyer is obliged to buy the company and pay the purchase price. But it may not take charge itself. Therefore, the buyer will ask that particular decisions may only be taken with its approval. However, care should be taken to ensure that the seller or management continues to conduct day-to-day operations as before, without the need for constant consultation with the buyer.

In addition, the buyer will frequently demand inclusion of a right of withdrawal in the purchase agreement in the event that after signing but before paying the purchase price significant deteriorations occur in the company. Such provisions carry risks for the seller and are therefore usually not accepted or only to a limited extent.

Conclusion

Despite aligned goals, sellers and buyers often have divergent interests. It is essential for SME entrepreneurs to engage experienced advisors early in the process to safeguard their interests and optimize outcomes.

Dr Florian C Haus is a lawyer and partner of Flick Gocke Schaumburg in Bonn and specialises in competition law.

Dr Denis Fehrmann is a lawyer and associated partner of Flick Gocke Schaumburg in Hamburg and specialises in company transactions and corporate restructuring.

Sector inquiries of the Bundeskartellamt: The Bundeskartellamt is authorised to carry out so-called sector inquiries. For example, the Bundeskartellamt could examine the practices of manufacturers when concluding agreements for maintenance and care and in selling spare parts to independent service providers.

Previous merger approval procedures have made the interest of the Bundeskartellamt in these aftermarkets clear. If the Bundeskartellamt identifies or fears an impairment of competition due to future company purchases, it may oblige companies to give notice of every merger in which the target company has a turnover of more than a million euros. As a result, more transactions would fall under the scope of competition control than previously.