German Parliament removes red tape for M&A transactions

The German Parliament passed an overhaul of the German against Restraints of Competition which applies as of 19 January 2021.

The main focus of the law is the introduction of new rules for dominant undertakings in the digital world and the Bundeskartellamt will get new tools to tackle big tech companies. Besides this big change the law also aligned German competition law with the Directive (EU) 2019/1 (ECN Directive) and introduced new rules for merger control.

The law introduces a major increase of the filing thresholds compared to the current level. This will remove filing obligations and will be relevant for foreign-to-foreign transactions that had to be notified in the past but only involved companies with relatively modest turnovers in Germany.

New filing thresholds

Most notably, the law increases the notoriously low turnover thresholds with an increase of the domestic (German) turnover of one participant of EUR 25 million to EUR 50 million and another participant of EUR 5 million to EUR 17.5 million. The changes to the thresholds have been made last minute during the committee meeting as the original draft law only aimed for an increase of the second domestic threshold to EUR 10 million.

The new turnover thresholds for a filing in Germany are:

• All participants in the concentration had a worldwide turnover of more than EUR 500 million in the last business year;

• One participant had a German turnover of more than EUR 50 million in the last business year; and

• Another participant had a German turnover of more than EUR 17.5 million in the last business year.

Similarly, also the filing threshold based on the value of the transaction, which applies if the turnover threshold is not met, has been amended and reads:

• All participants in the concentration had a worldwide turnover of more than EUR 500 million in the last business year;

• One participant had a German turnover of more than EUR 50 million in the last business year;

• Neither the undertaking to be acquired nor another participant had domestic turnover of more than EUR 17.5 million in the business year;

• The value of the consideration exceeds EUR 400 million; and

• The undertaking to be acquired is active in Germany to a significant extent.

The new thresholds are still relatively low when compared to neighbouring countries such as the Netherlands or Belgium which have relative high thresholds for countries of their size, but the German merger control regime will not apply to small transactions as it did in the past. The increase will, in particular relief parties in foreign-to-foreign transactions from merger filing obligations in Germany which often had to be filled due to low second domestic threshold. The increase is also good news for M&A transactions in the start-up space as filing obligations will apply later.

Furthermore, the press and media sector will be relieved from filing obligations. Currently the law provides for a calculation rule that the turnover of media companies has to be multiplied with 8 for the purposes of determining the thresholds. This multiplier is reduced to 4 meaning that less media and press transactions will be caught by merger control rules.

In addition to the new thresholds, the law also increases the threshold for so-called "de minimis" markets from EUR 15 million to EUR 20 million. The exception for "de minimis" markets states that the Bundeskartellamt may not prohibit a merger which concerns a market on which goods and services have been sold for at least 5 years and on which less than EUR 20 million turnover have been made in total in the last calendar year.

New filing obligation

Besides the increase of the thresholds, the new law introduces the power for the Bundeskartellamt to order particular companies to notify, for a period of three years, all transactions in one or several business areas.

This is a new tool for the Bundeskartellamt to order companies to make filings to be able to review so-called "killer acquisitions" even if these are small in size.

The main requirements to be met for such an order are:

• The company in question needs to have a market share of at least 15% (either as seller or purchaser) on the market in question; and

• The order is the dependent on the Bundeskartellamt having conducted a sector inquiry in the market in question.

Already these two requirements limit the scope of the new power of the Bundeskartellamt and in particular the requirement of a sector inquiry serves as an early warning for companies that there may be additional obligations in the future.

Longer review period in Phase II proceedings

Due to the increased complexity of in-depth review in phase II proceedings, the law increases the review period from 4 months to 5 months; i.e. an additional month is added for the in-depth review.

However, the review period for the initial review in phase I which applies to the majority of merger filings remains at one month.

Outlook

Overall the changes to the merger control thresholds will mean that less transactions will be caught. However, parties to transactions still need to review the filing requirements carefully. Other provisions in the German merger control rules, which can have far reaching consequences for example the potential need to treat another 25% shareholder of the target as a formal participant and therefore count its turnover towards the thresholds, remain unchanged.