The battle against killer acquisitions

Published on 9 January 2024 categories , ,

Late last year, Martijn Snoep, board chairman Authority Consumer & Market (ACM), called for a new “call-in power” for the ACM to subject small acquisitions to a merger control test. These acquisitions include so-called “killer acquisitions”, where a company with already some market power acquires a new innovative company with the aim of averting future competition. Snoep believes it is time to stand up against these seemingly small acquisitions that in reality can create significant competition problems.

Surveillance by the ACM

The ACM has the power to investigate and possibly disapprove acquisitions if they are suspected of restricting competition. However, this only applies to acquisitions where both the acquiring and acquired company have a turnover in the Netherlands of at least €30 million and jointly a global turnover of €150 million. The idea behind this is that acquisitions of companies below this threshold would cause little or no problems. However, practice shows that even small acquisitions can be harmful. One example given by Snoep is the ‘roll-up strategy‘, in which large companies strengthen their position through a series of acquisitions that remain under the ACM’s radar, as in the case of the acquisitions of GP’s offices.

Killer acquisitions

Killer acquisitions are not notifiable because the new company has not yet generated any or low turnover. A widely known killer acquisition is Facebook’s acquisition of Instagram. In 2012, Facebook acquired Instagram for $715 million. The UK Competition Authority (the OFT at the time) gave approval for the acquisition fairly easily and without conditions. In doing so, Instagram was considered an application on which photos could be shared and not a social media platform. As a result, Facebook and Instagram were not seen as competitors in the same market. In retrospect, it turned out that Instagram’s competence was underestimated during the assessment and could indeed have become a competitor to Facebook.

The Dutch Clause

At the insistence of the Netherlands, the ‘Dutch Clause’ was introduced, included in Article 22 of the European Union Merger Regulation. This Clause provides a power for EU member states to request the European Commission (EC) to investigate an acquisition that does not meet the European turnover thresholds.

In 2021, the EC accepted the first case for investigation based on the Dutch Clause, namely the acquisition of Grail, a company developing blood tests for the early detection of cancer, by Illumina, a company offering NGS systems to perform these tests. In September 2022, the EC prohibited the acquisition on the grounds that Illumina would acquire a dominant market position. The EC ruled that the acquisition could harm both competition and innovation in the relevant market. In October 2023, the CE demanded that the entire acquisition should be reversed, with Grail as an independent and viable start-up capable of competing in the market. On 17 December 2023, Illumina officially announced that they will divest GRAIL.

Call-in power

Small acquisitions that do not meet the Dutch turnover thresholds and only have an anti-competitive effect in the Netherlands cannot be referred to the EC. So far, the ACM cannot act against these acquisitions. Snoep therefore calls for a call-in power. This power allows the ACM to retrospectively investigate small acquisitions within a certain period of time. Several countries in the European Union have already opted for such a power.

The ACM’s proposal for a call-in power also leads to criticism. This is because this power could lead to uncertainty for companies. According to Snoep, it is possible to remove this uncertainty by offering the possibility of obtaining clarity in advance. This can be done, for example, by voluntary notification of the acquisition. The disadvantage here is that a company reports an acquisition to the ACM, thereby insinuating that the acquisition may be problematic, with the risk that it cannot go ahead.

Shift in the competition landscape

At the European Commission and several European countries, there has been a shift from merely reviewing large acquisitions to also allowing the review of small problematic acquisitions. The idea that small killer acquisitions can also be problematic has grown. These small acquisitions are not only a threat to competition in the relevant market, but can also thwart green developments by absorbing start-ups with innovative, green technologies. Having created the Dutch Clause, Snoep says it is now time for the Netherlands itself to join the shift in the competition landscape. The proposal for the call-in power will stand or fall with the framework that the ACM will outline for the assessment of small “problematic” acquisitions.



Kirsten Lenssen


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