In line with recent developments in other countries, the ACM’s chairman Martijn Snoep has expressed a desire for new competences to review relatively small mergers (in size) that fall below the notification thresholds of the Dutch Competition Act (DCA).[1] In the ACM’s view, mergers that fall below these thresholds can nonetheless cause competition problems. In this respect, two types of mergers are identified.
The first type are so-called killer acquisitions, whereby incumbents acquire small companies developing competing technologies before or shortly after these are brought to market. Much ink has been spilled on this topic in recent times, not least because of the revival of the “Dutch clause” in EU merger control (See Commission Notice on Article 22 EU Merger Regulation).[2]
The second type, buy-and-build strategies, have garnered less attention so far.[3] Buy-and-build acquisition strategies, sometimes referred to as ‘roll up’ strategies, involve expanding market share through a series of acquisitions of smaller players.
The ACM has concerns that such strategies may result in harmful concentrations of market power in certain markets. This is particularly likely to occur in markets with a small geographic scope and niche markets, for example in the healthcare sector.
In this blog, we discuss the ACM’s recent focus on buy-and-build strategies, how it fits in with similar recent developments in other countries, and possible obstacles for intervention that the ACM may face when reviewing smaller transactions.
The ACM’s proposals for tackling small acquisitions
To address smaller, allegedly anti-competitive de minimis acquisitions, Mr. Snoep discusses several potential amendments to the DCA, including lowering notification thresholds altogether, either entirely or for specific sectors.[4] Mr. Snoep’s preferred option however is granting the ACM a ‘call-in power’, whereby it may require firms to notify an acquisition that falls under the notification thresholds for assessment by the ACM.
The ACM has already begun putting theories of harm related to buy-and-build strategies into practice within the existing merger control framework. A notable example is the ACM’s 2021 decision to block the acquisition of Mauritskliniek by Bergman Clinics.[5] Here, the ACM was concerned not only with the acquisition in and of itself but with a series of prior acquisitions which Bergman Clinics had undertaken over many years.[6]
Less public, but nonetheless important, is the ACM’s increased tendency to look for overarching acquisition strategies when reviewing mergers. This has been reflected in requests for information (RFIs) that the ACM sends to the merging parties. In cases where the acquiring party has made a string of acquisitions, the ACM increasingly looks beyond the merger at hand and requests detailed explanations of the acquirer’s strategy. Internal documents play an important role in this analysis and are often requested by the ACM. Moreover, we notice that the ACM will sometimes examine whether subsequent transactions by an acquirer can be treated and reviewed as a single concentration.
Not just a Dutch issue
Legislators and NCAs in other countries have also become increasingly concerned with buy-and-build strategies and acquisitions falling below their national merger thresholds. Often, such concerns are imbedded in a wider uneasiness about the growing importance of private equity in a wide range of sectors and the (perceived) lack of scrutiny by competition authorities. This is discussed in more detail in our previous blog “Demystifying the antitrust case against private equity”.
Ireland, Iceland, Italy, Norway and Sweden have all recently introduced ‘call-in powers’ for their respective NCAs.
The UK’s Competition and Markets Authority has called in several concentrations within the veterinary sector.[7] In each case, the acquirers were backed by private equity companies pursuing a roll-up strategy.
In the United States, similar developments are taking place. Under the proposed changes to the US merger regime that were published by the Federal Trade Commission (FTC) last year, merging parties would be required to disclose prior acquisitions in the same industry, internal strategic documents and to provide a narrative that explains each strategic rationale for the transaction.[8]
Moreover, the FTC, together with the Department of Justice and Department of Health and Human Services, is currently investigating the effect of private equity driven healthcare mergers, in particular those falling below the thresholds of the US merger regime. In this context, FTC chair Lina Kahn commented that competition authorities “cannot turn a blind eye to serial acquisitions.”[9]
Finally, the FTC has started proceedings against U.S. Anesthesia Partners and its private equity investor Welsh Carson. The FTC’s claim alleges that Welsh Carson and U.S. Anesthesia Partners pursued an elaborate strategy to consolidate anesthesia practices in Texas, creating a dominant provider with the power to raise prices. This strategy was pursued by first buying nearly all large practices in Texas and subsequently entering into price-setting arrangement with the remaining independent practices.[10] Interestingly, the roll-up strategy in this case was not reviewed under the US merger regime, but as part of an infringement of US antitrust rules.
Clearly the ACM is not alone in its concerns. Competition authorities and legislators around the world have begun to scrutinize buy-and-build acquisitions more closely.
Potential obstacles for intervention under the Dutch merger regime
Buy-and-build strategies are clearly a growing priority for the ACM. However, it is not a given that it would always be able to intervene if it were granted call-in powers. The substantive thresholds for intervention will not always be easy to meet in cases concerning small acquisitions.
Under the Dutch merger control regime, the ACM may intervene in a concentration, either by blocking it or attaching conditions to its approval, if competition on the Dutch market or a significant part thereof will be significantly impeded as a result of the transaction, particularly by creating a dominant position.[11] While this analysis is inherently prospective, purely theoretical theories of harm cannot justify intervention; the ACM’s analysis must be sufficiently realistic in light of all relevant factors.[12]
This standard raises several issues when applied to buy-and-build strategies. Firstly, a concentration cannot be blocked based on the acquirer’s market share post-transaction. This is considered insufficient for establishing a significant impediment to competition.[13] In other words, the ACM cannot block a merger solely because the acquirer increases its market share through acquisitions. A concrete theory of harm based on negative effects is required.
Moreover, small acquisitions generally only slightly increase the market position of the acquirer. This serves as an impediment to intervention: the ACM may only intervene where the concentration will significantly impede competition on the market. It is of course possible that in certain circumstances an individual acquisition of a smaller target company could significantly impede competition, especially in local or niche markets. But in many cases it will be difficult for the ACM to prove that a small acquisition is the straw that broke the camel’s back.
Finally, it will not be easy to take the overall strategy of the acquirer into account for the review of a specific merger. For example, if the ACM wants to include possible future acquisitions in its analysis of the merger, the requirement that prospective scenarios upon which the ACM bases its decisions be ‘sufficiently realistic and likely’ poses a hurdle. Even if the acquirer has specific targets in mind, these transactions may not materialize for a plethora of reasons. This high degree of uncertainty makes it unlikely that such speculative analysis would survive judicial scrutiny. Indeed, the ACM can only take other transactions into consideration under certain circumstances:
- If two notifiable transactions are interdependent (i.e. one would not be carried out without the other) and have the same acquirer same acquirer, such transactions will be considered part of a single concentration;[14]
- When an undertaking acquires two undertakings on the same market simultaneously, and both these concentrations are notifiable, the ACM will evaluate the transactions in tandem;[15] and
- Where a non-notifiable transaction has been entered into pursuant to an existing agreement, but not yet implemented, it will be included in the analysis as a market element.[16]
In sum, even with new call-in powers, the ACM may not always be able to intervene in roll-up strategies. It will have to aim carefully.
Key takeaways
The ACM, like other competition authorities, has firmly set its sights on smaller transactions and buy-and-build strategies. Besides advocating for new call-in powers for below threshold mergers, the ACM is already putting this policy in practice in relation to mergers that do require notification. Investors that make a series of acquisitions will face closer scrutiny and more detailed requests for information. These information requests increasingly concern the acquirer’s strategy on the relevant market, and internal documents that discuss this strategy. Despite this increased focus, it will not always be easy for the ACM to meet the substantive thresholds for intervention.
[1] Under article 29 of the DCA a concentration must be notified if in the calendar year preceding the concentration: (i) the combined worldwide turnover of all undertakings concerned exceeds €150 million, and (ii) at least two concerned undertakings each achieved a turnover of at least €30 million in the Netherlands.
[2] In 2021, the European Commission published new guidance on the application of Article 22 EU Merger Regulation (the so-called ‘Dutch clause’). Under the referral mechanism of Article 22, national competition authorities (NCAs) may refer a concentration falling below the national notification thresholds to the Commission for review. This clause was introduced to allow Member States without merger control regimes to nonetheless have certain transactions reviewed. Its use had waned as Member States increasingly adopted domestic merger control legislation. By its new guidance, the European Commission significantly expanded the relevance of this article. This change in policy was widely viewed as a response to killer acquisitions in the tech and pharmaceutical sector.
[3] We note, however, that the increased presence of private equity investors in particularly the healthcare and daycare sectors has sparked debate in Dutch politics and media.
[4] Interestingly, until 1 January 2023 significantly lower thresholds applied to mergers in the healthcare sector. However, this sector-specific regime was not extended and mergers in the health care sector are now subject to the regular DCA thresholds. The ACM at that time advocated for extension of the lower thresholds, and expressed concerns that absent these lower thresholds it would not have sufficient powers to prevent problematic concentrations of market power in certain healthcare markets. It is clear that the ACM still very much has these concerns.
[5] ACM Decision No. ACM/UIT/569619 (Bergman Clinics/Mauritskliniek).
[6] This prohibition decision was later quashed by court, on procedural grounds.
[7] See for example VetPartners Limited / Goddard Holdco Limited and Independent Vetcare Limited (IVC) / multiple independent veterinary businesses.
[8]https://www.ftc.gov/system/files/ftc_gov/pdf/p239300_proposed_amendments_to_hsr_rules_form_instructions_2023.pdf
[9] See https://globalcompetitionreview.com/gcr-usa/article/pe-healthcare-deals-under-the-microscope?utm_source=PE%2Bhealthcare%2Bdeals%2Bunder%2Bthe%2Bmicroscope&utm_medium=email&utm_campaign=GCR%2BUSA%2BBriefing
[10] FTC v. U.S. Anesthesia Partners, Inc.
[11] See DCA Articles 37 and 41(2).
[12] District Court Rotterdam, 12 May 2023, ECL:NL:RBOT:2023:4010 para. 3.3; Board of Trade and Industry Appeals, 12 July 2022, ECLI:NL:CB:2022:411 para. 7.1.
[13] Board of Trade and Industry Appeals, 27 September 2022, ECLI:NL:CBB:2002:AE8688 para. 6.4.
[14] Commission Consolidated Jurisdictional Notice, OJ C 95 para. 38-47.
[15] See ACM Decision 132/25.089 Greenery – Van Dijk and ACM Decision 133 Greenery – Perkins.
The Thicket 