Future-proof your business

Business | Thu 23 Oct | Author – Business & Finance mergers and acquisitions

Marco Hickey, LK Shields, examines some of the key points of the new Competition and Consumer Protection Act 2014, which comes into effect from October 31st, from the point of view of Irish SMEs.

The changes introduced by the Competition and Consumer Protection Act 2014 (2014 Act) mean that SMEs can no longer afford to ignore competition law requirements especially when it comes to mergers and acquisitions.

Below are some points all SMEs should be aware of before October 31st.

1) The CCPC will replace the CA and NCA

From October 31st, the Competition and Consumer Protection Commission (CCPC) replaces both the Competition Authority (CA) and the National Consumer Agency (NCA). The stated intention of this move is to create a powerful consumer watchdog.

2) New thresholds for notifiable mergers

Given the recent upturn in economic activity in Ireland and the new influx of foreign investment, many SMEs may seek to capitalise on improved conditions to find a buyer for some or all of its operations. However, changes to the turnover thresholds introduced under the 2014 Act mean that certain transactions will now need to be examined by the CCPC that would not previously have been notified.

The new compulsory merger control thresholds for notifying a merger have been reduced so that they now apply to SMEs, whereas under the regime applicable until October 31st, two quite large businesses were required before the notification requirement applied. In particular, the new turnover thresholds for notification to the CPCC are that, in their most recent financial year: the aggregate turnover in Ireland of the parties is at least €50m; and the turnover in Ireland of each of two or more of the parties is at least €3m.

To take an example that may resonate with SMEs, this means that if a purchaser with turnover in Ireland of €47m seeks to acquire a business with €3m turnover in Ireland, a notification will be required. This is a significant departure from the current position under the Competition Act 2002 (2002 Act) whereby a transaction was only caught if each of the two parties had aggregate worldwide turnover in excess of €40m and one of them had turnover of €40m in the State. Therefore, the new changes can require a notification where only one of the parties has significant turnover, leading to further administrative and filing requirements for an SME seeking to transfer its business, or parts of it, to a larger acquirer.

Any merger or acquisition that triggers the revised thresholds will require compulsory notification to the CCPC and the parties will be required to suspend implementation of the transaction until clearance is granted.

3) New time periods for merger approval

For SMEs, particularly those in dynamic and emerging market, time is of the essence. A merger notification to the CCPC will have a suspensory effect and parties will be unable to implement a transaction until the CCPC has given clearance (either explicitly or by default) for the transaction to proceed. The time periods for the CCPC to review a notified merger have been increased under the 2014 Act. As a general rule, the CCPC has up to 30 working days for a preliminary (Phase 1) review and up to 120 working days where an in-depth review is deemed necessary (Phase 2). These periods are significantly longer than under the 2002 Act.

The importance of taking advice from experts experienced in merger notifications becomes clear when we consider that the CCPC can effectively re-start the clock on the review period if it has not received a sufficiently well-detailed notification. This could lead to further delays and expenses for the parties seeking to close the transaction.

4) Possibility to notify earlier

One possible way for SMEs to speed up the process of obtaining CCPC clearance for a merger is by notifying it at the earliest possible stage. Under a change introduced by the 2014 Act, a notification of a proposed merger may now be made where the undertakings involved can demonstrate a good faith intention to conclude an agreement. Under the current regime, a notification can only be made upon the conclusion of an agreement, which is taken to mean a legally binding agreement (albeit subject to conditions) thereby necessitating a split signing and completion.

The change will allow for a notification to be made upon the signing of a non-binding Heads of Agreement/Letter of Intent, meaning the approval process could run parallel to the negotiation of a final share/asset purchase agreement. This could allow for the CCPC’s examination to take place while the parties are finalising the terms of the transaction.

The amendments to the merger control regime under the 2014 Act will have a significant impact on the type and size of transactions which require notification and mean that Irish SMEs can no longer afford to ignore merger rules.

For more information on merger control or competition enforcement issues, please contact Marco Hickey at LK Shields or telephone on +353 1 637 1522.