A glance at the website of the Austrian Federal Competition Authority confirms that private equity investors do not always observe competition law. Sanctions for non-compliance with competition law range from fines to ineffectiveness of the complete transaction. Investors should thus be cautious.
The Cartel Court recently imposed a EUR 200,000 fine against a private equity (PE) company (also) active in the motor vehicle sector. The financial investor had not observed obligations in the context of the clearance of a transaction by the Austrian competition authorities (including reporting duties, security trustee).
At least, this PE had lawfully notified the acquisition of interests to the Austrian competition authorities. In practice however even the obligation to notify is not always observed. A fatal error, since - apart from usually easily manageable fines - the whole transaction may be ineffective under civil law if the notifiable concentration is implemented prior to clearance or not notified at all.
Not every acquisition of interest of a financial investor in a company requires notification of a concentration with the Austrian competition authorities. However, the obligation to notify is triggered earlier than generally assumed:
To start with, a transaction constitutes a "concentration" even if the investor would only hold 25% or more of the shares in the other company after the transaction. The necessary elements of a concentration are clearly fulfilled, if the capital share of the investor after the transaction is at least 25%. Even with the capital share not reaching this threshold, a concentration is established if the acquired shares grant voting rights of 25% or more of the overall votes. Conventional PE transactions in particular often include privileges for investors in addition to their minority shareholdings (e.g. with regard to the budget, investment decisions, right to appoint a managing director). Such privileges usually mean a concentration within the meaning of the Austrian Cartel Act Non-exceedance of the turnover threshold remains as a further "lifeline" for PE investors. An obligation to notify is only triggered when the turnover figures of the parties to the transaction for the last financial year exceed the following turnover figures:
- aggregate worldwide turnover of more than EUR 300 million,
- aggregate domestic turnover of more than EUR 30 million,
- and at least two companies with individual worldwide turnover of more than EUR 5 million.
Larger financial investors will easily surpass the turnover threshold of EUR 300 millions by themselves. If the target company (including "co-owners" of the target company who will retain a "qualified" interest after the transaction) has sales in Austria of more than EUR 30 million at the same time, there is an obligation to notify. This holds true even if the financial investor itself (taking into account the other group companies) does not have any sales in Austria. Moreover, in deviation of the EC Merger Regulation, the Austrian rules on merger control provide for an extensive inclusion of turnover figures of affiliates. This can "considerably" increase the relevant turnover figures of the parties to the concentration.
Even the "private equity exception" expressly provided by the law in favor of companies "whose only purpose consists in acquiring participations in other companies as well as conducting administration and realization of these participations" will normally not apply since PE investors traditionally not only "administrate" their participations but also want to exercise their contractual privileges.
In the interest of an "investment policy" complying with competition law, PE funds should carefully examine their investments, taking into consideration also past transactions. This is the only way "dormant" risks resulting from non-notification can be uncovered and managed accordingly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.