March 2022 - On 4 March 2022, the Turkish Competition Authority ("Authority") amended the legislation for Turkey's merger control regime. You can find our initial take on the changes here.
While the quantum leap in the turnover thresholds1 garnered significant attention, the most important change introduced relates to concentrations that involve so-called "Technology Undertakings". Technology Undertakings are exempted from the local turnover thresholds in order to catch "killer acquisitions". This will mean that most of the transactions concerning Technology Undertakings will require filing in Turkey.
Below is our take on what constitutes a Technology Undertaking and what are the implications of this new merger control regime.
What is a Technology Undertaking under the new merger control rules?
Technology Undertakings are defined as undertakings or assets operating in the fields of:
- digital platforms,
- software and gaming software,
- financial technologies,
- biotechnology,
- pharmacology,
- agrochemicals, and
- health technologies.
The exemption applies to any technology undertaking that (i) is active in the Turkish geographical market, (ii) conducts R&D activities in the Turkish geographical market or (iii) provides services to users in Turkey.
As this definition may be seen as quite extensive and rather ambiguous, it is important to make a case-by-case analysis of what can be regarded as a Technology Undertaking.
Which turnover thresholds to consider while acquiring a Technology Undertaking?
The Turkish turnover threshold is not relevant for the acquisition of Technology Undertakings. In this line, such transactions would require the approval of the Turkish Competition Board if:
- the aggregate Turkish turnover of the transaction parties exceeds TL 750 million (approx. EUR 71.9 million or USD 84.8 million), or
- the worldwide turnover of at least one of the other parties to the transaction exceeds TL 3 billion (approx. EUR 287.8 million or USD 339.6 million).2
Is there a separate deal value threshold for the acquisition of Technology Undertakings?
No.
Unlike, the merger control regimes in Germany and Austria, the notifiability of a transaction is not affected regardless of whether the deal value is EUR 5 billion or 5 cents, as long as the turnover thresholds are triggered and the Technology Undertaking exemption applies.
Is an acquisition of a start-up that is not yet active notifiable?
Firstly, we should note that the definition does not cover every potential start-up but simply refers to the relevant areas of activity. However, these areas cover a lot of ground with regards to technology-oriented companies, so, there are a lot of undertakings active in different product markets that all fall under the umbrella of Technology Undertakings. They are purposefully defined in this manner in line with one of the grander aims of competition, which is bolstering innovation.
In this line, if the relevant start-up did not yet launch their product or service but they are currently conducting R&D related to these areas in Turkey, the Competition Board would be expected to examine the acquisition of such a start-up (if the parties' turnover figures satisfy the relevant thresholds).
Will future global deals similar to Facebook/WhatsApp be notifiable under new rules?
Yes. The main aim of the Technology Undertaking exemption is to catch potential killer acquisitions, with an emphasis on the transactions' Turkish nexus. It is obvious that under new rules, the acquisition of Turkish start-ups by any local or global actor will be more closely scrutinised.
As an example, if these new rules were in effect at the time of Meta's (then Facebook) acquisition of WhatsApp in 2014, the transaction would likely have required the approval of the Turkish Competition Board as:
- WhatsApp, being a digital platform active in Turkey, would be considered a Technology Undertaking; and
- Even though WhatsApp's turnover3 would be below the thresholds, Facebook's local and/or global turnover would most probably have triggered the thresholds.
What if the acquirer is also a "Technology Undertaking"?
The Technology Undertaking exemption will apply to acquisitions of Technology Undertakings. Thus, if a Technology Undertaking acquires a non-technology undertaking, the standard turnover thresholds will apply.
Nonetheless, if the transaction is notifiable under the new rules, the acquirer's areas of activity would indeed be of significant relevance. If both the target and the acquirer are active in the same markets in Turkey, this would give rise to an affected market and, therefore, the parties would have to provide extensive information about their sales in Turkey and globally, the market structure and conditions, and other relevant information.
Notably, this also includes information on products and projects being worked on that are not currently available to the public. This information is especially required considering that these products may be substitutes of each other, which would indicate potential competition in the market.
Would any undertaking active in agriculture be included under this definition?
The definition and these measures are put in place to create and maintain a sustainable environment for innovation, especially in areas that are heavily reliant on R&D. Therefore, not every undertaking active in agriculture would be considered a Technology Undertaking. Although, as "agrochemicals" are specifically stated under the definition, undertakings actively selling, manufacturing or developing fertilisers, pesticides, fungicides and other such chemicals are included. The European Commission's Dow/DuPont case and the relevant assessments about "crop protection innovation markets" are quite significant in this regard.4
Would an acquisition of any undertaking that currently has R&D activities in Turkey be notifiable?
While the extent of interpretation of the definition will be closely followed in the upcoming decisions of the Turkish Competition Board, we understand the fields of activity referred to above are specifically chosen because of their significance in the digital world as well as their reliance on R&D and innovation. Therefore, only the R&D activities that relate to the fields stated in the definition would be relevant for the filing requirement.
Conclusion
In general, it can be expected that a lot less merger control filings will be made after the new rules come into effect, unless such transactions concern Technology Undertakings. The strict approach to digital platforms and software companies is understandable in light of the Turkish Competition Board's approach to e-marketplaces as well as the global effects of decisions such as Facebook/WhatsApp and Google/YouTube. Similarly, as stated in several cases and studies, the competition in innovation is particularly important for the pharmaceutical, agrochemical and other sectors defined above. Therefore, the aim to protect innovation in those areas seems sensible as well.
In any case, these issues will be clarified further when these rules are applied to actual cases. Until then, the Turkish Competition Board's approach about so-called innovation markets and technology undertakings will spark a lot of curiosity.
Footnotes
1. A transaction would require approval of the Competition Board if one of the following thresholds under the amended Article 7(1) of Communiqué No. 2010/4 is triggered:
(a) The aggregate Turkish turnover of the transaction parties exceeding TL 750 million (approx. EUR 71.9 million or USD 84.8 million) and the Turkish turnover of at least two of the transaction parties each exceeding TL 250 million (approx. EUR 23.9 million or USD 28.2 million), or
(b) (i) The Turkish turnover of the transferred assets or businesses in acquisitions exceeding TL 250 million (approx. EUR 23.9 million or USD 28.2 million) and the worldwide turnover of at least one of the other parties to the transaction exceeds TL 3 billion (approx. EUR 287.8 million or USD 339.6 million), or
(ii) the Turkish turnover of any of the parties in mergers exceeding TL 250 million (approx. EUR 23.9 million or USD 28.2 million) and the worldwide turnover of at least one of the other parties to the transaction exceeds TL 3 billion (approx. EUR 287.8 million or USD 339.6 million).
2. The amounts in EUR for the financial year 2021 (i.e., 1 January 2021 – 31 December 2021) are converted at the exchange rate EUR 1 = TL 10.42 in accordance with the applicable Turkish Central Bank average buying exchange rate for the relevant time period (i.e., 1 January 2021 – 31 December 2021). Similarly, the amounts in EUR for the financial year 2021 (i.e., 1 January 2021 – 31 December 2021) are converted at the exchange rate EUR 1 = TL 10.42 in accordance with the applicable Turkish Central Bank average buying exchange rate for the relevant time period (i.e., 1 January 2021 – 31 December 2021).
3. It was reported that the app lost USD 138 million and brought in USD 10.2 million as revenue in 2013.
4. Case M.7932 - Dow/Dupont.
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.
