In July, following an investigation by the European Commission
merger authority, Industri Kapital, a Scandinavian venture capital
group, was given clearance to continue with its acquisition of
Dyno, a Norwegian chemicals and explosives company. Although,
outside the industry, this may not be considered newsworthy in
itself, what is interesting is that Industri Kapital was only given
the go-ahead subject to divestiture, which is unusual for venture
capital groups. The principal concern of the the timber processing
industry in Finland was that, as Industri Kapital was already
dominant in the supply of formaldehyde and production of resin in
Finland, the acquisition of Dyno would lead to a virtual monopoly
in these areas.
The case acts as a useful reminder that venture capital groups,
who hold strong portfolios in specific industries, must carefully
consider the competition implications before acquiring other
undertakings in the same industry. They may find themselves
(knowingly or not) a dominant force in that particular market and
unable to make any further (and potentially lucrative)
acquisitions, without divesting some of their other businesses.
This may disrupt existing strategy, with the venture capitalist
having to exit a particular business (or indeed market) far earlier
than originally envisaged. Venture capital groups who cannot rely
upon the exemption found in article 3(5)(c) of the Merger
Regulation (relating to financial holding companies whose sole
object is to acquire and manage holdings in undertakings to make a
profit without getting involved in the management of those
undertakings) should, at the outset and as part of the due
diligence exercise of the target company, review their existing
portfolios and ascertain the likely competition impact of the
proposed acquisition. It may be that the further acquisitions will
be blocked or lead to unacceptable undertakings being demanded by
competition authorities, diminishing the attractiveness of the deal
altogether. This should avoid the waste of substantial resources
that might have been used in attempting to acquire companies that
are, from a competition perspective, inappropriate.
Helen Mayfield