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European Union

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

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