The European Commission began consulting on a paper last week which industry participants warned could have ‘a significant’ impact on corporate venturing in Europe.
The white paper titled “Towards more effective merger control” is currently in a period of consultation until October 3. It proposes that the Commission is notified about acquisitions of stakes in related companies of over 20% or of above 5% under certain conditions.
Market participants said the low threshold of the proposals is likely to need scrutiny from corporate venturing units, as it targets the typical stakes which units are looking to buy.
Simon Holmes, a partner at law firm King & Wood Mallesons SJ Berwin, said: “If implemented these proposals could have significant effects on corporate venturing in Europe with investors having to confirm, prior to the purchase of a minority shareholding of over 5%, whether the transaction triggers a notification obligation. This could add significantly more cost and delay to certain transactions.”
Paul Morris, formerly a senior member of Dow Chemical’s corporate venturing unit, and now an advisor to the UK government’s UK Trade and Investment, said: “This would seem to be more applicable to private equity investments rather than early-stage venture capital deals. However, CVCs [corporate venture capital units] will need to understand the possible implications of such proposals on their future investment activities, particularly where they intend to take board seats and/or foster strategic relationships. This includes how these might apply to start-ups with few customers or no customers yet but a clear roadmap of where they intend to compete.”
However, despite the concerns expressed, the European Commission is confident its reforms will be highly targeted. Antoine Colombani , a spokesman for Competition and for Vice President Joaquín Almunia, said: “The review system would be strictly limited to certain categories of minority shareholdings, namely transactions of EU dimension that give a certain degree of influence in a competitor or a vertically related company, i.e. which prima facie may be problematic from a competition point of view. This would cover an estimated 20 to 30 cases per year and would leave benign transactions completely unaffected.”
The UK’s private equity trade body, the British Private Equity and Venture Capital Association, said it was monitoring the potential impact of the white paper.
