UK - PE helping trade buyers dodge competition rules, says SJ Berwin

Simon Holmes, competition expert and partner at SJ Berwin, said: 'In sectors where the market is dominated by a handful of players, and barriers to entry are high, competition law makes it difficult for companies to acquire their direct competitors outright. As a result, a number of private equity houses are being approached by trade buyers to be the entity that takes control of the competing company, and to allow the trade buyers to acquire minority stakes in their competitors, in order to reduce competition concerns.'

According to Holmes, Trade buyers that pursue this course of action may not escape competition issues completely. Holmes continues: 'The main concerns in this type of deal relate to the significance of minority holdings, information flows and potential collusion between competitors. Such issues are considered in the light of both the merger control regime and the provisions of Article 81(1) of the EC Treaty. It is therefore important for trade buyers to realise that competition issues will not simply disappear with the use of a private equity investor - the focus is simply shifted from one competition concern to another.'

For private equity houses contemplating this type of deal, Holmes advises that they must also consider carefully their exit strategy. 'Selling this type of investment could be problematic. Funds must ensure that, in ‘assisting’ a trade buyer to take a stake in a competitor, they are not left with a restricted investment which can only be sold to a limited group of undertakings.' Holmes concludes, however, that: 'Careful structuring of deals can, however, help minimize or even eliminate competition concerns.'

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