“Technology Undertaking” Exception for the Calculation of Turnover in
Mergers and Acquisition Transactions in the Light of Competition Board Decisions
- General Overview
In May 2022, various amendments were made to the Communiqué No. 2010/4 on Mergers and Acquisitions Requiring Permission from the Competition Board (“Communiqué”). One of the most important of these amendments is the definition of technology undertakings and the exception granted to these undertakings with respect to turnover thresholds.
According to paragraph 1 of Article 4 of the Communiqué, technology undertakings are defined as “undertakings operating in digital platforms, in the fields of software and gaming software, financial technologies, biotechnology, pharmacology, agrochemicals and health technologies or their related assets”. Paragraph 2 of Article 7 of the Communiqué stipulates that “In transactions regarding the acquisition of technology undertakings operating in the Turkish geographical market or engaged in R&D activities or providing services to users in Turkey, the thresholds of TRY two hundred and fifty million set forth in subparagraphs (a) and (b) of the first paragraph shall not be sought”. Thus, the turnover thresholds of TRY two hundred and fifty million set forth in the Communiqué will not be sought in transactions involving the transfer of technology undertakings. As can be understood at first glance, the concept has two elements: the existence of a local connection and operating in specified industries.
The main rationale of the aforementioned regulation is to prevent the undertakings from being subject to ‘killer acquisitions’. With this regulation, it is intended to minimize the possible anti-competitive drawbacks caused by the turnover thresholds that are taken into account when evaluating whether a transaction is subject to notification or not. Thus, if the undertaking subject to the transfer is a technology undertaking, the turnover thresholds will be sought only for the acquiring undertaking(s), and the transaction will be supervised by the Competition Authority regardless of the fact that the turnover thresholds are exceeded or not with respect to the technology undertakings, provided that the acquirer meets the turnover thresholds in the Communiqué.
II- “Technology Undertakings” within the Light of the Decisions of the Competition Board
- In the Board’s Covetrus Inc. decision dated 07.07.2022 and numbered 22-32/512-209; considering COVETRUS’ activities in the pharmaceutical and software sector for animals, it was evaluated that the subject of the undertaking’s activities may be included in the fields of “health technology” and “pharmacology”, and therefore, the transaction subject to the notification is subject to the Board’s authorization.
- In the Board’s Affidea decision dated 16.06.2022 and numbered 22-27/431-176; it was decided that AFFIDEA is a diagnostic imaging company and operates in the biotechnology sector and falls within the scope of the exemption introduced under the Communiqué
- In the Board’s Corden Pharma decision dated 02.06.2022 and numbered 22-25/398-164; considering that Corden Pharma Group produces APIs and ready-to-use drugs on behalf of pharmaceutical companies, it was concluded that the undertakings subject to the transfer operate in the pharmacology sector.
- In the Board’s decision dated 18.05.2022 and numbered 22-23/372-157 on International Financial Group Limited (“IFGL”); it was stated that IFGL operates in Turkey by providing savings and investment products through life insurance packages to individual investors through a local broker, that its turnover in Turkey is mainly generated from the sale of single premium investment products made by a third party distributor, and that IFGL does not have any other subsidiaries or affiliates established in Turkey. Furthermore, it was stated that IFGL, as a small part of its activities in the life insurance sector in Turkey, also provides services to its customers with digital access through digital platforms, and in this context, there are 230 registered users in Turkey who have access to and use these digital platforms, and it was assessed that IFGL falls within the scope of the definition of “technology undertaking” set forth in the Communiqué due to the said digital platform activity. In the aforementioned decision, it is understood that the limited use of digital platforms is interpreted within the scope of technology undertaking and 230 registered users are considered to be sufficient for the determination of local connection.
III. Observations and Assessments
Based on the Board’s decisions, the following observations and assessments can be made:
- When analyzing the decisions, it is observed that the Board, in general, takes into account (i) the nature of the service provided, (ii) the field of activity, and (iii) the industry (e.g., determination of a technology undertaking in the field of health technology and pharmacology based on pharmaceutical and software activities for animals, or determination of a technology undertaking based on production on behalf of pharmacology companies). More importantly, it is understood that until the date hereof the industries included in the definition of technology undertaking have been considered as numerus clauses and not expanded through interpretation.
- In the Board’s IFGL decision, it is understood that the Board assessed that operating a digital platform limited to 230 registered users in Turkey is sufficient to be qualified as a technology undertaking. The aforementioned assessment is noteworthy in terms of indicating that operating in Turkey with this number of users can be considered as a technology undertaking.
All these explanations show that the Board has taken a broad perspective in the interpretation of the technology undertaking in its decisions to date, and it is difficult to say that the Board’s workload will decrease based on the technology undertaking exception, despite the increase in the turnover thresholds in the Communiqué. Nevertheless, considering the purpose of the amendment, it is possible to say that the Board’s assessment of the lethal takeover risk is accurate.
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