Checklist for Jurisdictional Threshold Calculations

Avoid costly mistakes in mergers and acquisitions by mastering jurisdictional threshold calculations. Here's what you need to know:

• What are jurisdictional thresholds? These are financial or market benchmarks (like turnover or market share) that trigger regulatory review for mergers.
• Why it matters: Missteps can lead to fines, delays, legal issues, or even deals being canceled.
• Key thresholds to watch:
  • U.S. (2024): $119.5M size-of-transaction threshold; $478M for mandatory filings.
  • EU: €5B combined global turnover; €250M EU-wide turnover per party.
  • Germany: €500M global turnover + €25M domestic turnover, or €400M transaction value with local activity.
  • Spain: 30% market share in a relevant sector triggers filing.

Steps to ensure compliance:

1. Gather and verify financial data.
2. Identify relevant jurisdictions.
3. Apply specific turnover, transaction value, or market share tests.
4. Consult local legal experts for filing requirements.

Why this matters now: With 14% of billion-dollar deals canceled due to antitrust issues, accurate calculations are critical for smooth transactions. Use this checklist to stay compliant and avoid penalties.

Components of Jurisdictional Threshold Calculations

Jurisdictional threshold calculations involve several key elements designed to evaluate market impact and ensure compliance with regulatory requirements.

Turnover Thresholds

Turnover thresholds are the most widely used metric in merger control. They assess both global and national revenues. For instance, in the EU, mergers must be notified if the combined worldwide turnover exceeds €5 billion and at least two parties each generate over €250 million in EU-wide turnover.

Different countries calculate turnover differently. For example:

• Bulgaria and Hungary focus primarily on national turnover.
• France, Germany, and the Netherlands consider both domestic and global revenues.

Market Share and Asset Thresholds

Market share and asset thresholds add another layer of evaluation, especially in jurisdictions that prioritize local market dynamics. Spain and Portugal are good examples, as they emphasize market concentration when determining filing requirements.

These thresholds examine factors like market share, asset values, and local market impact to assess competitive effects within specific regions.

Transaction Value Thresholds

Transaction value thresholds have become more common, targeting high-value deals that may have strategic importance despite low revenue. Germany and Austria have led the way in Europe with this approach. In Germany, transactions valued above €400 million require mandatory notification if the target has substantial operations in the country.

Here’s a quick breakdown of some jurisdictional requirements:

• EU: Filing is required for deals with €5 billion in combined global turnover and €250 million in EU-wide turnover per party.
• Germany: Combines turnover and transaction value thresholds, requiring notification for deals above €400 million with significant local activity.
• Spain: Filing is mandatory for mergers that result in more than 30% market share in a relevant sector.

This layered approach helps regulators address changing market conditions while maintaining oversight of mergers and acquisitions. Understanding these thresholds is vital for crafting effective compliance strategies.

Checklist for Threshold Calculations

1. Gather and Verify Financial Data

Start by collecting detailed financial information, such as global and regional revenues, asset valuations, and sales figures from the previous financial year. Once you have this data, identify the jurisdictions where filing obligations might apply.

2. Determine Relevant Jurisdictions

Analyze jurisdictions based on factors like combined turnover, market share, and asset values tied to local business activities. Once you've pinpointed the relevant locations, apply their specific threshold criteria to determine filing responsibilities.

3. Conduct Threshold Tests

Use the specific tests required by each jurisdiction, such as turnover or transaction value thresholds, to confirm compliance. For instance, in Germany, notification is mandatory if global turnover exceeds €500 million with €25 million generated locally, or if the transaction value is over €400 million and the target has notable local operations.

4. Consult Local Legal Experts

Work with local legal professionals to navigate the filing process, evaluate exemptions, and organize filing schedules. Focus on:

• Understanding local filing requirements
• Checking for potential exemptions
• Coordinating multi-jurisdictional filings
• Ensuring compliance with all obligations

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Challenges and Practices for Multi-Jurisdictional Filings

Managing Complexity in Multi-Jurisdictional Filings

Once you've tackled threshold calculations, the next hurdle is dealing with the complexities of multi-jurisdictional filings. Each jurisdiction has its own set of thresholds and specific requirements. For instance, in the U.S., the FTC updates annual thresholds under the HSR Act, such as the 2024 size-of-transaction threshold set at $119.5 million.

Using M&A compliance software or project management tools can simplify the process. These tools help organize documentation and ensure consistency across different jurisdictions, making filing processes more efficient.

Voluntary vs. Mandatory Filings

It's important to understand the differences between voluntary and mandatory filings to stay compliant:

Assessing Antitrust Risks

China's regulatory system offers a good example of how turnover thresholds intersect with broader antitrust concerns. The State Administration for Market Regulation (SAMR) might still require notification even if turnover thresholds aren't met, particularly if the transaction could restrict competition.

Key areas to focus on for antitrust evaluations include:

• Analyzing market share in each jurisdiction
• Reviewing past compliance history and interactions with regulators
• Considering how the transaction might affect local competition

Ensuring Compliance Through Accurate Calculations

Key Steps for Staying Compliant

Accurate jurisdictional threshold calculations are essential for avoiding penalties and ensuring smooth transactions. The updated thresholds highlight the importance of precision in these calculations to minimize risks and delays.

Here’s a structured approach to tackle jurisdictional compliance:

Adopting this framework helps companies reduce regulatory risks and simplify their mergers and acquisitions (M&A) processes.

Why Compliance Matters More Than Ever

Jurisdictional compliance is becoming increasingly critical. Recent statistics reveal that 14% of deals valued at $1 billion or more are canceled annually due to antitrust issues. Additionally, 26% of companies abandon over half their deals because of compliance challenges uncovered during due diligence.

Advisory firms like Phoenix Strategy Group specialize in navigating M&A compliance and multi-jurisdictional filings. Their expertise can be a game-changer for companies aiming to avoid costly mistakes.

The financial consequences of missteps in this area can be severe. Staying on top of evolving regulations and refining compliance strategies are essential steps for ensuring successful transactions.

FAQs

What are the thresholds for merger control in the US?

In 2024, the FTC revised U.S. merger control thresholds. The size-of-transaction minimum is now $119.5 million, and deals exceeding $478 million require mandatory filing. These updates reflect the FTC's focus on regulating mergers effectively.

Here are the key thresholds:

• Size-of-transaction threshold: $119.5 million
• Mandatory filing requirement: $478 million
• Party size range: Between $23.9 million and $239 million

Transactions exceeding these limits must file pre-merger notifications under U.S. law. While these thresholds are specific to the U.S., similar rules exist globally, with each jurisdiction setting its own criteria.

For international deals, additional factors like local market share and turnover thresholds come into play. It's crucial to consult local experts to evaluate filing risks, especially in regions with lower thresholds.

Thresholds are just one piece of the puzzle. Other considerations include local regulations, market share, asset valuations, and how the deal is structured. Firms like Phoenix Strategy Group can provide guidance on navigating these requirements across different jurisdictions.

Grasping these thresholds is only the beginning of managing the broader challenges of M&A compliance.

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