Last week we provided our valued readers with an in-depth explanation of the ‘Due Diligence’ process which plays a central role in assessing the legal and commercial risks frequently encountered by entrepreneurs and investors in business relationships. This week, we will focus on the circumstances under which mergers and acquisitions in investment processes are subject to approval by the Competition Authority and provide details regarding regulatory approvals.

Investment processes and mergers and acquisitions are transactions that hold a significant place in the economic landscape and have the potential to directly impact market structure. Due to the inherent risk of altering competition in the market, such transactions are subject to review by various authorities, primarily competition authorities. In Turkey, the regulatory body in this area is the Competition Authority (the “Authority”), which enforces decisions related to competition law concerning investment processes and mergers and acquisitions under the framework of Law No. 4054 on the Protection of Competition (the “Law”). The Authority is authorized to grant approval for mergers and acquisitions that create a change in control and exceed certain thresholds, making it useful to address such transactions that are subject to approval.

Mergers and Acquisitions Subject to Approval

The Communiqué on Mergers and Acquisitions No. 2010/4 (the “Communiqué”) regulates which transactions are subject to the approval of the Authority. Article 7 states that if a merger or acquisition, as defined in Article 5 of the Communiqué, exceeds the turnover thresholds outlined in Article 7, the parties must apply to the Authority for approval prior to the transaction. Therefore it is necessary to first assess the definitions of mergers and acquisitions provided in Article 5. Not all mergers and acquisitions are subject to approval, but only those defined in Article 5 at which point the second step, evaluating the turnover thresholds in Article 7nwill be required.

Article 5 of the Communiqué stipulates that for a transaction to be considered a merger or acquisition, it must result in a permanent change of control. According to Article 5, a merger is defined as the combination of two or more undertakings in a way that results in a permanent change of control. An acquisition on the other hand is defined as the acquisition of direct or indirect control over all or part of one or more undertakings by one or more persons. This control may be established through the purchase of shares or assets, through an agreement, or by other means. If a merger or acquisition is defined in this manner, the transaction will be considered a merger or acquisition under Article 7, and the turnover thresholds outlined in Article 7 must then be evaluated. If the total turnover of the parties involved in the transaction or their individual turnovers in Turkey exceed certain thresholds, the completion of the transaction will be subject to the approval of the Authority.

According to the Communiqué, for a merger or acquisition transaction to gain legal validity, approval from the Authority must be obtained based on the following turnover thresholds:

a) The total turnover of the transaction parties in Turkey must exceed 750 million TL, and the individual turnover of at least two of the transaction parties in Turkey must each exceed 250         million  TL, or

b) In acquisition transactions, the turnover of the assets or business activities being acquired, or in merger transactions, the turnover of at least one of the transaction parties in Turkey must exceed 250 million TL, and the worldwide turnover of at least one of the other transaction parties must exceed 3 billion TL.

In the relevant Communiqué, the definition of “technology undertakings” was added, and the turnover thresholds for transactions involving these undertakings were amended by the Communiqué (No: 2022/2) Amending the Communiqué (No: 2010/4) on Mergers and Acquisitions Requiring the Approval of the Competition Board, published in the Official Gazette on March 4, 2022. According to the Communiqué, technology undertakings refer to undertakings or assets operating in the fields of digital platforms, software and gaming software, financial technologies, biotechnology, pharmacology, agricultural chemicals, and health technologies. In this context, pursuant to the amendment to the second paragraph of Article 7 of the Communiqué: “In transactions involving the acquisition of technology undertakings that operate in the Turkish geographic market, engage in R&D activities, or provide services to users in Turkey, the 250 million TL thresholds mentioned in subparagraphs (a) and (b) of the first paragraph shall not apply.” Therefore, in the case of acquisitions of such technology undertakings, approval from the Authority will only be required if:

  • The total turnover of the transaction parties in Turkey exceeds 750,000,000 TL, or
  • The worldwide turnover of at least one of the transaction parties exceeds 3,000,000,000 TL.

The second situation requiring approval is the dominance in the market. If the transaction has the potential to create a dominant position in the market or strengthen an existing dominant position, the Authority also has the power to review such transactions. The second paragraph of Article 13 of the Communiqué, titled “Assessment of mergers and acquisitions,” states: “Mergers or acquisitions that result in a significant reduction of effective competition, particularly through the creation of a dominant position or the strengthening of an existing dominant position in the whole or part of the country shall not be permitted.”

As can be seen, the Authority aims to protect free and effective competition in the market. Mergers or acquisitions that create a dominant position in the market or further strengthen an existing dominant position may have a restrictive effect on competition. When evaluating such transactions, factors such as the actual and potential competition of the undertakings, their position in the market economic and financial strength, alternatives for finding suppliers and customers, access to supply sources, barriers to market entry, supply and demand trends, consumer interests, and efficiency activities that benefit consumers are considered.

In conclusion, mergers and acquisitions, as well as investment processes, are subject to review by the Authority due to their potential to directly impact market structure and competition. The Authority subjects these transactions to approval when turnover thresholds are exceeded and in cases where competition may be restricted due to a change in control. These reviews, conducted to ensure the protection of competition and the healthy functioning of the market, take into account factors such as market structure, the creation of a dominant position, and consumer welfare. This process aims to both enhance economic efficiency and preserve a competitive market structure.

In this week’s article series, we have provided readers with detailed information regarding regulatory approvals in mergers and acquisitions. In the continuation of our series, we will focus on the Tax Liabilities involved in such transactions.

For detailed inquiries, you may contact Gemicioğlu Law Firm.

Gemicioğlu Law Office