Now that we know what a concentration is, it is time to dig deeper on the process of how to calculate the combined aggregate turnover of the undertakings party to the merger or acquisition transaction. This is essential in order to determine whether the requisite thresholds set out in the Control of Concentration Regulations (Subsidiary legislation 379.08 of the Laws of Malta) (the Regulations) are met and accordingly, whether pre-clearance from the Office for Competition is required.
Generally speaking, aggregate turnover shall comprise of the amounts derived by each of the undertakings concerned in the respective preceding financial years, from the sale of products and the provision of services to other undertakings or consumers falling under the undertakings’ ordinary activities. Any sales rebates, value added tax and other taxes directly related to the turnover must be deducted from such turnover amounts, together with any turnover generated from the sales of goods or provision of services between group companies, which should also be excluded.
In this respect, it is important to note that for the purposes of calculating the said aggregate turnover for the acquiring undertaking, it is not enough to simply consider the turnover in Malta generated by that undertaking directly involved in the transaction in question. In fact, the Regulations specify that it is the turnover in Malta generated at a consolidated group level that should be aggregated for the purposes of this calculation. This can have wide reaching consequences, especially when ultimately the business being acquired will only form part of the business of the acquiring undertaking.
With respect to the undertaking being acquired, if the merger or acquisition will be limited to a part of its business, then it is only the turnover generated by that relevant part subject to the transaction that should be considered for the purposes of this calculation. If on the other hand, the merger or acquisition transaction relates to the entirety of the business of the undertaking being acquired, then one would be required to aggregate the turnover generated in Malta by the group.
But, what should one consider in order to calculate the aggregate turnover?
The financial statements of the undertakings concerned, drawn up in accordance with the respective reporting standards, constitute an essential source for the purposes of determining aggregate turnover. In this respect, the reported turnover, as disclosed in the financial statements, is presented net of value added tax, other ancillary taxes, and sales rebates. Therefore, the undertakings concerned would not be required to make any adjustments to meet the criteria stipulated in the Regulations.
Furthermore, in determining the turnover generated by group companies as may be required in terms of the Regulations, one may make reference to the consolidated financial statements covering the results of the group of companies that the undertakings concerned form part of. Turnover, as reported in such financial statements, is representative of the total turnover of a parent and its subsidiaries, from the perspective of a single economic entity - eliminating turnover generated from the sales of goods or provision of services between group companies.
Would the latest audited stand-alone or consolidated financial statements be enough to determine the aggregate turnover of the undertakings concerned?
As previously mentioned, for the purposes of determining whether aggregate turnover thresholds are met, one should consider the turnover generated in Malta by the undertakings concerned in the preceding financial years.
That said, a merger, acquisition or joint venture transaction may arise towards the beginning of a financial year, which means that at that stage, it would be likely that more than one year would have passed from the latest available audited financial statements. This is in view of the fact that at that stage, not enough time would have elapsed to complete the audit of the financial statements of the preceding financial year.
The stance taken by the Office for Competition in such circumstances is that the undertakings concerned should still refer to the latest audited stand-alone or consolidated financial statements for the purposes of determining whether the aggregate turnover thresholds are met. That said, these should be considered in light of the latest available management accounts drawn up until the last day of the preceding financial year, despite that these may not be audited. In doing so, the undertakings concerned would be provided with a more up-to-date financial snapshot of the turnover figures of the undertakings concerned.
Get in touch
Our Firm is well placed to assist you and your organisation with all the advice you may require throughout the various stages of a merger and acquisition transaction.
Should you require further information or any assistance in this regard, please do not hesitate to contact us.
*This article does not purport to give any legal, financial or tax advice.
Contact us
