The Competition Authority likes maverick firms because they tend to increase competition, but acquiring a maverick firm can be tricky. Marco Hickey explains what new draft guidelines could mean for such mergers
- Key indicators of a maverick firm
- New draft guidelines on mergers
- More detailed guidance needed
Mavericks are typically small, aggressive firms and they are favoured by the Competition Authority as they increase competition in the marketplace.Identifying whether a firm is acting as a maverick can be difficult. The three key indicators are: having a higher proportion of new customers than their rivals; seeking out more new customers than other firms in the market; or mopping up a high share of the business ‘lost’ by their competitors.
Acquiring a maverick firm can be tricky, as it is the view of the Competition Authority that there would be less competition among remaining parties if the maverick were absent from the market. Similarly, if you are looking to sell a maverick firm, it can be difficult.The consultation paper on merger analysis issued by the Competition Authority in December 2010 proposes that the current guidelines on mergers, which were drafted in 2002, be amended “to include a more complete discussion of the significance of maverick firms … including that the loss of a maverick firm is most relevant in the context of potential coordinated effects.”
The Competition Authority is now in the process of revising its 2002 guidelines on mergers, having released a set of draft guidelines in September 2013 for public consultation.The 2013 draft guidelines do note that a merger that falls below the HHI thresholds (these are concentration thresholds which are used as an initial guide to determine whether a merger may pose competition issues) may still raise competition concerns where one of the merging parties is a maverick firm. In a similar vein, the draft guidelines also note that a merger involving a firm that acts as a maverick could imply a disproportionate reduction in competition, depending on the significance of the maverick and the extent to which the merged entity will compete less vigorously than the maverick firm prior to the merger.
It would be helpful to potential buyers if the 2013 draft guidelines were amended to include more detailed guidance on when the presence of maverick firms will gain significance for merger reviews. We would suggest a move away from more formalistic tools, such as the HHI thresholds and concentration ratios, towards a more holistic viewing of market realities – but only where sufficient guidance is provided in order to guarantee the optimum balance between flexibility and predictability.The public consultation process on the draft guidelines 2013 has now closed and we eagerly await the publication of the final document.