Competition law risks in SME acquisitions – When does a “small” transaction become visible to the authorities?
The acquisition of small and medium-sized enterprises (SMEs) does not typically fall within the scope of competition authorities, especially if the value of the transaction does not exceed the notification thresholds. However, recent years have made it clear that even seemingly marginal transactions can trigger the interest of the authorities if they have a disproportionate impact on the market structure.
The role of the referral mechanism: a rethinking of the exercise of powers in the EU
Since the Illumina-Grail case in 2021, the European Commission has been actively applying the referral mechanism under Article 22 TFEU. This rule allows Member States to request the Commission to investigate concentrations that would not normally be subject to notification. In the Illumina-Grail case, the Commission investigated the proposed acquisition by a US biotechnology company (Illumina) of an innovative cancer diagnostics start-up (Grail). Although the transaction did not reach the notification threshold, the Commission nevertheless intervened due to the risk of distortion of innovation potential and competition in the future.
This precedent encourages member state competition authorities to take more active measures. The Hungarian Competition Authority (GVH) has indicated on several occasions that transactions that may raise competition concerns in certain narrow, highly concentrated markets can be investigated even if they fall below the formal thresholds.
When does an SME acquisition become risky?
The acquisition of small businesses may be objectionable from a competition law perspective if:
the business concerned has a dominant position in a narrow geographical or product market,
the seller could have acted as a potential competitor in the market,
the acquisition results in significant market concentration in an area where alternative supply or barriers to entry are high.
Competition authorities are particularly active in sectors where proactive intervention may be justified due to innovation dynamics or rapid concentration in the digital market.
Special considerations on the buyer and seller sides
For buyers, the greatest risk is ex post intervention by competition authorities. As a result of an investigation, the transaction may be prohibited, modified, or, in extreme cases, subject to ex post divestiture. For this reason, it is advisable for buyers to:
conduct a preliminary competition risk analysis, even if below the notification threshold,
incorporate legal safeguards into the sale and purchase agreement (e.g., performance subject to regulatory approval),
consider transaction structures that may reduce competition law exposure (e.g., phased acquisition of shares, options).
At first glance, the seller side appears to be less affected, but when the transaction encounters competition law obstacles, performance may become impossible, which carries financial, strategic, and reputational risks. From the seller's perspective, it may be important to:
assess the market strategy environment of the transaction,
agree on exit mechanisms in advance in case the transaction fails,
obtain appropriate legal advice already during the negotiation phase.
Invisible transactions? Increasingly rare
In recent years, the scope of investigation by competition authorities has expanded significantly. Practices that go beyond traditional notification logic, particularly in the technology, healthcare, and digital markets, make it clear that even low-value transactions can pose significant competition law risks.
Support from Dr. Árpád Vásárhelyi Law Office
Our office supports its clients on both the buyer and seller sides in transactions that are not formally subject to notification requirements but are nevertheless worth examining in advance from a competition law perspective. Our services:
Preliminary competition law screening and risk analysis
SPA planning based on competition law considerations
Coordination of consultations with authorities and notifications
Legal representation in case of a subsequent investigation