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Increasing reliance on internal documents

US-style document production requests are now a standard part of EU merger review. PE houses, financial sponsors and their portfolio companies should implement document retention and creation guidelines not only for deal-specific documents but also ordinary course of business documents.

Extensive document requests as part of complex merger reviews where the transaction raises significant antitrust concerns have been an established investigative technique in the US for many years. However, it is increasingly becoming a focus in other jurisdictions, such as the EU and the UK. This is particularly relevant in the context of bolt-on acquisitions and disposals of portfolio companies to industry buyers. Requests by the EC to produce millions of pages of documents (including emails and other electronically stored documents) on short notice based on keyword searches are becoming routine in complex transactions. The effective use of e-discovery tools and forensic software is now a must-have on big deals.

In the context of notifications made using the simplified procedure, parties will need to provide the transaction documents and certain financial statements as well as certain other internal documents:

  • EU: Copies of all presentations prepared by or for or received by any members of the board of management, or the board of directors, or the supervisory board or other person(s) exercising similar functions (or to whom such functions have been delegated or entrusted), or the shareholders’ meeting analysing the transaction.
  • US: Documents prepared by or for an officer or director for the purpose of analysing the transaction being notified with respect to market shares, synergies, potential for sales growth, markets, expansion into product or geographic markets and other competition-related subjects (so called 4(c) and 4(d) documents).
  • China: Technically, it is optional for parties to submit their internal analyses prepared for the transaction, and unlike the EU and the US, the regulator does not specifically request them. Few clients will volunteer internal documents. 

The document requests in the EU and US do not only cover strategy documents prepared for the particular transaction, but also ordinary-course-of-business documents that the purchaser has created well before the merger is announced. Competition agencies are well aware that the final investment committee papers or strategy documents will usually have been reviewed by antitrust lawyers, so they will rely more heavily on documents created in the ordinary course by lower level management if this helps support their theories of harm. Statements can be taken out of context and be difficult to explain away. It is therefore becoming more and more important for PE houses and financial sponsors to have appropriate document creation and document retention guidelines issued to deal teams (and, crucially, external deal advisers like banks and market consultants) at the outset of a deal.

An example policy can be found here