On January 13, 2022, the German Federal Cartel Office (“FCO”) prohibited ACO Ahlmann SE & Co. KG’s (“ACO”) acquisition of BIRCO GmbH (“BIRCO”).[1]

Both companies (inter alia) provide surface drainage systems.  Surface drainage refers to the drainage of sealed surfaces in outdoor areas, such as streets, residential complexes, private properties, or industrial areas.  There are different systems for surface drainage: linear drainage (drainage channels covered by drain covers), open drainage (drainage channels without cover), point drainage, and other surface drainage systems (e.g., grass pavers or permeable pavement).

While the merging parties strongly argued for a relevant product market encompassing all different types of surface drainage, the FCO’s comprehensive market investigation[2] revealed that linear drainage systems are not substitutable with other drainage systems.  In particular, the FCO’s market test indicated that customers purchasing surface drainage systems precisely demand either linear drainage or one of the other systems as determined during the construction planning stage where all relevant aspects like technical feasibility, economic efficiency and design aspects are considered.  Further, the FCO found significant differences in the supplier structure and thus competitive conditions with regards to the different systems for surface drainage.  Accordingly, the FCO concluded that linear drainage systems form a distinct product market.

In addition, the market test revealed that the parties had significantly underestimated their market shares.  Already today, ACO is the leading supplier of linear drainage systems in Germany.  ACO’s acquisition of BIRCO, the number three supplier in the German market, would have resulted in a dominant position of the merged entity with a combined market share of 45-50% post-transaction, nearly three times that of the number 2 supplier.  The FCO noted that even if the relevant product market were to be defined to encompass also open drainage systems, the merging parties’ combined market share would still exceed 40%.

Finally, the FCO stressed that the merged entity would gain superior access to contracting entities and building material dealers, giving reason to fear that competitors are given less consideration in future calls for tender and squeezed out of the market.

The FCO rarely issues prohibition decisions.[3]  However, in view of the results of the market test and the absence of remedies offered by the parties to address the FCO’s concerns, the FCO had little choice but to prohibit the merger.  The parties did not appeal the decision.[4]

Editors: Katharina Apel and Anna Lubberger

[1]              The FCO’s Press Release, January 14, 2022, available in English here; the full decision is only available in German here.

[2]              The FCO questioned more than 200 competitors, contracting entities, and building materials traders.

[3]              The FCO only issued one prohibition decision in 2021 and none in 2020.  The prohibition of ACO’s acquisition of BIRCO is the first prohibition decision this year.

[4]              See BIRCO’s Press Release of February 14, 2022, available in English here.