Successful Merger Clearance
How BCG Helps Clear the Path for Acquisitions

This brochure, one of a series of eight describing BCG’s capabilities
in deal transaction and integration, encourages acquirers to assess
potential antitrust concerns and prepare accordingly. These concerns
are rising both in the European Union and the United States.
The brochure describes merger clearance as a way to reduce therisk of delays and concessions, if not outright blockage, in gaining
governmental approval. Deals that are compelling on paper mightlose most of their value if antitrust authorities require spinoffs or constraints on vital operations, or postpone closing forseveral months. Acquisitions are already a time of high uncertainty,
and buyers can reduce some of this uncertainty by preparing
possible concessions while preserving key elements of the deal.
While acknowledging that every acquisition is different, the brochureexplains the main steps to take in preparing for antitrust issues. These
include reassuring sellers that deals will gain approval and scoping out
ways to sell off certain operations without a fire sale. Clearance teams
need both an understanding of regulators’ mindset and a strategic senseof capturing value from acquisitions.

Introduction
Why Work on Merger Clearance?

With antitrust concerns increasing in recent
years, any large acquisition of a similar businessis going to attract attention. Regulators in muchof the world are objecting to combinations
on multiple grounds. When they allow a deal
to proceed, they can still require remedies
that weaken its economics. Time-consuming
investigation and negotiation can also reducethe deal’s strategic benefits.
These roadblocks appear even before a deal isannounced, as acquirers negotiate with target
companies over terms. When a company puts
itself or a division up for sale, it considers notjust the price offered but also the likelihood of
the deal being approved by regulators. Delays
and concessions mean a smaller real payoff,so sellers may simply reject offers from certain
companies out of hand.

BOSTON CONSULTING GROUP

Fortunately, acquirers can do a great deal to
improve their prospects with both sellers andregulators. The first step is to understand thepotential antitrust concerns with a proposed deal.
How might regulators view the combination andits effect on competition? What can the acquirer
do to proactively mitigate those concerns, either
by providing a convincing framework to regulatorsthat the transaction does not harm competition
or by restructuring the deal in advance? As partof this preparation, the acquirer might also
create a list of potential concessions that would
still preserve the economics of the deal.
This advance work on merger clearance will
increase the certainty of carrying out a deal,
and help avoid long and time-intensive approval
periods. Buyers will reap more of the acquisition
benefits, and faster. It can also help them strike
better deals with sellers.

01

BCG Has Navigated Merger
Clearances for Many Clients.
This Is What We Could
Do for You
As they work toward a deal, acquirers often
pay insufficient attention to merger clearance,leavingthemselves
underpreparedforpotentially difficult negotiations with regulators.
Corporate staffs typically lack the capacity torespond to detailed information requests withtight deadlines. They also do not have the time
to devise potential concessions and assess
how each might affect the economics of thedeal. Acquirers often spend more time andmoney dealing with merger challenges after theannouncement, and with a worse outcome thanthey would have with advance due diligence.

BCG has extensive experience in developing
the economic and business arguments formergers. We have the sophistication andstaffing to handle the sudden demands thatmerger clearance is likely to impose on yourorganization. In addition to assessing thedeal's effects on markets, we suggest modified
arrangements and prepare responses to likely
regulator requests. We work closely withregulators and lawyers, and can orchestrate
a smoother regulatory approval process.
Overall, we can boost the deal certainty without
undermining its economics.

02 									SUCCESSFUL MERGER CLEARANCEA Quick Guide toMerger Clearance
Merger clearance is the process of gaining regulatory approval
for a deal and, if required, carrying out remedies imposed byregulators. Generally, regulators come from the government’s
competition authority, but national security may apply in somecases; and may affect more mergers post COVID-19. Most
countries require acquisitions above a certain size to showthat the deal will not significantly reduce market competition.
Regulators have stepped up oversight in recent years, with
European regulators alone blocking six major deals with a total
value exceeding $59 billion, from 2014 to 2019. The larger thedeal, the more likely it is that regulators will force acquirers tocarry out divestments and other remedies.

Legal advice is essential for understanding
how a deal might concern rregulators, and so
is strategic advice. BCG’s knowledge of market
dynamics complements legal expertise by
explaining how competition works in markets or
how synergies play out in a large organization.
Lawyers may also lack the business experience
to communicate a de-averaged, granular viewof markets to overcome regulators’ macro-levelview of dominance.

BOSTON CONSULTING GROUP

Companies need this understanding in crafting
an acquisition, pitching it to the target, andthen obtaining permission from regulators. The
deal has to meet antitrust concerns while still
generating enough value to justify the expenseand effort of carrying it out. Innovative solutions
are more likely to come when acquirers consider
both strategic and legal issues.

03Even when regulators approve a deal, they may
exact severe remedies that undermine its value.
Here, too, companies need strategic as well as
legal advice. Ideally, companies will prepare
ahead of time and be ready with a set of proposals
that would preserve the deal’s economics. They
will know which remedies they can accept andwhich render the deal unworkable.
In the European Union (EU), the European
Commission requires notification for any merger
with total global revenues exceeding €5 billion
and EU-wide revenues exceeding €250 million
each (of at least two parties). Any merger with
global revenues in the €2.5 billion to €5 billion
range, but with EU-wide turnover exceeding €100
million, also requires filing. The initial phase of
consideration lasts up to 25 business days, but
the authorities can impose a second phase of up
to 90 business days, or more with extensions, if
they opt for additional investigation.

The US government has two antitrust authorities:
the Department of Justice, which typicallyhandles business-to-business industries, andthe Federal Trade Commission, which usuallyfocuses on consumer-oriented industries. For
both, the transaction threshold for filing is a$360 million purchase price, or one party has
sales above $180 million and the other has atleast $18 million. Phase 1 lasts 30 days, with apotential Phase 2 lasting several months due toinformation requests. Acquirers can challenge
the decision in court, including any remedies,but doing so will further delay the deal.
Neither of these authorities defines market
concentration in a way that guarantees merger
clearance. The Herfindahl-Hirschman Index,
widely used by economists, is just one indicator;
regulators can still use their judgment on
potential competitive effects. Acquirers must
therefore explain why their deal would not upset
the competitive balance.

04 									SUCCESSFUL MERGER CLEARANCEIn either jurisdiction, acquirers should try
to avoid going into Phase 2. Requests for
information can eat up much of an organization’stime as well as delay the financial and strategic
gains from the deal. Customers may react
poorly to the uncertainty, giving the acquirer’s
rivals opportunities to attack. Only 2% to 4% oftransactions typically proceed to Phase 2, though
this number is increasing with deal value.
The best way to avoid Phase 2 is to prepare
thoroughly for the notification process before
announcing the deal. That means gathering
market information and using previous rulings
as guidelines to the regulators’ perspective tocompose arguments for approval and for any
acceptable remedies. Acquirers have only a shortwindow of time to dissuade regulators from a
Phase 2 investigation, and the best way to do so is
to answer their questions quickly and completely.
Regulators can demand a variety of remedies
to address their concerns about a deal. Most

BOSTON CONSULTING GROUP

of these involve divestment of assets, either
specific product lines or operations in a specificmarket, by either the acquirer or the target. In
some cases, the regulator might require certain
behaviors, such as sharing intellectual property or
key infrastructure with rivals. Concessions mightalso include supply chain obligations. Firewall
provisions aim to prevent the disseminationof information within a merged firm, such as
sharing upstream supplier information thatwould help a downstream business unit competewith rivals.
Besides the overall increase in antitrust scrutiny,
merger clearance can affect the deal processitself. In cases where a target company has
multiple suitors, it might discount bids that it
expects to draw heightened scrutiny. On theregulatory side, in both the United States andEurope, we have seen concerns about certain
foreign acquirers weakening national security.
Acquirers that prepare ahead and factor in these
dynamics can capture more value from theirdeals.

05

Real Deals, Real Results:
BCG Helped Konecranes
Overcome EU Concerns

Another challenging deal involved Konecranes’
2017 acquisition of MHPS/Demag, the heavycranes division of US-based Terex. Demag was
headquartered in Germany and had a sizable
market share in Europe. Konecranes, basedin Finland, expected intense scrutiny from theEuropean Commission, so it hired BCG to help
with merger clearance.

Our consultants set up a war room in Brussels
and coordinated efforts with Konecranes’
executives and legal counsel. They created andcrystallized a variety of remedy options, thenanalyzed each for its effect on total shareholder
value from the deal. Based on this analysis,
they crafted the negotiation strategy for
remedies, which resulted in full EC approval in
Phase 1. BCG also supported the divestment of
the remedy assets with a vendor due diligenceprocess.

06 							SUCCESSFUL MERGER CLEARANCE

Modeling Merger Clearance
Before the Deal Is Signed
Delays and denials in merger clearance affectsellers as well as acquirers. In cases wherecompanies have multiple bidders, sellers may
discount the bids for combinations likely to face
regulatory scrutiny.
In response, we’ve seen prospective buyers
partner with another bidder that acquires thepart of the seller’s business that is the sourceof regulatory concerns. This type of structure

BOSTON CONSULTING GROUP

may alleviate the seller’s potential misgivings
about deal certainty. However, such deals are
inherently complex to craft. They may also
require the original buyer to offer a financiallyattractive deal to its bidding partner, thus
eroding the economics of acquiring the target.
BCG can support clients in crafting thesecollaborations and modeling the financial
implications.

07Preparing forRegulators
Companies can greatly improve the odds ofsuccess by preparing for the regulatory review
well in advance of announcing the deal. We
recommend a six-step process.
First, the acquirer should set up an antitrust
team with responsibilities separate from thegroups working on target integration. The
antitrust team scopes out the regulatory process
in the relevant jurisdictions. Then it proactively
assesses the risk of regulatory challenges bydefining the relevant markets and evaluating
the deal against the approval thresholds. A
common measure of market concentrationis the Herfindahl-Hirschman Index, but theteam might apply other metrics developed
from industry expert interviews. The teammight then suggest refining the deal structure
and considering alternative arrangements ifneeded.
From there, typically a month before announcing
the deal, the antitrust team engages inprenotification processes with regulators—
setting the negotiating strategy, developing
contingency plans, etc.—to maximize thechance of approval in Phase 1. If regulators
raise concerns, the team can negotiate, andeven suggest divestitures and other remedies.
Once approval is granted, the team should goover the integration plans to reflect any finalized
remedies.
These steps can involve an enormous amountof technical work, under tight deadlines. BCG
adds value by supporting the antitrust team incollecting and analyzing data and by suggesting
ways to accommodate regulators’ concerns.
We can coordinate the data transfer andcommunication between internal stakeholders
such as business units or the management,
and external advisors such as lawyers, andthe regulator. A successful process requires
oversight on tactics, topic owners, and overall
progress. As outside advisors, we can help
ensure the independence of merging companies
prior to the deal’s close, including preventing
gun-jumping practices.
Deals that move into Phase 2 impose a high cost,even if the merger is ultimately approved. That’s
why BCG emphasizes advance preparation. We
aim for rapid response to regulators’ questions;complete, consistent, and easy-to-understandcommunication; prompt data collection andtransfer; and positive face-to-face interaction.

08 									SUCCESSFUL MERGER CLEARANCE

Managing Potential
Remedies

Cost and revenue synergies are usually
essential to a deal’s rationale, and easy tolose if regulators demand divestitures andother remedies. Experienced buyers analyze
the expected synergies by business, function,and region, and consider various regulatory
scenarios. For each scenario, they can assess
the one-off costs of likely divestitures relative
to the total value expected from the deal.
From there, they can set a proactive regulatory
strategy that balances goals for value creation
with regulatory risk.
Acquirers must sometimes engage in gametheory analysis in offering potential remedies.
In some cases, the offer can prevent worse
concessions from being imposed by theregulator; but in others, the acquirer might end
up stuck with a remedy that could have been
avoided.
When divestiture is likely, acquirers will want tomake advance arrangements to avoid disposingof assets at fire-sale prices. In one recent healthcare merger, European regulators required
the buyer to divest a drug and the associatedbusiness operations, including potentiallythe commercial, R&D, and manufacturing
operations. The exact scope of the divestment
would depend on which company was acquiring

BOSTON CONSULTING GROUP

the drug. There were several potential
acquirers, but the regulators determined that
one company was particularly well positioned
to preserve competition. With this designatedbuyer, the acquirer received less than half ofthe drug’s estimated value to the business,
substantially undercutting the overall deal.
Acquirers can reduce this risk by approachingpotential divestitures as rigorously as theywould a regular divestment. BCG can help withan analysis of the buyer universe, including
the value creation rationale for each potential
buyer, as well as the operational scope ofa divestiture that would address both thebuyer’s needs and the regulator’s concerns.
Dealmakers should develop strong marketing
materials that present a compelling equity story
and meticulously prepare for due diligence,
management meetings, and negotiations. (seethe Sell Side Success brochure).
While acquirers tend to focus on landing thetarget and integrating it, investing in advanceto reduce value leakage from fire-sale discounts
may be more fruitful than squeezing out thelast few dollars from synergies.

09

Designing and
Implementing HoldSeparate Arrangements
To carry out a divestment remedy, acquirers
often establish a hold-separate arrangement.
This allows the deal to close before the acquirer
can divest the asset in question.
The arrangement typically involves ring-fencing
the business by limiting information flows withthe main organization. The parties must also
ensure that they treat the ring-fenced businessno differently, or that it acts no differently, toweaken its competitive position.
Ring-fencing can be organizational, maintaining
separate commercial teams, for example, or
limiting the distribution of reports that containsensitive data such as pricing. Regulators
can also require more expensive technicalmeasures, such as systems changes to prevent
access to sensitive data.

Beyond the direct costs of a ring-fenced
arrangement, the separation may impede
the acquirer’s efforts to integrate the target’s
operations, postponing synergies and otherbenefits. It’s important that companies avoid
overkill in ring-fencing. Regulators are often
open to pragmatic solutions here, but reaching
agreement depends on companies developing
a well-considered approach that is clearlycommunicated to regulators. BCG has helped anumber of companies with this.
BCG’s consulting support is well positioned todesign and carry out the ring-fencing, including
any required service-level agreements. We canalso help select the monitoring trustee and thehold-separate manager. We can draw on vast
knowledge in organizational design practices insetting up the separated entity as a stand-alone
business.

10 									SUCCESSFUL MERGER CLEARANCE

Lessons Learned

01

02

03

Merger clearance work can
improve acceptance not justfrom regulators but also fromthe company being acquired.

Acquirers are often worn out
by the effort and stress ofmerger clearance, leaving
them with little time forvalue-generating activities,
such as synergy realization.

Without advance preparation,acquirers can get swept up in
the momentum for a deal andend up with remedies thattake away most of the deal’s
benefits.

04

05

06

Not getting clearance in Phase
1 is usually costly, both directlyin greater effort and expense,
and indirectly in delayedor lost synergies. Advance
preparation improves the odds
of Phase 1 approval.

Acquirers can influence
regulators by doing their
homework and anticipating
concerns.

It’s essential to set up a
separate antitrust team tohandle merger clearance.
Regular integration teams
won’t have the time or
specific knowledge required
to carry out the necessary
tasks.

BOSTON CONSULTING GROUP

11

Deals That We’ve
Helped Happen
2020
2020

2020/2019

2020

2020

Strategic advisor to thebuyer and on PMIStrategic advisor on PMIStrategic advisor on PMI

Value not disclosed

$21B

$16B

2019

buying 49.99% of Santander
Securities Services from
Strategic advisor
in JV transaction

2020

2020

Strategic advisor on PMIStrategic advisor on PMI

$8.5B

$5.0B

2019

2019

2019

buying 22.5% shares ofbuying 5% share ofStrategic advisor to thebuyer and on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

Value not disclosed

Value not disclosed

$200M

€910M

2019

2019

2019

2019

Strategic advisor to thebuyer and on PMIStrategic advisor on PMIStrategic advisor on PMIStrategic advisor to thebuyer, Strategic advisor to
the buyer and on PMI

$956M

$484M

$2.9B

$28B

2019

Strategic advisor
to the buyer

buying core banking
operations of

BOSTON CONSULTING GROUP

13

2019
2019

Strategic advisor on PMI

$2.2B

2018
2018

2018

2018

2018

buying 72% ofStrategic advisor to theacquirer in JV transaction

Strategic advisor to thebuyer and on PMI

combined their mobility
services in an equally
owned joint venture

Strategic advisor
to the buyer$51M

Value not disclosed

2017

2017

2017

2017

Strategic advisor
to the buyer

Strategic advisor on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

$1.2B

$24B

Value not disclosed

$5.2B

2017

2017

Strategic advisor
to the buyer

Strategic advisor
to the buyer

$160M

$0.9B

c. $40B

2018

buying US candy business ofStrategic advisor
to the buyer

$2.8B

2017

14 									SUCCESSFUL MERGER CLEARANCE

Meet Our Team
BCG’s experts represent a rich and diverse group whose
experience comes from solving the key issues faced bycompanies around the world. For every focus area, we also have
local experts who provide pivotal insights into the dynamics ofindividual markets.

TRANSACTION & INTEGRATION EXCELLENCE GLOBAL AND REGIONAL LEADERSHIP

Jeff Gell
Managing Director and Senior Partner
Jeff Gell is a Managing Director and Senior Partner based in BCG’s Chicago office. He
is a core member of BCG’s Consumer, Operations, and Corporate Finance and Strategy
practices and leads the Transaction and Integration Excellence business globally.

Chris Barrett
Managing Director and Partner
Chris Barrett is a Managing Director and Partner based in BCG’s Dallas office. He joined
BCG in 2001, and has worked on Post-Merger Integrations across many industries,
geographies, and topics. Chris has also worked in our Los Angeles and Amsterdam
offices.

Dr. Jens KengelbachManaging Director and Senior Partner
Dr. Jens Kengelbach is a Managing Director and Senior Partner based in BCG’s Munich
office. He is the Global Head of M&A and the Leader of the BCG Transaction Center.

BOSTON CONSULTING GROUP

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BCG’s Transaction and Integration Practice Encompasses:

More than 150 partners and 700 trained
professionals across allseniorities, each withsignificant experiencein corporate development and corporate
finance.

Teams that always
combine the specialist’s expertise with ourproven industry expertise, bringing strategic
know-how to all industries and geographies.

A “solution first” mindset
to help constructively
manage the dealmaking
process at the strategic“macro” level as well
as at the levels of detailrequired.

Daniel Friedman
Managing Director and Senior Partner
Daniel Friedman is a Managing Director and Senior Partner based in BCG’s Los Angeles
office. He is the Los Angeles Office Leader and the Leader of the Transaction andIntegration Excellence business in North America.

Jesper Nielsen
Managing Director and Senior Partner
Jesper Nielsen is a Managing Director and Senior Partner based in BCG’s London office.
He is currently the Regional Leader of our Transaction and Integration Excellencebusiness in Western Europe and South Africa.

Teemu Ruska
Managing Director and Senior Partner
Teemu Ruska is a Managing Director and Senior Partner based in BCG’s Helsinki office.
He is the Regional Leader of our Transaction and Integration Excellence business inCentral and Northern Europe and the Middle East.

16 									SUCCESSFUL MERGER CLEARANCE

Leif Neumann
Associate Director
Leif Neumann is an Associate Director based in BCG’s Hamburg office who joined BCG
in 2012. He is a member of BCG’s Transaction Center and is the dedicated PMI expert inGermany and Austria, in Central and Eastern Europe, Middle East and Affiliates.

André KronimusManaging Director and Senior Partner
André Kronimus is a Managing Director and Senior Partner in BCG’s Frankfurt office andthe global Topic Leader for Corporate Finance & Strategy (especially end-to-end M&A
and PMI) in Health Care, Life Sciences, and Chemicals. He is a core member of both
the Corporate Finance & Strategy and Health Care practice areas as well as the BCG
Transaction Center and the European Corporate Finance Task Force.

Sébastien Bard
Partner and Associate Director
Sébastien Bard is a Partner and Associate Director based in BCG’s Paris office. He joined
BCG in 2009 and is a core member of the Financial Institutions practice and specializes
in leading large-scale transformation and PMI programs.

Niamh Dawson
Partner and Director
Niamh Dawson is a Partner and Director based in BCG’s London office working primarilyin BCG’s Transaction Center. She is an expert on PMI, change management, and culture.

Kim ThomasPartner and Associate Director
Kim Thomas is a Partner and Associate Director based in BCG’s Copenhagen office. He
is BCG’s Global Topic Leader for carve-outs and a core member of the BCG Transaction
Center.

BOSTON CONSULTING GROUP

17

Read All About It
Our clients operate in nearly every industry and region aroundthe world, and they come to us for fresh approaches to theissues that matter most to them. Through a rigorous analysis
of each client’s individual situation, we develop customized
solutions that meet the organization’s specific needs. The caseexamples here illustrate how we help clients sharpen theircapabilities, create value, and deliver sustainable advantage.

The Clean Team Advantage

Successful Due Diligence

How BCG Enhances M&A Success

How BCG Supports Strategic Due Diligence

The Clean Team
Advantage
How BCG Enhances
M&A Success

Successful Due Diligence
How BCG Supports Strategic
Due Diligence

Successful Business Separations

Successful Target Search

How BCG Supports Carve-Outs

How BCG Helps Find Strong M&A Candidates

Successful BusinessSeparations
How BCG Supports
Carve-Outs
BOSTON CONSULTING GROUP

Successful Target Search
How BCG Helps Find Strong
M&A Candidates

19

Successful Merger Integration
How BCG Helps Maximize the Value from a Deal

Successful Merger
Integration
How BCG Helps
Maximize the Valuefrom a Deal

Successful
and Dual Tracks

Successful IPOs,
Spin-Offs, andDual Tracks
How BCG Supports
Effective Transactions

Sell-Side Success
How BCG Supports Divestitures

Sell-Side Success
How BCG Supports
Divestitures

The 2020 M&A Report
Alternative Deals
Gain Traction

20 									SUCCESSFUL MERGER CLEARANCE

BCG’s Transaction Center is the hub of the firm’s global M&A expertiseand provides businesses with end-to-end transaction support, including
strategic decision-making in mergers and acquisitions, preparing
and executing divestitures, and supporting IPOs and spin-offs. The
Transaction Center combines BCG’s deep sector expertise with ourcomprehensive knowledge of, and experience in, all aspects of M&A
across all sectors and industries. These services complement theprocess-focused offerings of investment banks. With more than 300
professionals worldwide, we concentrate on the commercial drivers of
the business plan and equity story. We help both corporate and private
equity clients execute deals efficiently and, more importantly, maximize
value.

Contact:
Dr. Jens Kengelbach
Global Head of M&A
Managing Director and Senior Partner, Munich
Tel. +49 89 2317 4312
kengelbach.jens@bcg.com
https://connect.bcg.com/transactioncenter

BOSTON CONSULTING GROUP

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