EUROPEAN COMMISSION C(2016) 5309 final







To the notifying parties Dear Sir/Madam, Subject:Case M.8073 - ADVENT INTERNATIONAL / BAIN CAPITAL / SETEFI SERVICES / INTESA SANPAOLO CARD

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 and Article 57 of the Agreement on the European Economic Area (1)On 5 July 2016, the Commission received notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which funds managed by Advent International Corporation (“Advent International”, USA) and funds managed by Bain Capital Investors, L.L.C. (“Bain Capital”, USA), acquire within the meaning of Article 3(1)(b) of the Merger Regulation joint control of Setefi Services S.p.A. (“Setefi Services”, Italy) and Intesa Sanpaolo Card d.o.o. (“ISP Card”, Croatia), by way of purchase of shares. Advent International and Bain Capital are collectively referred to as the Notifying Parties, Setefi Services and ISP Card are collectively referred to as ISP Processing and all four are collectively referred to as the Parties. 1.THE PARTIES (2)Advent International is a private equity investor with holdings through its funds in various sectors, including industrial, retail, media, communications, information technology, internet, healthcare and pharmaceuticals (3)Bain Capital is a private equity investment firm investing in information technology, healthcare, retail and consumer products, communications, financial and industrial/manufacturing. (4)Setefi Services and Intesa Sanpaolo Card operate primarily as the in-house card payment processing platform of the Intesa Sanpaolo Banking Group (“ISP”), with negligble sales to third parties. 2.THE OPERATION

(5)The Transaction involves the acquisition, by funds managed by each of Advent International and Bain Capital, of joint control over ISP Processing. This will be done through the same corporate structure, Mercury UK Holdco Limited (“UK Holdco”) which has already been assessed by the Commission to be jointly controlled by Advent International and Bain Capital. On Joint control (6)On April 29, 2016, Bidco, a wholly owned subsidiary of UK Holdco (as Bidco’s guarantor), and ISP (as seller) entered into a Sale and Purchase Agreement, pursuant to which Bidco intends to acquire 100% of the share capital of ISP Processing. Advent International and Bain Capital each indirectly hold approximately 42.5% of the share capital of UK Holdco and Bidco. (7)Pursuant to an Investment and Shareholders’ Agreement the Notifying Parties have the right to appoint between them the majority of the members of the board of directors of UK Holdco. This board is comprised of six directors, two of which are appointed by Advent International and two of which are appointed by Bain Capital. Of the two remaining directors, one is appointed by Clessidra, an Italian private equity fund, and the other by mutual agreement between the directors appointed by Advent International, Bain Capital and Clessidra. For a decision of the board to be valid, a simple majority of directors is necessary, which must include at least one director appointed by each of Advent International and Bain Capital (excluding the executive director). The consent of each of the Notifying Parties is therefore required for all resolutions, thereby giving each Notifying Party a veto over all matters, including those relating to the strategic commercial behaviour of ISP Processing, the appointment of senior management, and the adoption of the budget and business plan. The minority shareholders will have no control rights. Consequently, the Notifying Parties have joint control within the meaning of Article 3(1)(b) of the EU Merger Regulation. (8)The Transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the EU Merger Regulation. 3.EU DIMENSION (9)The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (Advent International EUR […] million, Bain Capital EUR […] million, ISP Processing EUR […] million). Two of them have an EU-wide turnover in excess of EUR 250 million (Advent International EUR […] million and Bain Capital EUR […] million). The undertakings concerned do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. (10)The notified operation therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation 4.RELEVANT MARKETS 4.1.The Parties' business activities (11)ISP Processing is active only in payment card processing services (i.e., technical services for processing payment card transactions, both on the issuing and acquiring side) – which it provides on an almost exclusively captive basis to ISP primarily in Italy, as well as in other countries where ISP operates (Croatia, Hungary, Slovakia, Slovenia and Romania). ISP Processing sales to third parties are negligible. (12)The Notifying Parties jointly control Istituto Centrale Delle Banche Popolari Italiane (“ICBPI”, Italy) which is active through its CartaSi business in card issuing and merchant acquiring only in Italy and San Marino. ICBPI does not offer payment card processing services, but instead obtains these services from third parties (principally from […]). (13)The Notifying Parties also jointly control Nets A/S (“Nets”, Denmark) which provides payment, card, and information services primarily in the Nordic and Baltic countries. Nets has only negligible sales outside these countries and does not offer card processing services (issuer processing or acquirer processing) in any of the countries in which ISP Processing is active. (14)Finally, Advent International solely controls Oberthur Technologies (“Oberthur”, France, which supplies payment cards (generally in conjunction with card personalisation services) and trusted service manager services. (15)Both the Notifying Parties and ISP Processing are active in the provision of card processing services, and the Notifying Parties are also active in card issuing and merchant acquiring, which are downstream of the provision of card processing services 4.2.Relevant Product Market 4.2.1.Card issuing (16)The Commission has previously identified a separate product market for card issuing, distinct from merchant acquiring and card processing. (17)The Commission has further considered whether card issuing could be further segmented along the following lines: (i) Debit vs. credit/charge card issuing; (ii) Universal/hybrid store credit cards vs. special purpose credit card issuing; and (iii) Personal vs. corporate card issuing. The Notifying Parties provided market share data for all of the above segmentations, submitting that the exact scope of the market can be left open. (18)For the present case, the exact product market definitions for merchant acquiring can in any event be left open as the Transaction raises no competition issues under any scenario.

4.2.2.Merchant acquiring (19)The Commission has previously considered that the market for merchant acquiring consists of the activity of contracting merchants for payment card acceptance and the provision of the respective services. (20)The Commission has also considered the possible sub-segments: (i) by payment card schemes (domestic/international), (ii) by payment card brands (e.g. Visa, Visa Electron, MasterCard, Maestro), (iii) by the type of payment card (credit/debit) and (iv) by platform, distinguishing physical point of sale ("POS") terminals and web-enabled interfaces (e-commerce). The Notifying Parties provided market share data for all of the above segmentations, submitting that the exact scope of the market can be left open. (21)For the present case, the exact product market definitions for merchant acquiring can in any event be left open as the Transaction raises no competition issues under any scenario. 4.2.3.Payment card processing (22)The Commission has previously considered that the market for payment card processing may be further subdivided into acquiring processing and issuing processing. (23)Acquiring processing is the merchant oriented side of processing a transaction. It includes network routing of payments towards the corresponding issuing entity and the POS authorisation. (24)Issuing processing is the issuer oriented side of processing a card transaction. It includes the financial and technical requests for payment authorization from the issuing entity, maintenance of local and international blocking lists, verification of card limits, management of card accounts, generation of cardholder statements and invoicing. (25)In the past, the Commission has identified a further sub-segmentation in acquiring processing based on (i) the payment card scheme (national/international) and (ii) the platform, distinguishing between physical POS terminals and through web-enabled interfaces (e-commerce). (26)The Notifying Parties provided market share data for all of the above segmentations, submitting that a sub-segmentation of the acquiring processing market is not necessary in the present case. (27)For the present case, the exact product market definitions for payment card processing can in any event be left open as the Transaction raises no competition issues under any scenario. 4.3.Relevant geographic markets 4.3.1.Card issuing (28)The Commission has previously found that card issuing (and any segment therein) is national in scope. The Notifying Parties submit that the exact scope of the geographic market for card issuing can ultimately be left open in this instance, as the Transaction does not give rise to concerns. (29)For the present case, the exact geographic market definitions for merchant acquiring can in any event be left open as the Transaction raises no competition issues under any scenario. 4.3.2.Merchant acquiring (30)In recent decisions, the Commission confirmed its previous finding that the geographic market for merchant acquiring through physical terminals is most likely national in scope, while for web-enabled transactions the market is at least EEA wide. (31)The Notifying Parties consider that the precise definition of the relevant geographic market may be left open because ICBPI supplies card issuing and merchant acquiring services only in Italy and San Marino, and even on the narrowest basis (i.e., in Italy), the Transaction will not give rise to concerns. (32)For the present case, the exact geographic market definitions for merchant acquiring can in any event be left open as the Transaction raises no competition issues under any scenario. 4.3.3.Payment card processing

(33)The Notifying Parties note that the Commission has previously left open the question whether the provision of payment card processing services is national or EEA-wide in scope, although it has previously assessed these services on the basis of national markets, with the exception of acquirer processing for web-enabled transactions which the Commission has previously indicated may be EEA-wide. (34)The Notifying Parties argue that payment card processing is at least EEA-wide, since processing services can be provided from data centres located in a Member States other than the one in which the customer is located; processing is primarily an IT service provided over an Internet connection from a data centre that may be located anywhere, so it is not essential to have a local presence or local service staff; processing services are largely standardised across Member States, since processing requirements are identical across Member States, with no notable differences between international schemes (such as Visa, or MasterCard/Maestro) and domestic debit schemes. (35)Moreover, there is an ever increasing emergence of pan-European processing providers that provide services to customers across borders. For example, Equens Worldline, Nets, TSYS, First Data, SIX and SIA are all active across multiple Member States. Similarly, major issuers and acquirers (e.g., WorldPay, Barclaycard, Crédit Agricole, Lloyds Bank, RBS, Crédit Mutuel, Swedbank) provide their own processing services centrally in-house, irrespective of the country in which the card payment occurs. Finally the Payment Services Directive contains “passporting” provisions that enable processors to provide services on a pan-EU basis once they are authorised in one Member State. Regulatory requirements therefore are aimed to facilitate rather than hinder cross-border provision of services. This last development has led to a wave of consolidation which currently characterises the European processing sector, in many cases driven by a desire to expand cross-border in order to permit suppliers to offer substantially the same processing services across more countries from fewer data centres. (36)In any event, the exact geographic market definition can still be left open for the purpose of the present case since no competition concerns arise as a result of the proposed transaction under any plausible product and geographic market definition. 5.COMPETITIVE ASSESSMENT (37)To date, ISP Processing can be considered as an in-house supplier and provides services almost exclusively to ISP in the countries where the bank operates. After the transaction, ISP Processing will become a stand-alone, non-captive supplier of processing services to ISP. (38)This structural change will give rise to a horizontal overlap in the provision of processing services, and to two vertical overlaps between processing services upstream (ISP Processing) on the one hand, and card issuing and merchant acquiring downstream (ICBPI). No horizontally, vertically or neighbouring affected markets result in relation to Oberthur, regarding its card manufacturing activities. 5.1.Non-Coordinated Horizontal Effects (39)Regarding the horizontal relationship in processing services, no overlap would arise at national level, as ISP Processing is active in Italy, Croatia, Hungary, Slovakia, Slovenia and Romania; while Nets operates in the Nordic and Baltic countries. (40)At EEA-wide level, no affected market would arise, with combined market shares post-transaction for issuing processing around [10-20]% ([10-20]% for Nets and [0-5]% for ISP Processing) and for acquiring processing around [10-20]% ([10-20]% for Nets and [0-5]% for ISP Processing). The Notifying Parties submit that they would also account for less than 20% combined EEA-wide under any possible further sub-segmentation (i.e., for acquirer processing, by card scheme or by transaction type). (41)Therefore, the Transaction is unlikely to give rise to non-coordinated horizontal effects. 5.2.Non-Coordinated Vertical Effects (42)Concerning the vertical relationship between issuing processing and card issuing, the Transaction would give raise to an affected market only in Italy. Upstream, the market share of ISP Processing for issuing processing in Italy would be below [10-20]% both in volume and in value. Downstream, the market shares of ICBPI in the overall card issuing market would also be around [10-20]%, but as high as [30-40]% (volume) and [60-70]% (value) for credit/charge cards and to [40-50]% (volume) and [60-70 ]% (value) for universal credit/charge cards. (43)Concerning the vertical relationship between acquiring processing and merchant acquiring, the Transaction would give raise to an affected market only in Italy. Upstream, the market shares of ISP Processing for acquiring processing in Italy would be below [20-30]% both in volume and value. Downstream, the market share of ICBPI in the overall merchant acquiring market is [20-30]% in value, reaching [30-40]% for POS merchants and to [50-60]% for merchants accepting international payment cards. 5.2.1.Input foreclosure (44)For both vertical relationships, a possible input foreclosure strategy would require ISP Processing to stop providing issuing and acquiring processing services to ISP (its only customer). The Notifying Parties argue that they have neither the incentive, nor the ability to engage in such an activity. Regarding the incentive, such strategy would require ISP Processing to lose their unique customer, putting at risk its economic survival. As for the ability, ISP could easily resort to alternative suppliers, in particular SIA and Equens Worldline, which have significant market shares of [50-60]% - [60-70]% and [30-40]% - [40-50]% respectively on the Italian market and are not capacity constrained. (45)The market investigation has confirmed the arguments of the Notifying Parties. In particular, it should be noted that ISP as a seller of ISP Processing is fully aware of the details of the Transaction and must have considered that its commercial interests are not at risk when agreeing to it. (46)In light of the above, no input foreclosure is likely to arise as a result of the Transaction. 5.2.2.Customer foreclosure (47)Turning to a potential customer foreclosure in card issuing or merchant acquiring, the Notifying Parties might adopt a post-transaction strategy aimed at favouring ISP Processing as supplier of issuing processing services to the downstream card issuing business and merchant acquiring business, by switching ICBPI's contracts for payments' processing from its current suppliers of such services ([…]), to ISP Processing, and thereby undermine these rival suppliers.