CELEX: 32020M9503
Language: en
Date: 2020-01-30 00:00:00
Title: Commission Decision of 30/01/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9503 - GARDNER DENVER / INGERSOLL INDUSTRIALS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 30.01.2020
                                                                C(2020) 614 final
                                                                                 PUBLIC VERSION
                                                                 In the published version of this decision,
                                                                 some information has been omitted
                                                                 pursuant to Article 17(2) of Council
                                                                 Regulation (EC) No 139/2004 concerning
                                                                 non-disclosure of business secrets and other
                                                                 confidential information. The omissions are
                                                                 shown thus […]. Where possible the
                                                                 information omitted has been replaced by
                                                                 ranges of figures or a general description.
                                                                To the notifying party
Subject:            Case M.9503 – Gardner Denver/Ingersoll Industrials
                    Commission decision pursuant to Article 6(1)(b) of Council Regulation
                    No 139/20041 and Article 57 of the Agreement on the European Economic
                    Area2
Dear Sir or Madam,
(1)       On 16 December 2019, the European Commission received the notification of a
          proposed concentration pursuant to Article 4 of Council Regulation (EC) No
          139/2004 by which Gardner Denver Holdings, Inc. ("GDI") acquires within the
          meaning of Article 3(1)(b) of the Merger Regulation control of the whole of
          Ingersoll-Rand U.S. HoldCo, Inc. ("IR Industrials") (the "Transaction").3 IR
          Industrials is referred to as the "Target" and together with GDI as the "Parties".
1.        THE PARTIES AND THE OPERATION
(2)       GDI (US-based) is a provider of air and gas compression equipment and aftermarket
          parts and services for industrial, energy and medical industries. GDI designs,
1    OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation”). With effect from 1 December 2009, the Treaty on the
     Functioning of the European Union (“TFEU”) has introduced certain changes, such as the replacement of
     “Community” by “Union” and “common market” by “internal market”. The terminology of the TFEU will
     be used throughout this decision.
2    OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3    Publication in the Official Journal of the European Union No C 428, 20.12.2019, p. 41.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---         manufactures and markets compressors, vacuum pumps and blowers for a range of
        industrial applications.
(3)     IR Industrials (US-based) is the industrial business of Ingersoll-Rand (Ireland),
        active in air and gas compressors, blowers, vacuum pumps, gas systems and
        services, power tools and material handling systems, as well as utility and consumer
        low-speed vehicles.
(4)     Pursuant to a Separation and Distribution Agreement dated 30 April 2019, Ingersoll-
        Rand will spin off IR Industrials by either (i) causing Ingersoll-Rand shareholders to
        receive all of the shares of IR Industrials, or (ii) consummating an offer to exchange
        shares of IR Industrials for shares of Ingersoll-Rand.
(5)     IR Industrials will then be merged with Merger Sub, a corporation wholly-owned by
        GDI and newly created for the purpose of consummating the Transaction. IR
        Industrials will continue as the surviving corporation and become a wholly-owned
        subsidiary of GDI. The separate existence of Merger Sub will cease.
(6)     The post-Transaction GDI board will consist of ten members, including seven
        current GDI directors selected by the GDI board, and three directors selected by
        Ingersoll Rand. Voting rights will be exercised within the Board of Directors by a
        simple majority, and Ingersoll Rand will not retain any consent or veto rights. As a
        result, immediately following closing, IR Industrials will be owned by and solely
        controlled by GDI, within the meaning of Article 3(1) of the EUMR.
2.      UNION DIMENSION
(7)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million.4 Each of them has an EU-wide turnover in excess of
        EUR 250 million, but they do not achieve more than two-thirds of their aggregate
        EU-wide turnover within one and the same Member State. The notified operation
        therefore has an EU dimension.
3.      COMPETITIVE ANALYSIS
3.1.    Market definition
3.1.1. Air compressors
3.1.1.1. Product market definition
(8)     Air compressors are mechanical devices used to increase the pressure of air and
        reduce its volume. Industrial air compressors are able to release the compressed air
        at a high velocity and pressure and can be used to drive other machines. Air
        compressors are used in a wide range of applications including industrial,
        manufacturing and domestic use.5
4   Turnover calculated in accordance with Article 5 of the Merger Regulation.
5   Form CO, paragraph 148.
                                                          2
 ---pagebreak---         (A)        The Commission's decisional practice
(9)     In Ingersoll-Rand / MAN, the Commission distinguished between (i) air
        compressors, (ii) process gas compressors, and (iii) air ends.6 The Transaction does
        not result in reportable markets for process gas compressors, therefore this potential
        sub-segment will not be further discussed.
(10)    The Commission stated in Alchemy / CompAir that air compressors can be
        segmented in the following categories: (i) portable vs. stationary, (ii) oil-injected vs.
        oil-free, (iii) by type of technology used and (iv) by capacity, but ultimately left the
        product market definition open.7
(11)    The segmentation based on capacity the Commission used in Ingersoll-Rand / MAN
        defines (i) large stationary air compressors as having a pressure range from 15 to up
        to 200 bar, (ii) standard air compressors (mobile and stationary) as covering 4-14 bar
        and (iii) low pressure machines as covering a range of less than 4 bar.8
        (B)        The Notifying Party's view
(12)    The Notifying Party agrees that air compressors constitute a relevant product market
        distinct from gas compressors. In any case, the Parties do not overlap in gas
        compressors in the EEA based on technology.9
(13)    The Notifying Party considers that the further segmentation discussed by the
        Commission in paragraph (10) is appropriate.
(14)    The Notifying Party states that segmentation by technology would be relevant.
        Technologies used in air compressors include rotary screw, water injected screw, dry
        screw, scroll, rotary vane, rotary lobe, liquid ring, reciprocating piston, and
        centrifugal.10
(15)    The Notifying Party argues that a segmentation by application is unnecessary, as
        they consider air compressors general purpose products.11
        (C)        The Commission’s assessment
(16)    The Commission considers that air compressors and gas compressors constitute
        separate markets.12
(17)    As will be explained, the Commission considers there can be a further potential sub-
        segmentation (i) between low, medium and high output pressure air compressors,
6   Commission decision of 28 July 1994 in Case No. COMP/M.479 – Ingersoll Rand / Man, paragraph 17.
7   Commission decision of 17 June 2002 in Case No. COMP/M.2834 – Alchemy / CompAir, paragraph 5.
    For completeness, in this Decision it was found that low pressure compressors might constitute a separate
    market named blowers but the Parties' activities in the segment do not lead to horizontally affected
    markets. Form CO, paragraph 248.
8   Commission decision of 28 July 1994 in Case No. COMP/M.479 – Ingersoll Rand / Man, paragraph 17.
9   Form CO, paragraph 345.
10 Form CO, paragraph 170.
11 Form CO, paragraph 409.
12 As, in any case, the Transaction does not result in affected markets on the market for gas compressors, this
    market will not be further discussed in this Decision. Form CO, paragraph 234.
                                                            3
 ---pagebreak---        (ii) between oil-free and oil-lubricated air compressors, (iii) between stationary and
       portable air compressors and (iv) between air compressors based on different
       technologies.
(18)   First, the results of the market investigation support a distinction between air and gas
       compressors according to the majority of both competitors and customers,
       “[b]ecause it is not the same process and […] a different compressor technology.
       Gas compressor [sic] can convey different type of gas (sometimes including Air)
       whereas air compressor [sic] can ONLY convey Air.”13 The Commission therefore
       distinguishes between air and gas compressors. However, only in air compressors is
       there an overlap resulting in an affected market. Therefore the present Decision will
       focus on air compressors.
(19)   Second, the results of the market investigation confirmed a plausible distinction of
       types of air compressors by output pressure. A majority of respondents agreed on the
       main distinction being between low pressure air compressors, called "blowers" (< 2
       bar) and other types of air compressors (2 bar or more). There appears to be a
       “common understanding that the definition of compressor is applicable for the
       system able to provide a discharge pressure over 2 bar g”. As a competitor
       explained, “[t]o distinguish air blowers and air compressors is reasonable due to
       different product types, applications, engineering requirements and mostly different
       competitive dynamics as well as market channels. Further distinction between
       medium and high pressure air compressors is necessary.”14
(20)   As for this further distinction, suggested by a limited number of competitors and
       customers, the definition seems to be less clear-cut. For instance, one customer
       suggests a distinction “between Blower (<2 bar), industrial air compressor (<15
       bar) and high pressure compressor (>15 bar)”15. A competitor distinguishes
       between “standard pressure air compressors 2 - 15 bar g, medium pressure air
       compressors 16 - 100 bar g, high pressure air compressors above 100 bar g”.16 The
       Commission considers that the exact split between the markets based on their output
       pressure can be left open. However, the Parties’ activities in the low and high
       pressure segments of air compressors do not lead to affected markets. Therefore the
       present Decision will focus on the medium pressure segment for air compressors.
(21)   Third, oil-free and oil-lubricated air compressors can also be regarded as two
       separate product markets, according to the vast majority of the respondents to the
       market investigation, as “technology, production costs and prices, health and
       environment and security aspects etc. are different”.17 Whereas for some
       applications, oil-free and oil-injected air compressors are substitutes, “[f]or some
       application field [sic] like Pharma environment, oil-free air compressor is
       mandatory to avoid contamination by oil”. In addition, “oil-free technology is much
       more expensive than the oil-injected technology”.18 The Commission considers that a
13 Reply to question 3 of Questionnaire to customers.
14 Reply to question 3.1 of Questionnaire to competitors.
15 Reply to question 4.1 of Questionnaire to customers.
16 Reply to question 4.1 of Questionnaire to competitors.
17 Reply to question 5 of Questionnaire to customers.
18 Reply to question 5 of Questionnaire to customers.
                                                         4
 ---pagebreak---         further sub-segmentation based on whether air compressors are oil-free or oil-
        lubricated can be left open.
(22)    Fourth, a small majority of respondents of the market investigation supported a
        segmentation between stationary and portable air compressors. Respondents noted
        that in some cases, portable air compressors can substitute stationary air compressors
        and are “used as a backup compressor in cases when a stationary compressor
        fails”.19 However, generally applications and customer groups are different as
        “stationary compressors go mainly into [sic] manufacturing industry, portable
        compressors mainly into the construction industry”20 and “the cost of ownership is
        lower for the stationary compressors.”21 The Commission considers that a further
        sub-segmentation based on whether air compressors are portable or stationary can be
        left open. The Transaction does not result in reportable markets for portable air
        compressors, therefore this potential sub-segment will not be further discussed. The
        present Decision will therefore focus on stationary compressors.22
(23)    Fifth, the results of the market investigation also suggested a segmentation by type
        of technology used. Types of technology that have been mentioned both by the
        Notifying Party and respondents of the market investigation are piston, rotary vane,
        screw, centrifugal, etc. Respondents explained that certain technologies are close
        substitutes and can be interchanged from a technical point of view, but depending on
        the application, each technology has certain advantages and disadvantages: “the one
        or the other compressor technology has some specific advantages or disadvantages
        such as long life time, heat, maintenance, air quality, basically price. So mostly one
        Technology is leading in a certain application or you have 2 leading
        technologies.”23 The Commission considers that a further sub-segmentation by type
        of air compressor technology can be left open.
(24)    Sixth, the results of the market investigation show that an additional segmentation by
        application would not be pertinent. A vast majority of competitors and a majority of
        customers who responded to the market investigation confirmed this. Most
        respondents noted that the categories outlined in recitals (18) to (23) would be
        sufficient, explaining that different technologies could be used for the same
        application and a specific technology could be used for different applications.24 As a
        competitor explained, “[c]ompressed air is a very neutral type of energy,
        comparable to electricity, so the market should not be further sub segmented by
        application or industry.”25 Therefore, the Commission considers that a further sub-
        segmentation by application should not be warranted as it was clearly rejected by the
19 Reply to question 6.1 of Questionnaire to customers.
20 Reply to question 6.1 of Questionnaire to customers.
21 Reply to question 6.1 of Questionnaire to customers.
22 The Commission had been made aware that in the lower pressure segment of compressors (also called
   blowers), the Parties may have a non-negligible presence for specific applications (such as trucks).
   However, since this market segmentation is not warranted, as the Commission found there exist
   alternative suppliers of similar products and as the lower pressure segment of compressors does not lead to
   any affected market under the plausible market definition discussed in Section 3.1.1.1.(C), this will not be
   further discussed.
23 Reply to question 7.1. of Questionnaire to competitors.
24 Replies to questions 8 and 8.1 of Questionnaires to customers. Replies to questions 8 and 8.1 of
   Questionnaires to competitors.
25 Minutes of a call with a competitor of 12 November 2019.
                                                           5
 ---pagebreak---         market investigation. A further sub-segmentation by application will therefore not be
        further discussed.
(25)    In conclusion, the Commission will analyse the Transaction on the basis of all
        plausible product markets and combinations of them (as listed below), but will leave
        the market definition open (except on a potential segmentation by application that
        will not be discussed as explained in paragraph (24)) as the Transaction does not
        raise concerns on any plausible market.
3.1.1.2. Geographic market definition
        (A)        The Commission's decisional practice
(26)    The Commission has previously considered the markets for air compressors to be at
        least EEA-wide, and maybe even global, given the large trade flows and low
        transportation costs, but has left the definition open.26
        (B)        The Notifying Party's view
(27)    The Notifying Party considers the market for the manufacture and supply of air
        compressors to be EEA-wide because (i) the competitive landscape and dynamics
        differ substantially between EEA and the rest of the world, (ii) consumer preferences
        vary across regions as customers in the EEA have a distinct demand profile from
        many non-EEA customers, (iii) the Parties organise their sales and marketing
        organisations by region and (iv) products sold in the EEA must meet EEA specific
        standards.27
        (C)        The Commission’s assessment
(28)    The market investigation has shown mixed results, according to which the market
        for air compressors could be EEA-wide or worldwide. A majority of competitors and
        customers considers the market as worldwide, as “[a]ll main competitors of air
        compressor deliver worldwide and are in competition in all countries”28 and “[o]nly
        some smaller compressor packagers supply mainly in their home country.”29
        Respondents generally considered regulatory requirements (like for instance the CE-
        approval) as not constituting entry barriers within or to the EEA.30
(29)    Several customers and competitors also note that “[w]ithout nationwide distribution,
        engineering, maintenance and service network the success of market penetration
        would be not possible.”31 Nevertheless, the Commission finds that national markets
        are not appropriate in this case. A majority of competitors who responded to the
        market investigation stated they would be able to use an existing distributor in order
        to supply air compressors in a new Member State in the EEA, or use other means.
        Several competitors argue that other options exist, such as “import by the final
26  Commission decision of 17 June 2002 in Case No. COMP/M.2834 – Alchemy / CompAir, paragraph 7-8.
27  Form CO, paragraph 370.
28  Reply to question 9.1 of Questionnaire to competitors.
29  Replies to question 9.1 of Questionnaire to competitors.
30  Minutes of a call with a customer of 4 November 2019 (paragraph 5), see in particular: “there are no
    specific constraints (of a regulatory nature, or other) to source at EEA or world-wide level”.
31  Reply to question 10.1 of Questionnaire to competitors.
                                                             6
 ---pagebreak---          customer”32, sale through an independent distributor “as well as sale through online
         channels.”33
(30)     Indeed, none of the competitors who participated in the market investigation are
         active at national level only, but most of them have activities at a global level (with a
         focus on developed countries). Even smaller competitors who do not export
         worldwide confirm that the “same compressors producers are on the whole EU
         market.”34
(31)     In any case, the exact definition of the air compressor market can be left open
         between the EEA and worldwide, as the Transaction does not give rise to serious
         doubts as to its compatibility with the internal market or the functioning of the EEA
         Agreement even on the narrowest plausible markets on any of the two plausible
         geographic market definitions.
3.1.2. Vacuum pumps
3.1.2.1. Product market definition
(32)     Vacuum pumps remove air or gas to reduce the pressure below atmospheric levels.
         They have a wide range of applications from domestic to industrial use. Vacuum
         pumps rely on the same technologies as compressors, but employ them in reverse.35
         (A)        The Commission's decisional practice
(33)     The Commission has not analysed the market for vacuum pumps previously.36
         (B)        The Notifying Party's view
(34)     The Notifying Party considers that vacuum pumps constitute a distinct product from
         compressors. This is because instead of creating positive air displacement, vacuum
         pumps create a reduction in pressure. The use of the two products is therefore quite
         different.
(35)     While proposing to leave the market definition open, the Notifying Party argues that,
         similarly to compressors, vacuum pumps may need to be distinguished for (i) oil-
         injected vs. oil-free, and (ii) by type of technology used. Indeed, vacuum pumps,
         similarly to compressors, rely on a range of technologies such as, rotary vane, dry
         claw, dry screw, rotary lobe, liquid ring, and centrifugal.
32  Reply to question 10.2 of Questionnaire to competitors.
33  Reply to question 10.2 of Questionnaire to competitors.
34 Reply to question 9.1 of Questionnaire to competitors.
35 Form CO, paragraph 106.
36 This is with the exception of one precedent that exclusively focused on vacuum pumps for cars as relevant
    markets. The market for the manufacture and supply of vacuum pumps was analysed in a similar way as a
    car component. In the precedent at hand, only this very specific type of pumps was relevant for the
    decision, i.e. as an input installed in a car. The Commission considers that this precedent is not relevant
    for the present decision considering the present Transaction is much wider in terms of diversity of types of
    vacuum pumps manufactured by one Party of the other; see Commission decision of 28 November 2012
    in Case No. COMP/M.6748 – MAGNA/ IXETIC.
                                                           7
 ---pagebreak--- (36)   The Notifying Party notes that vacuum pumps have a wide range of applications.
       They are integral to manufacturing processes in applications for packaging,
       pneumatic conveying, drying, holding / lifting, distillation, evacuation, forming /
       pressing, removal and coating. Vacuums may also be used for domestic applications
       such as on automobiles or for draining water in dishwashers.
(37)   The Notifying Party argues that a segmentation by application is unnecessary for the
       reasons outlined in paragraph (24).
       (C)        The Commission’s assessment
(38)   The Commission considers that whether the vacuum pump market must be further
       segmented can be left open but will consider plausible market distinctions (i)
       between oil-injected and oil-free vacuum pumps and (ii) by type of technology.
(39)   First, the Commission considers that insofar as compressors and vacuum pumps are
       different in terms of their end use, i.e. one removes air or gas, while the other
       releases it, compressors and vacuum pumps constitute distinct product markets.
(40)   Second, the results of the market investigation support a distinction between oil-
       injected and oil-free vacuum pumps according to the majority of both competitors
       and customers that responded. Differences mentioned were the "production costs
       and prices, health and environment and security aspects etc. […]."37 Respondents
       also raised the fact that "regulation may require pumps to be oil-free in an
       increasing number of applications. As a result, production of oil-free products is
       steadily increasing. This means that rotary lobe pumps are becoming more common
       than rotary vane pumps which require oil-lubrication."38
(41)   Third, the results of the market investigation support a distinction by type of
       technology used according to the majority of both competitors and customers that
       responded. Types of technologies for vacuum pumps mentioned by the Notifying
       Party and respondents to the market investigation were rotary lobe, claw, screw, side
       channel, radial, etc. Different technologies are not necessarily substitutable with one
       another. As explained by a competitor: "[g]enerally vacuum pumps cannot easily be
       substituted. There are three criteria for the choice of a specific technology:
       (a) Compatibility with the application (e.g. for certain applications, pumps have to
       be robust against corrosion, aggressive gases, explosive gases, humid gases etc.);
       (b) The price; (c) The cost of ownership (such as price, maintenance, service and
       utilities needed to operate the pumps, like energy and water); (d) [Potentially,
       environmental aspects could constitute a fourth factor]".39
(42)   Finally, regarding a possible segmentation by application, the results of the market
       investigation show that a distinction by technology is sufficient and that an
       additional segmentation by application would therefore not be pertinent. Moreover, a
       competitor explained that vacuum pumps "usually do not serve only one final
       application, but many different."40 Another added that there "is no link between the
37 Replies to question 12.1 of Questionnaire to customers.
38 Minutes of a call with a competitor on 5 November 2019, paragraph 4.
39 Minutes of a call with a competitor on 22 November 2019, paragraph 9.
40 Reply to question 16 and 16.1 of Questionnaire to competitors.
                                                        8
 ---pagebreak---         application and the design or type of vacuum pumps."41 Customers were particularly
        not in favour of a distinction by application, also emphasising that the same vacuum
        pump could serve different applications.42 Therefore, the Commission considers that
        a further sub-segmentation by application should not be warranted as it was clearly
        rejected by the market investigation. A further sub-segmentation by application will
        therefore not be further discussed.
(43)    In conclusion, the Commission will analyse the Transaction on the basis of the
        plausible product markets, but will leave the market definition open (except for a
        potential split by application, which has been rejected and will not be further
        discussed) as the Transaction does not raise concerns on any plausible market.43
3.1.2.2. Geographic market definition
        (A)        The Commission's decisional practice
(44)    As explained in paragraph (33), the Commission has not previously analysed a
        vacuum pumps market.
        (B)        The Notifying Party's view
(45)    The Notifying Party considers the market for the manufacture and supply of vacuum
        pumps to be EEA-wide because (i) the competitive landscape and dynamics differ
        substantially between EEA and the rest of the world, (ii) consumer preferences vary
        across regions as customers in the EEA have a distinct demand profile from many
        non-EEA customers, (iii) the Parties organise their sales and marketing organisations
        by region and (iv) products sold in the EEA must meet EEA specific standards.44
        (C)        The Commission’s assessment
(46)    The results of the market investigation point to a worldwide market. 45 The majority
        of competitors do not consider technical specifications or regulatory requirements as
        limiting the number of competitors in the EEA.46 The vast majority of customers
        also consider this market global, due to the fact that vacuum pumps are a mature
        technology, market players have a global footprint and production and delivery is
        global.47
(47)    In any case, the exact product and geographic market definition can be left open
        between the EEA and worldwide, as the Transaction will not give rise to serious
        doubts as to its compatibility with the internal market or the functioning of the EEA
        Agreement even on any of the two plausible geographic market definitions.
41  Reply to question 16.1 of Questionnaire to competitors.
42  Replies to question 15 and 15.1 of Questionnaire to customers.
43  A potential additional sub-segmentation in vacuum pumps mirroring the compressors' split (between low,
    medium and high pressure vacuum pumps, and/or between portable and stationary vacuum pumps) was
    not argued by the Notifying Party, nor was it clearly established in response to the market investigation.
    However, since such potential additional segmentations would not lead to further affected markets, these
    potential segmentations are not further discussed in this Decision.
44  Form CO, paragraph 370.
45  Replies to question 18 and 18.1 of Questionnaire to competitors.
46  Replies to question 19 and 19.1 of Questionnaire to competitors.
47  Replies to question 16 and 16.1 of Questionnaire to customers.
                                                           9
 ---pagebreak--- 3.1.3. Air ends
3.1.3.1. Product market definition
        (A)        The Commission's decisional practice
(48)    Air ends refer to the mechanism within the device that mechanically compresses the
        air or gas in air compressors (i.e. excluding motors, filters, etc.). Many compressor
        manufacturers, including the Parties, sell air ends as replacement parts following an
        initial equipment sale. They also sell air ends on the open market to third party
        compressor manufacturers or to OEMs to be incorporated as inputs into other
        products which require compressed air to operate such as for pneumatic conveying
        machinery, snow blowers or agricultural machinery.
(49)    In Ingersoll-Rand / Man, the Commission considered a relevant product market for
        air ends, which the Commission described as “the central components of
        compressors which actually compress air or gas”. The Commission also considered
        a plausible segmentation for the air ends product markets to be between oil-free on
        the one hand and oil-lubricated on the other hand. Moreover, it defined a plausible
        product market for “oil-free air ends/screws”.48
        (B)        The Notifying Party's view
(50)    The Notifying Party does not contest the product market definition in the
        Commission’s past practice.
        (C)        The Commission’s assessment
(51)    The market investigation suggested a plausible segmentation between (i) oil-injected
        vs. oil-free and (ii) by output pressure and potentially also by (iii) technology.
(52)    First, a majority of customers and competitors that participated in the market
        investigation found a segmentation of the product market into oil-injected vs. oil-free
        appropriate,49 given their “[d]ifferent technology, production price and different
        application.”50
(53)    Second, a majority of customers and competitors that participated in the market
        investigation also found a segmentation of the product market by output pressure
        appropriate.51 This refers mainly to the distinction between air ends for compressors
        and air ends for blowers along the lines of paragraph (19). A competitor also noted
        that “some air ends […] are only used in specific applications such as gas (not air)
        applications or high pressure (above 40 bar) applications.”52
48  Commission decision of 28 July 1994 in Case No. COMP/M.479 – Ingersoll Rand / Man, paragraphs 17-
    19.
49  Replies to question 18 of Questionnaire to customers. Replies to question 20 of Questionnaire to
    competitors.
50  Reply to question 18.1 of Questionnaire to customers.
51  Replies to question 21 of Questionnaire to customers. Replies to question 23 of Questionnaire to
    competitors.
52  Reply to question 23.1 of Questionnaire to competitors.
                                                         10
 ---pagebreak--- (54)    In relation to the output pressure, oil-free air ends require different technologies, as
        explained by a competitor: “Distinctions of […] air ends are one-stage blower or
        screw compressor oil-free (low pressure) for transport of material and two-stage oil-
        free air end (middle pressure 5-12 bar) for industrial applications.”53 However, the
        Transaction only results in affected markets for medium pressure air ends segments,
        therefore low and high pressure air ends will not be further discussed. The present
        Decision will therefore focus on medium pressure air ends.
(55)    Third, as for segmentation by technology, a majority of customers and competitors
        that participated in the market investigation considered it not necessary.54 A
        customer explained that supply substitutability is high: “You don't find different
        Technologies in air Ends, that can't be provided from similar manufacturing
        Technology.”55 However, both the Notifying Party and some respondents to the
        market investigation note that “[e]ach type of blower and compressor require a
        specific type of air end.”56 The Commission therefore takes note that compressors
        must use an air end with the same technology they are based on.
(56)    Fourth, a vast majority of respondents also rejected a segmentation according to the
        application or intended use of the air end.57 As a customer explained, the “[s]ame air
        ends can be used for many applications and it is up to user to decide.”58 Therefore,
        the Commission considers that a further sub-segmentation by application should not
        be warranted as it was clearly rejected by the market investigation. A further sub-
        segmentation by application will therefore not be further discussed.
(57)    Finally, the Commission notes that the Parties overlap only in oil-lubricated
        compressor air ends for rotary screw air compressors.59
(58)    In conclusion, the Commission will analyse the Transaction on the basis of the
        following plausible product markets, but will leave the market definition open
        (except for a potential split by application, which is not warranted) as the
        Transaction does not raise concerns on any plausible market.
3.1.3.2. Geographic market definition
        (A)        The Commission's decisional practice
(59)    In Ingersoll-Rand / Man, the Commission left open whether these are national or
        EEA-wide markets. The Commission acknowledged that there are nearly no trade
        barriers between the European countries concerned, however it took account of
        (i) existing strong national preferences in the market relations between compressor
        and air end suppliers and users, and (ii) the importance for customers of the
53  Reply to question 23.1 of Questionnaire to competitors.
54  Replies to question 19 of Questionnaire to customers. Replies to question 21 of Questionnaire to
    competitors.
55  Reply to question 19.1 of Questionnaire to customers.
56  Reply to question 25 of Questionnaire to competitors.
57  Replies to question 20 of Questionnaire to customers. Replies to question 22 of Questionnaire to
    competitors.
58  Reply to question 2.1 of Questionnaire to customers.
59  Form CO, paragraph 362.
                                                         11
 ---pagebreak---         reliability of products and good after-sales service.60 However, in the subsequent
        case Alchemy / Compare, the Commission considered that the market for compressor
        air ends is at least EEA-wide.
        (B)       The Notifying Party's view
(60)    Concerning the geographic market definition, the Parties argue that the market for air
        compressor air ends is at least EEA-wide as: (i) all major manufacturers are active in
        all EEA member States, (ii) air end products, like compressors, are frequently sold
        across country lines and (iii) IR Industrial’s air end manufacturing now takes place
        exclusively in China and the United States, as IR Industrials discontinued its EEA air
        end production in 2018. In addition, the Parties argue that there are no barriers to
        enter local, national or supra-national distribution networks, as all that is necessary
        to partner with a distributor is a commercial agreement.
        (C)       The Commission’s assessment
(61)    The replies of the majority of competitors and customers of the market investigation
        point to a worldwide market,61 because market players have a global footprint and
        production and delivery are global.62
(62)    The majority of customers do not consider technical specifications or regulatory
        requirements as limiting the number of competitors in the EEA while the replies of
        competitors are inconclusive.63 Requirements such as “[c]ertified components”, “CE
        Certification” and “ISO standard testing”64 are seen as limiting the number of
        competitors in the EEA by some competitors, while others state that these are easy to
        comply with.
(63)    The results of the market investigation confirm that no regulatory barriers or
        equivalent barriers exist within the EEA. The Commission therefore considers that
        with regard to the geographic definition, the market for air ends is at least EEA-wide
        and probably worldwide.
(64)    In any case, the exact geographic scope of the air ends market can be left open
        between the EEA and worldwide, as the Transaction does not give rise to serious
        doubts as to its compatibility with the internal market or the functioning of the EEA
        Agreement on any of the two plausible geographic market definitions.
3.2.    Competitive assessment
(65)    With regard to any of the plausible relevant markets as defined or left open in
        Section 3.1, the Parties activities only give rise to ten plausible horizontally affected
        markets in the EEA:
60  Case COMP/M.479 – Ingersoll Rand / Man, paragraph 20.
61  Replies to question 24 of Questionnaire to customers. Replies to question 26 of Questionnaire to
    competitors.
62 Replies to question 24.1 of Questionnaire to customers. Replies to question 26.1 of Questionnaire to
    competitors.
63 Replies to question 25 of Questionnaire to customers. Replies to question 28 of Questionnaire to
    competitors.
64 Replies to question 28.1 of Questionnaire to competitors.
                                                        12
 ---pagebreak---        (a)      Overall medium-pressure oil-free stationary air compressors;
       (b)      Oil-free medium-pressure centrifugal stationary air compressors;
       (c)      Oil-free medium-pressure dry screw stationary air compressors;
       (d)      Oil-free medium-pressure rotary vane stationary air compressors;
       (e)      All vacuum pumps;
       (f)      All oil-free vacuum pumps;
       (g)      Oil-free rotary lobe vacuum pumps;
       (h)      All medium-pressure air compressor air ends;
       (i)      All medium-pressure oil-lubricated air compressor air ends;
       (j)      Medium-pressure oil-lubricated air compressor air ends (rotary screw).
(66)   The Transaction also gives rise to one potential vertically affected market between
       medium-pressure two-stage oil-free dry screw compressor air ends (upstream) and
       the corresponding market for this type of compressor (downstream).
3.2.1. Horizontal overlaps
(67)   The Notifying Party argues that the Transaction will not affect competition in the
       EEA or at a worldwide level and is therefore compatible with the internal market.
       Overlaps resulting in affected markets only occur in the market for medium-pressure
       oil-free stationary dry screw air compressors, medium-pressure oil-free stationary
       rotary vane air compressors, oil-free rotary lobe vacuum pumps and medium-
       pressure oil-lubricated air compressor air ends (rotary screw).
(68)   The Notifying Party argues that in the markets where overlaps occur post-
       Transaction, a sufficient number of viable alternative suppliers will ensure effective
       competition. Furthermore, post-Transaction, the Parties will be better able to
       compete with market leader Atlas Copco, as well as with other strong competitors
       that are expected to remain active in all affected markets.65
(69)   The Notifying Party also argues that barriers to entry in the EEA are low, so that
       suppliers from the United States or Asia have recently started entering the EEA
       market. Examples are US-based Sullair, Turkey-based Dalgakiran, India-based Elgi
       and Taiwan-based Fusheng which either export their products to the EEA (in the
       case of Sullair and Dalgakiran) and/or have bought brands and production facilities
       in the EEA (in the case of Elgi and Fusheng).66
(70)   Finally, according to the Notifying Party, distribution channels are available to
       facilitate the entry to the EEA market: the Parties estimate that instead of having to
65  Form CO, paragraph 397.
66  Form CO, paragraph 403.
                                                  13
 ---pagebreak---          set up an entire distribution and service network, a new entrant would only need
         approximately six employees per EUR 2 million sales.67
3.2.1.1. Air compressors
(71)     The Parties’ activities give rise to affected markets in the EEA68 on four plausible
         markets (i) the market for all medium-pressure oil-free stationary air compressors,
         (ii) the market for medium-pressure oil-free centrifugal air stationary air
         compressors, (iii) the market for medium-pressure oil-free dry screw stationary air
         compressors, (iv) the market for medium-pressure oil-free rotary vane stationary air
         compressors.
         (A)         The Notifying Party's view
(72)     The Notifying Party argues that their activities in the market for medium-pressure
         stationary air compressors will face competitive constraints from the high number of
         competitors present in all plausible market segments post-Transaction.
(73)     According to the Notifying Party, both for oil-lubricated and oil-free compressors,
         Atlas Copco is and will remain the market leader across most technology types,
         followed by Kaeser. Other strong competitors active in the EEA include Boge,
         Renner, Parker, FNA, Fusheng, Sullair and Kobelco.69
(74)     The Notifying Party describes the market for medium-pressure stationary air
         compressors as being characterised by aggressive competition on price, [confidential
         information regarding competitive strategy and pricing model].70
(75)     In the unlikely scenario that the Parties would be able to raise prices post-
         Transaction, competitors would not only retaliate but could additionally expand their
         production capacity, as Kaeser did in 2019 and Renner in 2014, or their warehousing
         capacity as Boge did recently.71
(76)     Finally, the Notifying Party notes that competitive constraints in practice do not only
         come from competitors in the same technology segment, but from alternative
         technologies that act as close substitutes for many end-uses.72
67  Form CO, paragraph 403: “including a manager, 2-3 commercial and sales employees, 1-2 back office
    and support employees sales people, and 1-2 service employees including engineers and field support”.
68  For compressors, the Notifying Party confirms that the market shares of the Parties at global level do not
    exceed the market shares at EEA level with the exception of oil-free rotary vane air compressors. In the
    latter case, the analysis will be conducted on both the EEA and the worldwide markets. In the other few
    instances, where the worldwide market is affected but less than the EEA one, the Commission considers
    that the market conditions at worldwide and EEA level are sufficiently similar that the analysis conducted
    at EEA level (i.e. the narrowest plausible market) also covers the worldwide market definition. Therefore,
    since at EEA level, the Transaction does not raise serious doubts, it should be considered that the
    worldwide corresponding market segment that is less affected and where the competition conditions are
    similar, will also not raise serious doubts.
69  Form CO, paragraph 412.
70  Form CO, paragraph 414.
71  Form CO, paragraph 402.
72  Form CO, paragraph 415.
                                                          14
 ---pagebreak---        (B)        The Commission's assessment
(77)   The market investigation confirmed that the Transaction is unlikely to substantially
       change the competitive dynamics in the market for air compressors, mainly given the
       presence of strong competitors, low barriers to entry and the competitive pressure
       exercised on specific types of air compressors (even in a narrow product market) by
       other types of air compressors.
       (a)      The market investigation confirmed that a high number of competitors is
                active in the air compressor market. Competitors named various alternative
                suppliers for air compressors in addition to those listed in paragraph (81),
                such as CVS, Rhiwo Star and Mouvex Blackmer.73 Competitors also
                mentioned a number of recent entrants and potential future entrants (SCC
                Tolpac, Dalgakiran, Comprag, Hanbell and Shanghai Screw). 74 This suggests
                that the presence of established competitors and market entry by new
                competitors poses significant competitive constraints on any attempt by the
                Parties to raise prices, or lower quality, post-Transaction.
       (b)      Replies by competitors to the market investigation suggest that market entry
                is difficult due to the high number of players and the intense competition.75
                As explained in the follow-up explanations, this does not suggest that entry
                barriers are high but rather that the market is highly competitive, so that
                profit margins are too low to attract new entrants.76 In the words of a
                competitor, the “mature compressor market in EEA is already highly
                competitive with strong European suppliers like Atlas Copco, Kaeser,
                Aerzen, Boge etc.”.77 This confirms the argument made by the Notifying
                Party in paragraph (82). A majority of customers in the market investigation
                also confirmed they would have sufficient alternatives to switch in the event
                that the Parties raised prices post-Transaction.
       (c)      The results of the market investigation are well represented by the words of
                this competitor: “qualified sales and [reliable]/fast service is very important
                and has a strong influence on the decision for the supplier.” The market
                investigation confirmed that the Parties have a strong sales and installation,
                as well as maintenance and repair network. However, these aspects are only
                one among many that appear decisive in the choice of a supplier. In the
                market investigation, customers ranked “good maintenance and repair
                network” third and “good sales and installation network” fourth, after
                “reliable supplier” and “high quality products”. They are closely followed by
                “low prices” and “innovative products”. 78 Whereas the Parties might have a
                competitive advantage given their sales and installation and maintenance and
                repair network, competitors with weaker networks would still be able to
                compete on other aspects. Furthermore, as discussed in recitals (29)-(30), the
73 Replies to question 28-29 of Questionnaire to customers. Replies to question 30 of Questionnaire to
   competitors.
74 Replies to question 38 of Questionnaire to competitors.
75 Replies to question 31 of Questionnaire to customers. Replies to question 34-39 of Questionnaire to
   competitors.
76 Replies to question 35.1 to Questionnaire to competitors.
77 Reply to question 35.1 of Questionnaire to competitors.
78 Replies to question 30 of Questionnaire to customers.
                                                         15
 ---pagebreak---                 market players consider that suppliers of compressors do not need their own
                distribution network as there are alternatives that can be used.
       (d)      A majority of competitors who responded to the market investigation
                consider that switching can be considered difficult.79 However, almost half of
                the customers who replied have switched supplier in the past,80 in particular
                “to increase cost competitiveness.”81 This suggests that the Parties would not
                be able to raise prices post-Transaction without losing at least some of their
                customers.
       (e)      Overall, the combination of competitive constraints from the supply side,
                such as strong competitors, and from the demand side, such as switching, are
                overall sufficiently strong to limit any ability to increase prices or any
                impacts on competition arising from the Transaction.
       (f)      In any case, the overall view among the respondents of the market
                investigation suggests that the Transaction will not have an impact on the air
                compressor market. 82
(78)   For the reasons set out in paragraph (85), the Transaction does not give rise to
       concerns in the air compressor market. Below the Commission examines the specific
       market position of the Parties in all affected markets.
       (B.i)      Medium-pressure oil-free stationary air compressors
(79)   Due to the limited combined market shares of the Parties ([20-30]%), the
       Transaction does not give rise to raise serious doubts as to its compatibility with the
       internal market. The leader in the market will be Atlas Copco, with [40-50]% market
       share, followed by the Parties. Other competitors include Aerzen ([5-10]% market
       share), PSG Dover ([0-5]% market share), Fusheng, Kaeser, Samsung, Boge and
       Iwata (each with [0-5]% market share), as well as a large number of smaller
       competitors, such as Junair, Dalgakiran, Alfons Haar, FNA, Renner, Almig and
       Bambi which each have [0-5]% market share.
79 Replies to question 33 of Questionnaire to customers. Replies to question 40 of Questionnaire to
   competitors.
80 Replies to question 32 of Questionnaire to customers.
81 Reply to question 32 of Questionnaire to customers.
82 Replies to question 55 of Questionnaire to customers. Replies to question 71 of Questionnaire to
   competitors. The Commission did not receive any substantiated complaint.
                                                         16
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---        (B)        The Commission's assessment
(87)   The market investigation confirmed that the Transaction is unlikely to substantially
       change the competitive dynamics in the vacuum pumps market, given IR’s limited
       activities in the EEA and the presence of strong competitors.
       (a)      The market investigation confirms that a number of strong competitors is
                present in the EEA market for vacuum pumps. In addition to the competitors
                mentioned by the Notifying Party, competitors who replied to the market
                investigation also named various alternative suppliers for vacuum pumps,
                such as Becker, Aerzen, Rietschle, Leybold, Atlas Copco, Jurop, Moro
                Kaiser, CVS, Hertell S. coop, Pedro Gil, Edwards, TMC, and VMC.87
                According to most customers, these alternative suppliers, in particular Atlas
                Copco, Aerzen, Busch, and Kaeser, also offer high quality products, large
                product range, known brands, are considered reliable suppliers, and offer a
                good sales and installation networks.88 In the words of a competitor, “[t]he
                competitive arena in Europe is quite wide. There are many competitors in the
                European market for vacuum pumps.”89 This suggests that competition in the
                market for vacuum pumps will not be affected by the Transaction.
       (b)      Some replies to the market investigation suggest that market entry could be
                rather difficult, due to the high competition and the number of competitors.90
                Similarly to the air compressor market, potential new entrants seem to be
                discouraged by the high degree of competition in the EEA market for vacuum
                pumps. In the market investigation, several competitors noted that the EEA
                market for vacuum pumps is saturated. This appears to explain why
                manufacturers from outside the EEA have not entered the market, according
                to a competitor. In case the Parties tried to raise prices, there would already
                be enough competitors in the market to compete for lower prices, while in
                addition, new entrants might be attracted.
       (c)      Indeed, market entry does occur. A recent entrant in the market for vacuum
                pumps is German firm CVS Engineering.91
       (d)      The market investigation confirmed the importance of brand loyalty and of a
                sales and maintenance network. While this might provide the Parties with an
                advantage over competitors without sales and maintenance networks, the
                market investigation showed that the Parties are not stronger than other
                players in these aspects. According to competitors, the Parties are not
                considered as having a “good maintenance and repair network” nor a “good
                sales and installation network”92, and according to customers, other suppliers
87 Replies to question 47 of Questionnaire to customers. Question 44 of Questionnaire to competitors.
88 Replies to question 38 of Questionnaire to customers. Question 45 of Questionnaire to competitors.
89 Minutes of a call with a customer, on 26 November 2019, paragraph 13.
90 Minutes of a call with a competitor, on 5 November 2019, paragraph 7.
91 Minutes of a call with a customer, on 26 November 2019, paragraph 16; minutes of a call with a
   competitor, on 5 November 2019, paragraph 9.
92 Replies to question 45 of Questionnaire to competitors.
                                                        21
 ---pagebreak---                  seem to provide better maintenance and repair as well as sales and
                 installation networks.93
        (e)      A competitor also added that as an alternative to service networks by the
                 vacuum pump suppliers themselves, “[t]here are a few companies acting as
                 freelancers providing aftermarket services next to the product manufacturers.
                 They are usually only active at regional or local level, providing 24h
                 maintenance and repair services to customers within a radius of 50km.”94
                 Therefore sufficient alternatives exist and even competitors without
                 distribution and maintenance networks are able to compete in the vacuum
                 pump market.
        (f)      Indeed, a majority of competitors who responded to the market investigation
                 consider that switching is easy.95 The market investigation has shown that a
                 majority of competitors have had experience of their customers' sometimes
                 switching supplier.96 Almost half of customers have switched supplier in the
                 past, “due to price and quality reasons”97 or because a competitor offered
                 more “[i]nnovative products”.98 One customer that never switched gave the
                 explanation that it was satisfied with the current supplier. This illustrate that
                 switching seems possible, if some customers have not had this experience, it
                 is likely that they have not needed to switch so far.
        (g)      In addition, a majority of customers has been able to negotiate price
                 concessions from their suppliers99 and both customers and competitors
                 consider that “[p]rice negotiations and price concessions are part of the daily
                 business.”100
        (h)      This shows that competitive constraints from the supply side, such as entry of
                 new competitors, and from the demand side, such as switching, are overall
                 sufficiently strong to limit any impacts on competition arising from the
                 Transaction.
        (i)      In any case, the overall view among the respondents of the market
                 investigation suggests that the Transaction will not have an impact on the
                 vacuum pumps market.101
(88)    For the reasons set out in paragraph (95), the Transaction does not give rise to
        concerns in the vacuum pumps market. Below the Commission examines the market
        position of the Parties in all affected markets.
93  Replies to question 42.1 of Questionnaire to costumers.
94  Minutes of a call with a competitor, on 22 November 2019, paragraph 12.
95  Replies to question 55 of Questionnaire to competitors.
96  Replies to question 54 of Questionnaire to competitors.
97  Reply to question 41.1 of Questionnaire to costumers.
98  Reply to question 41.1 of Questionnaire to costumers.
99  Replies to question 34 of Questionnaire to costumers.
100 Reply to question 56.1 of Questionnaire to competitors.
101 Replies to question 58 to 60 of Questionnaire to costumers. Replies to question 73 to 74.1 of
    Questionnaire to competitors. The Commission did not receive any substantiated complaint.
                                                          22
 ---pagebreak---  ---pagebreak---  ---pagebreak--- 3.2.1.3. Air ends
(93)    The Parties’ activities give rise to affected markets in the EEA102 on three plausible
        market segments (i) the overall market for air compressor air ends, (ii) the overall
        market for medium-pressure oil-lubricated air compressor air ends, (iii) the market
        for medium-pressure oil-lubricated air ends for rotary screw compressors.
        (A)         The Notifying Party's view
(94)    The Notifying Party argues that their activities in the market for air ends only give
        rise to an overlap in the market for medium-pressure oil-lubricated air ends for
        compressors. [Confidential information related to internal sales strategy].103 IR
        Industrials has only a small market share in medium-pressure oil-lubricated
        compressor air ends in the EEA ([5-10]% in 2018). If further segmenting the air end
        market by technologies, the only overlap would occur in medium-pressure oil-
        lubricated air ends for rotary screw air compressors with an increment of under [0-
        5]% in 2018. The Notifying Party also confirms that the combined entity will not be
        the market leader.104
        (B)         The Commission's assessment
(95)    The market investigation confirmed that the Transaction is unlikely to substantially
        change the competitive dynamics in the market for air ends given the limited market
        shares of the Parties and the presence of strong competitors in the EEA and potential
        entrants facing low entry barriers.
        (a)       Competitors who replied to the market investigation also named various
                  alternative suppliers for air ends: Atlas Copco, Aerzen, Kaeser,
                  Termomeccanica, Kobe, Fusheng, Boge, Cobelco, Iwata, Sullair Hitachi,
                  Pedro Gil, Rotorcomp, TMC, VMC and CVS.105 Similar to the market for
                  compressors, market participants consider the air end market a “mature
                  market, with destructive competition.”106 Therefore, if the Parties tried to
                  raise prices post-Transaction, competitors could retaliate and extend their
                  market share.
        (b)       Replies to the market investigation regarding the ease of market entry are
                  inconclusive. As in the case for air compressors and vacuum pumps, some
                  see market saturation as the reason: “The mature air end market in EEA is
                  already highly competitive with strong European suppliers.”107 While
                  currently incentives seem to be low given the level of competition, new
                  entrants could find it interesting to enter the market in case the Parties
                  increased prices.
102 Reply to RFI 10, question 2: the Notifying Party confirmed that worldwide market shares for the air-ends
    markets, including any potential sub-segments, would remain below 20%. Therefore, as any potential
    market for air-ends remains not affected at worldwide level, this geographic market segmentation will not
    be further discussed in the Decision.
103 Form CO, paragraph 488.
104 Form CO, paragraph 32.
105 Replies to question 47 of Questionnaire to customers. Replies to question 58 of Questionnaire to
    competitors.
106 Reply to question 62 of Questionnaire to competitors.
107 Reply to question 63.1 of Questionnaire to competitors.
                                                         25
 ---pagebreak---         (c)      In such a scenario, there are a number of new suppliers that might enter the
                 EEA market or have done so recently. Competitors named several recent
                 entrants that include Fusheng, Hanbell (both from Taiwan) and Elgi (from
                 India) and potential future entrants Baosi and Torin Drive (both from
                 China).108
        (d)      Conditions for market entry seem favourable. As the market investigation
                 confirmed, there seem to be no regulatory requirements constituting entry
                 barriers to the EEA (“For air ends, CE mark is the only purposeful
                 requirement”109).
        (e)      An additional advantage facilitating entry of the air end market is the fact that
                 sales and maintenance network seems to be less relevant than in the markets
                 for air compressors. The market investigation confirmed that a local presence
                 for sales is less important as a compressor air end “is a part that can easily be
                 imported.”110 As for the importance of a “maintenance repair network or
                 sales organisation, [these are] less important because disfunctions are not
                 covered by the supplier but by the assembler of compressor packages.”
                 Rather, “high quality of products and reliability of supplier is important.”111
                 The market investigation confirmed this: the most important selection criteria
                 for a supplier are high quality products, reliability, low prices, a large product
                 range, innovation, followed by a good maintenance and repair network and a
                 good sales and installation network.112 It can thus be concluded that market
                 entry is easy and that the possibility of entry by new competitors poses a
                 considerable competitive constraint.
        (f)      The market investigation was inconclusive as to whether switching to another
                 air end producer is common and easy. A majority of competitors who
                 responded to the market investigation consider that switching is easy, and a
                 minority of customers confirmed it has actually switched supplier for air
                 ends.113
        (g)      In comparison to the air compressor and vacuum pump market, price
                 concessions are less common in the air end market. Only half of the
                 customers who participated in the market investigation have negotiated lower
                 prices, as competition is less fierce in this smaller market.114
        (h)      Nevertheless, although the competitive constraints on the demand side are
                 weaker than in the markets for air compressors and vacuum pumps,
                 competitive constraints on the supply side are particularly strong. The
                 Commission considers them sufficient to ensure that the Transaction will not
108 Replies to question 66 of Questionnaire to competitors.
109 Reply to question 28.1 of Questionnaire to competitors.
110 Reply to question 64.1 of Questionnaire to competitors.
111 Reply to question 50.1 of Questionnaire to customers.
112 Replies to question 50 of Questionnaire to customers. Replies to question 60 of Questionnaire to
    competitors.
113 Replies to questionnaire 52 of Questionnaire to customers. Replies to question 68 of Questionnaire to
    competitors.
114 Replies to question 54 of Questionnaire to customers.
                                                          26
 ---pagebreak---  ---pagebreak---  ---pagebreak--- 3.2.2. Vertical relationships
3.2.2.1. Air ends (upstream) for air compressors (downstream)
(101) The Parties’ activities result in vertical links between the upstream production of air
         ends of a specific technology and the downstream compressors of the corresponding
         technology. This is the case for oil-lubricated rotary screw air compressor, oil-free
         dry screw air compressor, and rotary lobe blowers.116 In the case of oil-lubricated
         rotary screw air compressor and rotary lobe blowers, the market shares of the Parties
         remain below 30% in both upstream and downstream markets.117
(102) It should be noted that neither party purchases air ends (the input) from the other
         one, so there is no actual vertical link between them currently.118 Moreover, an air
         end from a specific technology should fit the same technology of air compressors, as
         a mix of technologies between the upstream and downstream levels is not possible
         technically. In short, this means that the only vertically affected market is the
         plausible market for medium-pressure two-stage119 oil-free dry screw air ends
         (upstream) and the plausible market for medium-pressure oil-free dry screw air
         compressors (downstream).
(103) Upstream, only IR Industrials is active in the air end market for medium-pressure
         two-stage oil-free dry screw compressor air ends, with an EEA market share of
         roughly [50-60]%.120 Competitors in this market in the EEA are Aerzen with [20-
         30]%, Kobelco with [10-20]% and Sullair with [10-20]%.121
(104) Downstream, both Parties are active in the market for medium-pressure air dry screw
         compressors, but their combined market share remains below 30% (at [20-30]% in
         2018 and [20-30]% in 2016 and 2017 respectively).
         (A)       No input foreclosure
(105) The "Non-horizontal Guidelines"122 provide that input foreclosure "arises where,
         post-merger, the new entity would be likely to restrict access to the products and
         services that it would have otherwise supplied absent the merger, thereby raising its
         downstream rivals' costs by making it harder for them to obtain supplies of the input
         under the similar prices and conditions absent the merger".123
(106) The Commission has assessed whether post-Transaction, the merged entity is likely
         to successfully restrict access to IR's medium-pressure two-stage oil-free dry screw
116 As explained in paragraph (55), compressors must use an air end with the same technology they are based
    on.
117 Form CO, paragraph 515.
118 Form CO, paragraph 508.
119 As explained in paragraph (54), the so-called two-stage technology is used in medium pressure oil-free
    dry screw air ends.
120 At a worldwide level, IR Industrials has an approximate market share of [30-40]% along with Sullair,
    followed by Kobelco with [20-30]%, Aerzen with [10-20]% and Elgi with [10-20]%.
121 [Confidential information related to internal sales strategy].
122 The Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control
    of concentrations between undertakings, (2008/C 265/07).
123 Non-horizontal Guidelines, paragraph 31.
                                                            29
 ---pagebreak---          compressor air ends to the Parties' competitors in the medium-pressure oil-free dry
         screw air compressors downstream in an anti-competitive manner.
(107) The Notifying Party argues that the presence of credible competitors on the upstream
         market, as described in paragraph (103), provides sufficient competitive constraints,
         so that the Parties would therefore have no ability to foreclose access to air ends for
         its customers.124
         (a)      Atlas Copco would remain the market leader downstream, with 43% market
                  share. Both Atlas Copco and Aerzen, the Parties’ main competitors, are
                  vertically integrated and self-supply air ends for their production of medium-
                  pressure dry screw air compressors. Therefore, there exists no ability from
                  the merged entity post-Transaction to foreclose input to these downstream
                  rivals that are self-sufficient. This means that [50-60]% of the downstream
                  market, the Parties competitors on that level, would still be able to maintain
                  competition conditions as they are before the Transaction, effectively
                  defeating any attempt from the merged entity to recoup any potential gains
                  from foreclosure.
         (b)      Second, IR Industrials supplies [number] downstream customers: [name of
                  customers], who together account for only [proportion]% of the downstream
                  market. These two downstream rivals are the only one that could be
                  foreclosed post-Transaction as other downstream rivals already source their
                  input from alternative upstream competitors from the Parties.
         (c)      Third, this shows that in practice, the merged entity could only have the
                  ability to foreclose [5-10]% of the market. This is not sufficient to lead to
                  significant gains that would make such a strategy profitable.
         (d)      Finally, as shown by the fact that the merged entity would only supply the
                  inputs to [5-10]% of the downstream customers, there are enough alternative
                  suppliers, used by other downstream rivals that would readily defeat any such
                  attempt by providing an alternative source of supply to the merged entity.
(108) The Commission agrees with this reasoning. It notes, in particular, that on top of the
         facts which the Notifying Party relies on, its analysis is further supported by the
         replies to the market investigation.
         (a)      A majority of customers who responded to the market investigation explained
                  that the Parties would not have an incentive to stop selling air ends to third
                  parties and only to sell compressors and blowers with an integrated air end.125
         (b)      As a customer explained, “[t]here is market potential. Both parties know, if
                  they will not sell air ends separately, there will be other/new manufacturers
124 Reply to question 1 of RFI 9 of 16 January 2020.
125 Replies to question 46 of Questionnaire to customers. Minutes of a call with a competitor, on 12
    November 2019, paragraph 23. GDI does not sell compressor air ends to third parties, but IR sells both
    oil-lubricated and oil-free compressor air ends to third parties under its brand GHH (based in China).
                                                            30
 ---pagebreak---                  focussing on this market [s]egment. The entry barriers are not high enough to
                 [k]eep other manufacturers out.”126
        (c)      Another customer found that the competitors present in the market would act
                 as a sufficient constraint so that selling only compressors with integrated air
                 ends would not “make sense. Too much competitors on a market for them.”127
(109) Therefore, the Commission considers that the merged entity will not have the ability
        to engage in a foreclosure attempt and that any such attempt by the merged entity
        would not be successful.
        (B)        No customer foreclosure
(110) The "Non-horizontal Guidelines"128 provide that customer foreclosure "may occur
        when a supplier integrates with an important customer in the downstream market.
        Because of the downstream presence, the merged entity may foreclose access to a
        sufficient customer base to its actual or potential rivals in the upstream market
        (input market) and reduce their ability or incentive to compete".129
(111) The Commission has assessed whether post-Transaction, the merged entity would be
        able to stop or reduce its sourcing from other upstream suppliers, therefore denying
        them the customer base that the merged entity was representing.
(112) It should be noted that both GDI and IR source from their upstream divisions.
        Therefore, even absent the merger, the Parties cannot be considered as "an important
        customer" on the downstream market.
(113) Moreover, as the Parties only represent a small share of the customer base in any
        case (only [20-30]% of the downstream market), denying access to the merged entity
        as a potential customer for upstream rivals is unlikely to deprive upstream rivals
        from a significant customer base.
(114) Therefore, the Commission considers that the merged entity will not have the ability
        to engage in a foreclosure attempt and that any such attempt by the merged entity
        would not be successful.
126 Reply to question 46.1 of Questionnaire to customers.
127 Reply to question 46.1 of Questionnaire to customers.
128 The Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control
    of concentrations between undertakings, (2008/C 265/07).
129 Non-horizontal Guidelines, paragraph 158.
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 ---pagebreak--- 4.    CONCLUSION
(115) For the above reasons, the European Commission has decided not to oppose the
      notified operation and to declare it compatible with the internal market and with the
      EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the
      Merger Regulation and Article 57 of the EEA Agreement.
                                                    For the Commission
                                                    (Signed)
                                                    Margrethe VESTAGER
                                                    Executive Vice-President
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