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Outsourcing of a department can be a concentration requiring notification

Outsourcing of a department can be a concentration requiring notification

In an informal opinion of 22 October 2013 the ACM explained when the transfer of assets (an assets/liabilities transaction) is a concentration requiring notification in the sense of section 27 of the Competition Act.

The case
The case is presented rather cryptically in the informal opinion. It is not clear what companies are involved, for instance. Company B plans to transfer certain (research) activities and related personnel to two subsidiaries of A (hereafter: A1 and A2). The activities themselves will be transferred to subsidiary A1. This subsidiary already performs activities similar to those to be transferred. The employees of B who work on the activities to be transferred will transfer to subsidiary A2, whereby B and A evidently assume that a transfer of undertaking is involved. A2 will make the employees available to A1 for provision of the services to customers. With the exception of a few “key” employees, the employees who transfer to A2 will not be working exclusively for B, but will also work for other customers of A1.

The informal opinion
With reference to paragraph 24 of the Consolidated notification, the ACM notes that the acquisition of control of assets can only be regarded as a concentration if these assets form the whole or a part of an undertaking, that is to say a business that has a market presence and to which market turnover can be clearly allocated.

Outsourcing can be accompanied by the transfer of assets and/or employees to the party to which the services are being outsourced. In that case there is only a concentration if the assets form the whole or a part of an undertaking, that is to say, a business with access to the market. This requires that the assets to be transferred will enable the service provider to perform services not only for the client doing the outsourcing, but also for third parties, either immediately or soon after the transfer. This transfer associated with the outsourcing results, in that case, in a change in the market structure.

According to the ACM the outsourcing transaction results in a change in the market structure. After all, the employees who will transfer will not be working exclusively for B, but also for other customers of A1. So immediately after the transfer, or at least very soon thereafter, A will be able to use (a significant part of) that which has been transferred also for third parties and as such be able to generate turnover. The ACM said that the fact that the activities and the employees are being transferred to different subsidiaries does not alter this conclusion. After all, it is not in principle relevant that what is being transferred ends up at different entities that are part of the acquiring company. All the more since A’s current service provision in the area of the activities to be transferred relies on a combination of the use of the resources of A1 and the employees of A2. The conclusion is therefore that there is a concentration in the sense of section 27 of the Competition Act.

Notification
A concentration must be reported to the ACM before it is effected if the turnover thresholds cited in section 29 of the Competition Act are exceeded: the joint worldwide turnover of the undertakings involved in the concentration must be more than € 113,500,000 and at least two of the undertakings involved in the concentration must each have achieved turnover of € 30,000,000 in the Netherlands. This concerns the turnover achieved in the year preceding the year of the concentration notification.

In the context of outsourcing, what is relevant is the turnover of the acquiring party and the turnover that is achieved with the activity to be transferred. It can be concluded from the opinion that these thresholds are exceeded in the particular case. If B and A want to go ahead with the transaction, they will therefore have to submit a concentration notification to the ACM.

By: Eric Janssen

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