Moving goalposts of the German transaction value threshold: An end to broad and vague interpretations at last?

Since it was introduced to German merger control in 2017, the transaction value threshold has caused significant uncertainties for businesses acquiring targets that have negligible activities in Germany. The threshold is intended to allow the German Federal Cartel Office (FCO) to review ‘killer acquisitions’ do not trigger the traditional turnover-based thresholds. The legislator intends for the transaction value threshold to apply only to a select few large-scale deals each year, primarily in the digital and life sciences sectors. However, the FCO interpreted the new threshold increasingly broadly, trying to establish jurisdiction over transactions which, arguably , fall outside the scope of this review mechanism. 

Despite the joint guidelines by the FCO and the Austrian competition authority, the FCO’s approach left many open questions and a lack of legal certainty regarding the scope of the threshold. As a consequence, hundreds of transactions were notified to the FCO each year as a precaution, despite the FCO possibly not having jurisdiction.

In 2023, the FCO’s broad approach already suffered a defeat before the Higher Regional Court of Düsseldorf (the Court) in the Meta/Kustomer case. In two judgments dated 26 February 2025, the same Court limited the applicability of the transaction value threshold even further.

The Court now provided much awaited guidance and clarified that for investments in mature markets, in which turnover accurately indicates a company’s market position and competitive potential, only the traditional turnover thresholds are relevant. In such cases, the transaction value threshold cannot serve as a fall-back solution to establish jurisdiction.

Background of the recent judgments

The judgments concerned a US company that acquired two software companies in 2018 without submitting merger control notifications to the FCO beforehand. In the FCO’s view, both acquisitions met the conditions of the transaction value threshold and should have been notified. In 2023, the FCO therefore initiated dissolution proceedings in relation to these two acquisitions but discontinued them after a brief substantive review as neither raised any competitive concerns. However, the FCO issued costs orders, requiring the acquiring company to pay the administrative fees for the dissolution proceedings.

The acquiring company appealed these costs orders, arguing that the FCO had no jurisdiction to initiate the dissolution proceedings and to review the two acquisitions in the first place.

The Court rejects the FCO’s broad interpretation of the transaction value threshold

The FCO based its jurisdiction on two key arguments which are actually not included in its own guidelines for the applicability of the transaction value threshold. The Court rejected this approach:

• Turnover multiples not relevant in ‘mature’ markets: The ‘turnover multiple’ represents the ratio between the purchase price paid for the target and its annual turnover. In the FCO’s view, if an acquirer pays a high purchase price for a target company that represents a high turnover multiple, this indicates significant domestic activity of the target company in Germany and opens the application of the transaction value threshold.

The Court rejected this approach. It noted that the target companies’ turnover in Germany accurately indicated their market position and competitive potential. Therefore, the Court ruled that it was questionable whether concepts such as ‘turnover multiples are relevant to determine the market position and competitive potential. The Court based its conclusion on the following points, which can serve as guidance for dealmakers going forward:

• Turnover adequately reflects the market position and competitive potential: The Court noted that by the time the companies were acquired, they had already been active in the market for many years and had generated substantial revenues globally. In addition, the industry in which the companies are active was well-established and the monetisation of their products was based solely on generation of turnover rather than alternative models (e.g., monetising data by using network effects and advertisements). 
• Industries with growth potential do not warrant a different assessment: The Court also rejected the FCO’s argument that because the companies were active in markets with growth potential their turnover would not accurately reflect their market position and competitive potential. In the view of the Court, the expected growth of a specific industry is not indicative of such a conclusion.
• Turnover multiple only relevant in exceptional circumstances: Even if one considered the turnover multiple as relevant, it would only be indicative of a target’s market position and competitive potential if it significantly deviates from the industry average – which was not the case here.

• Hypothetical transaction value for the German market not indicative of a target’s market position and competitive potential: The FCO took into account the ratio between the respective target company’s German turnover and its global turnover and, on that basis, allocated a part of the overall purchase price to the German business activities. In the FCO’s view, if the fictitious amount calculated this way exceeds the lower turnover threshold in German merger control – EUR 17.5 million – this indicates a significant domestic activity in Germany and therefore triggers the application of the transaction value threshold. The Court considered that unless specific domestic factors suggest that domestic German turnover generated does not accurately reflect market position and competitive potential, such a criterion is questionable to establish the applicability of the transaction value threshold.

The Court has therefore followed its previous approach in the Meta/Kustomer judgment of rejecting the FCO’s application of the transaction value threshold. Here, the Court dismissed the FCO’s line of argumentation that even though the target company Kustomer only had a small number of direct customers in Germany, the number of data sets of German end-consumers processed by Kustomer on behalf of its direct customers was equally relevant to establish its market position and competitive potential. 

What does the decision mean for ‘killer acquisitions’?

The Court clarified that its conclusions do not automatically exclude ‘killer acquisitions’ from the scope of the transaction value threshold. Such acquisitions will still be captured if the target’s lack of or low turnover in Germany does not accurately reflect its market position and competitive potential due to, e.g., the novelty of its business model or product.

What’s next?

Significant legal uncertainties still surround the transaction value threshold, but the Court’s two judgments further clarify and limit the scope of the transaction value threshold as they dismiss the FCO’s broad interpretation.

The coming months may bring further clarity. All eyes are now on the Federal Court of Justice, which has scheduled an oral hearing for Meta/Kustomer in late April 2025 as the FCO appealed the Court’s ruling in that case. 

In any event, the controversy surrounding the transaction value threshold is not going away anytime soon. 

Expect intense discussions and further developments – we will make sure to keep you updated!