What impact has European policy on controlling mergers and acquisitions had on the development of major European companies? Brussels’ regulations are often blamed for the absence of European behemoths. But what if the problem is actually quite different? The experts at AURIS Finance, an M&A consultancy, offer their insights.
No, Brussels’ merger control does not hinder the emergence of European champions. This is the main point made by two competition experts in an article published in Le Monde. According to competition specialists Etienne Chantrel and Emmanuel Combe, the idea that European anti-trust policy has prevented the development of European companies capable of competing globally for the past three decades is a common misconception.
Alstom-Siemens, a merger put on hold
One of the most frequently cited examples is undoubtedly the European Commission’s decision to block the merger of Alstom and Siemens’ rail activities, which would have created a European industrial champion in the rail and signalling sectors. In 2019, the Commission blocked the planned merger between the two companies. Among the reasons given was the fact that combining two major players in the rail and signalling sectors would have significantly reduced competition. Even worse, ‘in some segments, there would have been no competition at all’, Margrethe Vestager, the European Commissioner for Competition, explained at the time.
Healthy competition
This lack of competition is particularly damaging in terms of innovation. According to the authors of the article, company size is not the determining factor in competitiveness. Admittedly, a large organisation can achieve economies of scale or network economies. However, a company in a dominant position can also suffer from the impoverishment of its surrounding ecosystem. Several studies demonstrate the correlation between business performance and the level of competition within a market. A report by the European Commission shows that a lack of competition can hinder innovation and research efforts. In Brazil, Petrobras has become a textbook case in this regard. The state monopoly introduced in the 1950s did little to stimulate competition and innovation. In 1997, the government ended this monopoly by gradually opening up the sector to other players, which led to a sharp rise in productivity.
Industry vs. Services
A study by French INSEE, which analysed the sectors of various OECD countries, shows the positive effect of competition on productivity. However, it should be noted that not all sectors are on the same footing: while the positive effects of competition are quickly felt in the service sector, this is less the case in industry, where a certain level of margin is necessary to stimulate innovation.
Our experts at your service
A diverse market comprising both small businesses and large corporations is undoubtedly an asset for a country. Competition is one of the most effective ways of boosting innovation. Giants can emerge in all sectors without becoming dominant players and wiping out all competition. At AURIS Finance, our experts specialise by sector. We support entrepreneurs in developing their businesses, from securing finance to selling their company.
