What are ‘green killer acquisitions’?

Law student at Maharashtra National University, Avisha Dhiman, analyses the implications of anti-competitive practices in sustainability

Mergers and acquisitions (M&A) are a strategic way for companies to grow faster than they could on their own. This approach can act as a pathway for firms to strengthen their position in the global market and boost their competitive advantage.

Because of the power and potential of M&A, the term “killer acquisitions” has emerged. This describes a strategy where large companies buy smaller ones with strong potential—not to help them grow, but to remove future competition. These deals are often used to hold back innovation and limit market progress. To stop this, merger control has developed as a key part of competition law, aimed at preventing M&A from being used to block, weaken, or disrupt fair competition in the market.

Competition and sustainability – a brief background

M&A deals are subject to the scrutiny of competition authorities in order to protect competition in the market and, consequently, to protect consumers. In the European Union (‘EU’), for example, the main legislation on merger control is the EU Merger Regulation (‘EUMR’), which provides a regional level mechanism for merger control.

Antitrust authorities around the world have been characterised by an increasing level of interventionism in deals which often leads to deals getting frustrated. This trend is accompanied by the increasing recognition of the role of innovation and sustainability in M&A deals. The EU has acknowledged the role that competition law has to play in the EU achieving its commitments to the European Green Deal, which has resulted in a stricter regulatory role being played by the EU.

In the Merger Brief, the European Commission (‘EC’) has underscored the evident shift towards considering sustainability-related factors in the Commission’s merger assessments, as evidenced by several recent merger investigations. In addition to this, the EC has also revised the Notice on Market Definition (‘Notice’). The Notice importantly introduces and emphasizes the degree of a product’s innovation and attributes of its quality (like sustainability, resource efficiency, durability, etc.) as defining relevant market under competition law.

This move is in line with an increased focus on innovation as well, as it has the potential to introduce environmentally friendly or sustainable technologies, products, or services to the market. The EC has recognised the potential of innovation, which encompasses capabilities like developing new recycling technologies, as essential for advancing towards a more circular economy. Therefore, the EC has emphasised that competitive assessment should shift to incorporate innovation as a factor to ensure that anticompetitive mergers do not unduly hinder green innovation. In lieu of this, the EU has also begun keeping a check on any “green” killer acquisitions.

Green ‘killer acquisitions’ — what do they mean for competition?

The September 2023 Merger Brief discusses what the EC calls “green killer acquisitions”. Green killer acquisitions are created when smaller players with strong environmental credentials are snapped up by bigger companies looking for shortcuts in their transition towards a low-emissions economy. This can include acquisitions that stifle “green” innovation or sustainability.

The EU’s Policy Brief in 2021 highlighted the widespread agreement that the Commission ought to rigorously apply and advocate for innovation-based harm theories in merger evaluations, with the aim of safeguarding against the erosion of “green” innovation.

The EU’s policy discussions and deliberations, which indicate the jurisprudential shift that the EC is looking to implement, are accompanied by the expansion of the definition of “market” through the Notice. The European Commission (‘EC’) through the Notice stated that:

“When defining the relevant market, the Commission takes into account the various parameters of competition that customers consider relevant in the area and period assessed. Those parameters may include the product’s price, but also its degree of innovation and its quality in various aspects — such as its sustainability, resource efficiency, durability, the value and variety of uses offered by the product, the possibility to integrate the product with other products, the image conveyed or the security and privacy protection afforded, as well as its availability, including in terms of lead-time, resilience of supply chains, reliability of supply and transport costs.”

The policy changes and discussions are being accompanied by judicial changes as well. The EC through a recent series of judgements has delineated relevant markets on parameters like sustainability. The EC’s decisions in cases like Marine Harvest/Morpol, wherein the Commission took into account customer preferences for sustainably farmed salmon in differentiation of separate product markets with respect to farming and primary processing of Scottish salmon in contrast with Norwegian salmon.

The case underscores that the EC has noticed a changing market and consumer preference for green or sustainable products, and hence these markets should be treated separately. This understanding is also carried forward in the case of Andel/Energi Danmark, where the Commission gave consideration to the possibility of a separate market for electricity which is produced from renewable sources and possibly limited to the supply of renewables-generated electricity through power purchase agreements (PPAs).

In the evaluation of competition, sustainability can serve as a significant factor for distinguishing between the merging entities and their rivals. In the Sika/MBCC case, for example, the Commission determined that the concrete/cement sector was significantly influenced by innovation endeavours and research and development capacities, particularly in the creation of novel polymers and the introduction of more environmentally friendly chemical admixture formulations. Both Sika and MBCC demonstrated robust innovation in eco-friendly R&D, which was deemed crucial for addressing sustainability issues. This was a key consideration in evaluating the competitive proximity between them and other industry participants.

This is all set against the backdrop of environmental objectives established by European governments, which have created significant impetus for both public and private entities to move towards a net-zero economy. This necessitates alterations to business frameworks to align with ecological sustainability. Consequently, environmental considerations are increasingly influencing the direction of M&A. There are massive environmental deals happening across the EU, and this deal landscape is poised to be affected by the USA’s recent policy changes on climate change and sustainability.

The move to delineate “green” killer acquisition from “non-killer” innovation shows a deeper policy move in light of the EU’s commitments under its Green Deal. The EC is using competition law to protect these commitments and foster sustainability-focused innovation. Through merger control, the EC is making it clear that large businesses cannot simply buy environmental credentials — they must earn them through genuine, sustainable practices.

In such an innovation-driven, sustainability-oriented transaction landscape, the EU’s vigilance over what it defines as “green” killer acquisitions is crucial. Research by McKinsey and Nielsen IQ in 2023 showed that consumers often prefer sustainable options to regular alternatives. In this market, where consumer preferences are shifting, the EC’s proactive stance ensures both market integrity and consumer protection.

Avisha Dhiman is a penultimate year law student pursuing BA LLB (Hons) from Maharashtra National University Mumbai. She is interested in financing and M&A with a focus on technology and ESG.

The Legal Cheek Journal is sponsored by LPC Law.