Bain Capital and Triton battle an opening salvo in new antitrust scrutiny

A Finnish construction company has become the potential test case of a new focus from global regulators on antitrust issues in private equity.

The Nordic building industry might not be where one expects buyout firms to be slugging it out for control of a company, even less so in a battle that legal sources say is a harbinger of growing antitrust scrutiny in private equity globally.

What started out as a simple rival offer – Triton Partners on 10 January offering €8 per share for Finnish building company Caverion, valuing the firm at around €1.1 billion and topping by a euro per share a bid in November from Bain Capital – took on a new element on 11 January as the Bain-led consortium North Holdings 3 cried foul.

A North Holdings 3 posting on Nasdaq Helsinki said that Triton’s ownership of Swedish firm Assemblin meant that the bid from the Triton consortium, Crayfish, could be snarled up in European Commission merger controls. The Crayfish announcement “does not include references to Triton’s ownership of one of Caverion’s key competitors, Assemblin, and the expected complexity and remedy requirements resulting from this overlapping investment”, the posting added.

While on its own, such a claim by one bidder against another in the normally staid Finnish market seemed out of place, said sources, the disagreement of what constitutes a “competitor” and therefore the potential of a deal being held up by competition authorities is a sign of things to come in private equity – not just in Finland or Europe, but worldwide.

“This does go to a very interesting issue, namely the way in which antitrust authorities are now thinking about private equity sponsors, and specifically whether interests held in different funds or through different structures can be considered to be independent if there is common ownership at the top of the chain,” an M&A lawyer told PE Hub Europe on background. “This will be an emerging theme on both sides of the Atlantic in the next couple of years.”

The North Holdings 3 offer “now represents a superior offer to Triton’s slightly higher price in possibly 12 months with its significant uncertainties around antitrust”, added a statement from Halvor Meyer Horten, managing director, head of Nordics at Bain, alongside the North Holdings post.

Bain declined to comment for this article. But sources close to the Bain offer said that it had already received antitrust approvals and was just waiting for some foreign direct investment approvals that were a “formality”.

“The deal is certain, but it will take another couple of weeks” before it can effectively close, according to the sources. Elo Mutual Pension Insurance Company, Ilmarinen Mutual Pension Insurance Company, Mandatum Life Insurance Company Limited and Varma Mutual Pension Insurance Company, which together hold about 15.4 percent of shares and votes in Caverion, irrevocably undertook to accept Bain’s tender offer in November, with the caveat that they could withdraw the support if a counter-offer of at least €7.70 came in.

Bain’s offer could change in some form, however. Bain is thinking through its options, although it believes the difference between its and Triton’s offers is not significant, given that it expects Triton’s offer to take a year longer, according to the sources. Conditionality could be a factor, as Triton’s purchase of nearly 10 percent of Caverion on January 12 might stop Bain from buying more than 90 percent, requiring a possible amendment of the deal before a 24 January deadline, according to the sources.

Pinch of salt

Caverion is a Finnish company headquartered in Vantaa that designs, implements and maintains buildings, with offices in several European countries, including Denmark, Norway and Sweden. Its revenue was nearly €1.7 billion during the first three quarters of 2022, according to its latest financial data. Assemblin is a technical installation/services company headquartered in Stockholm, with offices in Norway and Finland. Its net sales were SKr9.6 billion ($924 million; €853 million) in the first three quarters of 2022.

Whether Triton’s ownership of Assemblin will mean its offer for Caverion will be subject to scrutiny from the European Commission remains to be seen.

“Competition analysis is notoriously difficult,” said an antitrust lawyer, on background. “There are a bunch of issues that can come up that nobody was aware of before the notification was made. There’s typically a lot of room for error in these statements that companies make in relation to competition analysis or merger control analysis. One has to take these statements with a pinch of salt.”

It seems that for Caverion’s board, though, there is an antitrust issue at play. After recommending Bain’s offer back in November, on 13 January – a day after Triton bought nearly 10 percent of Caverion’s share capital – the board said that it would evaluate both offers and was in discussions with Triton and Bain, and would make its view known – including a potential change in recommendation – on 24 January at the latest.

The Caverion board added that it had been in talks since receiving a proposal from Triton on 10 November, and provided due diligence access similar to that which Bain enjoyed. But it said that merger control analysis presented by its advisers suggested that a Triton offer would likely be completed in around eight to 12 months – and possibly longer. There was also a “reasonably high likelihood” that structural remedies would be required, the board noted.

Caverion also said that the offer price was lower during the discussions than the €8 per share offered on 10 January. Due to the expected long merger control process and the board’s desire to “minimise the risk to the shareholders that the transaction would not be completed”, the board ended talks with Triton on the evening of 9 January.

When approached for comment, Caverion said it had no further information to give than that contained within the statement.

Triton declined to comment for this article. But according to sources familiar with the situation, Triton’s analysis does not show any substantive concerns about antitrust considerations that are expected to be material in the context of the transaction.

The sources added that the fund investing in Caverion is a fully separate fund from the vehicle that owns Assemblin, and this fund is making the investment as a standalone platform investment. Triton acquired Assemblin via its Fund IV in November 2015 but is bidding for Caverion via its Fund V.

Deal wave

The increased scrutiny from regulators is in some ways a case of private equity becoming a victim of its own success, said the antitrust lawyer.

“You’ve had this discussion, primarily in the US, about private equity and potential harm that’s being done,” said the antitrust lawyer. “This has been triggered, I think, by the huge wave [of deals] that we saw over the last couple of years. In Europe we’ve not had the same type of statements coming out of the European Commission, but one can always say that when topics come up on either side of the Pond, it’s usually only a matter of time until that starts on the corresponding side.”

According to the EU Merger Regulation, the Commission must be notified of any merger with an EU dimension before its implementation, after which the Commission will conduct a ‘Phase I’ investigation. About 90 percent of cases are resolved at this stage, but the rest move to a more in-depth Phase II investigation.

Such investigations take time. According to the latest edition of the Dechert Antitrust Merger Investigation Timing Tracker, the average duration of Phase I remedy investigations dropped to a closer than average 8.5 months in the third quarter of 2022, “whereas the average duration of Phase II investigations sky-rocketed to 19.7 months”.