1. Everybody knows that antitrust plays an important role in M&A deals because of the frequent need to notify transactions to competition authorities. But antitrust has another, less known, role to play: mitigating the risks of buying a target engaged in anticompetitive practices. To better understand this role, practical as well as legal questions should be addressed. For the sake of brevity, legal questions are dealt within this article under the EU legal framework, although identical issues, with possibly different answers, might also arise under other legal frameworks.
2. In M&A deals, like in real estate, acquirers want to get the best picture of the property they are buying, be it a company or a house. In real estate, buyers can mandate architects, experts, and contractors to evaluate the state of the property and the potential costs of the renovation work. The due diligence process in M&A deals works the same way. Lawyers and other experts try to evaluate, as precisely as possible, the state of the company (financial strength, market position, etc.) and estimate the potential legal risks and associated costs induced by the operation of the company prior to the completion of the transaction.
3. In both situations, the risk is always to find hidden flaws once the deal is completed. For antitrust matters, such risk is particularly prominent because the financial burden that acquirers may bear as a result of the target’s conduct can be extremely high, whereas detecting and evaluating risks may not always be that easy.
4. As an example of the consequences of a potentially defective antitrust audit, one may mention the joint fine imposed on Siemens by the European Commission for the participation of Reyrolle, one of its indirect subsidiaries, in the gas insulated switchgear cartel.  It stems from Siemens’s appeal against the Commission’s decision that an audit had been conducted prior to the acquisition of Reyrolle by Siemens’s subsidiary VA Technologie (which eventually merged with Siemens), which did not reveal any anticompetitive behaviour on Reyrolle’s part. 
5. Vigilance is thus the keyword when carrying out an M&A transaction, and in order to mitigate antitrust risks to the best extent, a three-step approach should be followed: identifying potential risks (I.), estimating the level of identified risks (II.) and adopting measures to limit or protect against these risks (III.).
6. In an ideal world where time and resources would be unlimited, the acquirer that followed this three-step approach should be assured of having a perfectly clear and full picture of all antitrust risks borne by the target. Obviously, the reality is not as bright, but this three-step approach nevertheless allows the acquirer to get some views regarding the business it wishes to acquire or merge.
I. Risk detection
7. Identifying potential antitrust risks implies carrying out an investigation. Investigating is the primary meaning of due diligence: careful investors must exercise due diligence over the entity they wish to acquire.
8. In best-case scenarios, the seller informs the acquirer about existing risks. Such information allows the acquirer to save significant resources and time researching potential antitrust risks. However, even when the seller is keen to reveal the existence of antitrust risks, its cooperation is often less easy to obtain when the question of the risk evaluation arises. In other scenarios, the seller is either unwilling or unable (because its high management is not aware of the infringements) to disclose the risk.
9. In cases where no specific risk is revealed upfront by the seller, it is for the acquirer and its external counsels to try identifying potential risks.
10. Antitrust risks can take different forms, but for the sake of simplicity, we will focus on two types of risks: cartels and anticompetitive contractual arrangements.
11. Finding out a cartel (e.g., an agreement about prices or market sharing between competitors) is extremely difficult, even for a company that wants to audit the conduct of its own personnel. Interviews with salespeople and management must be carried out to assess their level of knowledge of antitrust laws and common practices in the day-to-day operations, in particular, regarding their interactions with competitors, distributors, and/or suppliers. Would potential risks be detected during this process, further investigation measures should be taken, such as reviewing mailboxes, meetings minutes, etc.
12. Obviously, an acquirer is not in a position to conduct this kind of audit. First, the acquirer is not always the only one considered by the seller. In auction processes, for instance, the time constraints render such deep investigations merely impossible in practice. Furthermore, this kind of investigation would impose a very high burden on the target, which is most of the time reluctant to allocate the time and human resources necessary to answer the more usual (but already extensive) acquirer’s requests. Lastly, the costs of these investigations would be quite significant for acquirers as they may only be done by external counsels, competition law prohibiting potential acquirers from accessing by themselves such detailed information prior to the completion of the transaction.
13. In practice, these legal and practical constraints lead to a second-best approach, which is far less efficient: the acquirer and its advisers can review the existence and the content of the target’s antitrust compliance programmes and, as the case may be, prior compliance audits. The context (Has the sector been historically prone to cartels? What can be learned from previous investigations by authorities?) can also shed some light and is useful to draw conclusions from the compliance policy review (a weak compliance programme is all the more worrisome if the sector appears to be prone to cartel behaviours).
14. Assessing whether commercial contracts contain anticompetitive clauses may seem easier, since possible infringements are not hidden. But although some commercial contracts are audited, most of the time, the scope of the review only encompasses contracts entered into with the main suppliers and clients in terms of revenue, which does not guarantee that other contracts of lower financial importance do not contain anticompetitive clauses. With regards to commercial contracts, a good balance can be reviewing all commercial contracts—regardless of their financial significance—containing restrictions of competition (non-compete clause, selective distribution, exclusive distribution or supply, etc.), as selecting contracts on this basis gives a better guarantee that the target’s contractual relationships are exempt of anticompetitive clauses. However, in practice, it is often impossible to obtain this limited pool of agreements as it requires the target to operate a prior screening of its commercial contracts to identify the above-mentioned problematic clauses, a task that is not as easy as it seems, especially for small companies.
15. The acquirer may also require behaviour descriptions to be established and signed by the target’s management. Although such documents may not give as much information as regular interviews, they give a good overview of the target’s management practices in the day-to-day business. Furthermore, as will be seen below, such descriptions may be used to contractually mitigate risks.
16. In any event, the characteristics of the sector in which the target operates should be considered to adjust and focus the due diligence. For instance, in the consumer goods sector, specific attention should be paid to distribution contracts, whereas, in the industry sector, it may be more relevant to scrutinise potential partnerships with competitors or strategic contracts with suppliers.
17. It stems from the above that, while imperfect, due diligence remains an effective tool to detect anticompetitive practices on the part of the target company. However, acquirers should bear in mind that this process should be duly supervised to avoid any risk of communication of commercially sensitive information between the acquirer and the target.
18. Indeed, prior to the completion of the transaction (i.e., prior to the closing), the acquirer and the target remain separate undertakings, and any exchange of sensitive information between them, in particular, through the due diligence process, could be regarded as an infringement within the meaning of Article 101 of the Treaty on the Functioning of the European Union (TFEU). Furthermore, when the projected transaction is subject to prior authorisation by one or several competition authorities, the exchange of sensitive information prior to the closing may also amount to gun jumping. 
19. In this regard, acquirers should pay specific attention to the supervision of the due diligence process (e.g., set up clean teams, enter into confidentiality agreement, etc.) in order to avoid committing an infringement while trying to avoid acquiring a company responsible for one.
II. Risk estimate
20. Identifying potential risks is a prerequisite but does not bring much useful information for subsequent limitation measures if the level of such risks is not properly defined. This estimate is particularly useful when a risk is not just suspected but has been disclosed by the seller or discovered during due diligence. Estimating the level of risk requires conducting both qualitative (1.) and quantitative analysis (2.).
1. Qualitative estimate
21. Estimating the qualitative nature of a risk consists in assessing which entity will bear such risk and, in particular, whether it may be conveyed by the target and finally supported by the acquiring group. This analysis is crucial in antitrust due diligence as if there is no doubt that the target will be held responsible for its unlawful behaviour, it may not always be the only one. The analysis differs depending on the type of transaction involved because competition law treats mergers (1.1), acquisitions (1.2) and intragroup transfers and carve-outs (1.3) differently.
22. In mergers (strictly speaking), be it by absorption or creation of a new entity, the target disappears, meaning that the legal entity responsible for the anticompetitive practices ceases to exist. However, the disappearance of the target does not lead to the extinction of liability.
23. On the contrary, in order to avoid companies resorting to M&A transactions or restructuring to escape potential penalties for past anticompetitive practices,  EU courts  have early developed the principle of economic continuity.
24. Pursuant to this principle, where between the commission of an infringement and its prosecution, the entity responsible for the operation of the combination of physical and human elements that have contributed to the commission of the said infringement has ceased to exist in law, the entity that has become responsible for the operation of these elements may be held responsible for it.
25. In case of mergers, the target disappears and the entity that has absorbed it becomes responsible for the operation of the combination of physical and human elements that contributed to the commission of the infringement. Therefore, pursuant to the principle of economic continuity, the absorbing entity becomes responsible for all infringements committed by the target, no matter whether they have taken place and ended before the absorption.
26. Regarding acquisitions, two situations must be distinguished.
1.2.1 Share acquisitions
27. Acquisitions of shares differ from mergers because the target does not disappear, it only potentially goes from under the control of one company to another. The principle of economic continuity is thus not applicable, and the target remains fully responsible for the infringements it has committed.
28. However, this does not mean that a change of control over the target has no consequences in terms of liability. Indeed, competition law does not apply to individual legal persons but to “undertakings”—i.e., all entities belonging to the same economic unit.  Pursuant to this principle, a parent company may be held jointly liable for the infringement committed by its subsidiary over which it exercises decisive influence. 
29. Therefore, in case of share acquisitions, the acquirer itself will not be liable if the infringement has ceased before the acquisition. However, this does not mean that the acquirer can ignore the situation: the target’s value could be impacted by a future fine and the target may be held jointly liable with the seller, which creates a double problem if the competition authority’s investigation takes place after the transaction: how to combine the two defence strategies of the seller and the target (now controlled by the acquirer) and how to share the common fine (if any)?
30. If the infringement continues after the acquisition (which may well be the case if the acquirer is not aware of its existence or has not undertaken actions to stop it), the acquirer may be held jointly liable for infringements committed by the target, for the post-transaction period. In such cases, ensuring that any potential anticompetitive practices have ended prior to the acquisition is thus essential.
1.2.2 Asset acquisitions
31. When estimating the level of risk in asset acquisitions, a two-step methodology must be followed. First, it must be determined whether the assets acquired comprise the physical and human elements responsible for the commission of an infringement. If not, the acquirer bears no risk. If yes, the acquirer’s liability for the identified infringement will depend on the survival of the legal entity responsible for the operation of the assets at the time of the infringement. If this entity still exists at the time of the adoption of the decision sanctioning the infringement, the acquirer will bear no liability for the infringement committed through these assets prior to their acquisition,  since it has not purchased this legal entity. On the contrary, if such entity has disappeared at that time, the principle of economic continuity applies and the acquirer becomes fully responsible for the infringement committed through the assets acquired, even prior to the acquisition.
32. Asset acquisitions can thus result in two diametrically opposite situations with either full liability of the acquirer for all infringements committed through the assets prior to and following completion of the transaction or no liability at all (unless an infringement occurs post-completion of the transaction).
33. These two opposite solutions make the evaluation of antitrust risks in asset deals unreliable, all the more since knowing if the assets include the elements responsible for the commission of the infringement is not always easy. Indeed, although the entity previously operating the assets may survive immediately following the transfer, it cannot be ascertained that it will still exist at the time where the infringement will be discovered and prosecuted, and the possibility thus always remains that the acquirer will be held liable for the infringement committed prior to the transfer.
1.3 Intragroup transfers and carve-outs
34. As stated above, the principle of economic continuity normally applies only when the legal entity operating the material and human elements responsible for the commission of an infringement has disappeared when the infringement is sanctioned. 
35. However, the EU Court of Justice has developed an exception to this principle in cases of intragroup transfers. The Court considers that “where two entities constitute one economic entity, the fact that the entity that committed the infringement still exists does not as such preclude imposing a penalty on the entity to which its economic activities were transferred.”  In other words, when the human and material elements responsible for the commission of the infringement have been transferred from one entity to another, both belonging to the same economic entity, the transferee may be held liable instead of the transferor.
36. Although this solution is rather logical in the sense that both the transferor and the transferee form part of the same economic unit, it may have significant and rather unexpected consequences in cases of carve-outs, i.e., where a seller transfers parts of its business into a newly created subsidiary with the view of selling it to a third-party company.
37. In such cases, pursuant to this exception, because at the time of the first transfer, the dedicated subsidiary is part of the same economic unit as the entity transferring it part of its business, if the transferred business is or has been responsible for the commission of an infringement, the newly created entity may be held liable for the said infringement, even for the period preceding the transfer.  In this regard, the EU Court of Justice considers that it does not matter if the dedicated subsidiary was created specifically with a view to being sold to a third-party company, nor that it only legally existed and operated the litigious business under the control of the seller for a very short period before being transferred to a third-party company. 
38. For potential acquirers of a carved-out part of another company, this solution may thus have major financial consequences because the acquired carved entity may be held liable for past infringements, even those that have ended prior to its creation.
2. Quantitative estimate
39. Once the material scope of the risk is identified, the level of the potential financial consequences that may result from it must be assessed.
40. Two different financial consequences must be considered: first, the level of the potential fine that may be imposed by one or several competition authorities and, second, the level of potential damages that may be claimed by whoever has suffered from that infringement.
2.1 Financial penalties
41. The evaluation of the level of financial penalties that may result from an infringement faces two main challenges. Firstly, the authority or authorities having jurisdiction to prosecute the infringement must be identified. Regarding territorial jurisdiction, most competition law regimes rely upon the effects doctrine or similar doctrines, pursuant to which jurisdiction is determined through the place where the anticompetitive practices produce effects. 
42. Estimating the level of potential penalties thus requires assessing the places where the conduct may have had anticompetitive effects. That may be challenging in practice, as it requires identifying the products or services affected by the practice and the places where they have been sold or provided. Furthermore, even when the effects can be properly circumscribed, several competition authorities may still have parallel jurisdiction to prosecute the infringement. For instance, in certain cases, the same infringement may be investigated and sanctioned by both the EU Commission and non-EU national competition authorities or courts.  Even the jurisdiction of the EU Commission is not obvious, since there is a dialogue between the latter and national competition authorities of the EU Member States to allocate the cases.
43. Secondly, the methodology to be used for the assessment of the fine level must be defined. In this regard, although many competition authorities have published guidelines detailing their methodology for setting fines, practice shows that their precision is often insufficient to allow infringers to obtain a sensible estimate. Indeed, when trying to estimate the level of a potential fine, even the slightest change in one or several of the parameters may lead to differences of tens of millions between each potential scenario. Furthermore, these guidelines undergo changes over time that apply immediately to new proceedings.  It cannot thus be excluded that an estimate made at the time of an acquisition will not be completely obsolete when the infringement is prosecuted and the fine set.
44. In addition to public fines, infringers may face private claims brought by companies or final consumers that have suffered from the anticompetitive practices. This risk must not be forgotten by acquirers as the level of damages may be significant, in particular, when the practices have impacted a large number of actors. Furthermore, the costs of the lawsuits themselves may be significant, depending on the number of claims brought.
45. Estimating the level of potential damages is an extremely delicate exercise as it supposes first identifying the companies (or categories of final consumers) potentially affected and, second, the level of loss incurred by these companies or consumers, which may be of various natures: surcharge, customer churn, price increase, etc.
46. A precise estimate (which in theory would imply a forensic or an economic expert) can hardly be achieved within the short period during which the acquirer and the seller conduct their discussions. A high-level evaluation is, however, often possible.
III. Risk limitation or protection
47. The inherent flaws and uncertainties of the due diligence process regarding detection and evaluation of antitrust risks lead acquirers to try protecting themselves against worst-case scenarios, even sometimes the most unlikely ones. In this regard, several tools may be used by acquirers prior to and post-closing.
48. Prior to the closing, representations and warranties are tools commonly used by acquirers. In M&A transactions, representations and warranties are generally given by both parties to disclose material information. The seller’s representations and warranties often tend to be more extensive because they include information about the target company or business and the stock or assets and liabilities being transferred. The representations and warranties are used to allocate risks between the parties and serve as the foundation for an indemnification claim in case of a breach or inaccuracy. A breach or inaccuracy of a representation or warranty can also provide the other party with a right to terminate or refuse to close the transaction, if discovered prior to the closing.
49. Regarding antitrust risks, representations may be used to compensate for the often partial nature of the audit conducted, by asking the sellers to make representations about the absence of anticompetitive clauses in commercial contracts entered into by the target or the absence of previously detected potential anticompetitive behaviours. The behaviour descriptions established and signed by the target’s management during the due diligence process can also be used as representations.
50. Warranties may be made regarding ongoing antitrust investigations or private claims. Where claims or investigations are already ongoing, warranties are easier to set out because the investigation or private claim has already started, meaning that the potential anticompetitive practices have already been identified and circumscribed to a certain extent. In such cases, the seller can warrant to bear the entire financial liability that may result from the ongoing claims.
51. However, in order to get maximum protection, it can be wise for acquirers to obtain a warranty not only against financial liability that may result from the ongoing claims but also against all financial liabilities for any potential new claim or investigation arising from the detected anticompetitive practices.
52. Where no claim is ongoing but anticompetitive practices have been identified, acquirers may also try to obtain similar warranties from the sellers. However, in this scenario, sellers can be more reluctant to grant unlimited warranties and most of the time will want to set a cap on the warranty. The estimate of potential financial consequences that may result from the practices thus becomes a major issue in setting up the level of the warranty, whereas it has been shown that such estimates are extremely unreliable.
53. Furthermore, the protection granted by such warranties strongly relies on the future financial strength of the sellers, which is by nature unpredictable. To remedy the risk of a potential default on the part of the sellers, acquirers may choose to rely on bank guarantees. However, bank guarantees are generally limited in time, whereas the financial consequences resulting from an anticompetitive practice may arise several years following the detection of the infringement.
54. Another financial protection, which is not a warranty strictly speaking, can be implemented when it is anticipated that the competition authority will impose a joint fine on the target and the seller (as its former owner). EU competition law does not contain any rule as to how a joint fine must be shared between the fined parties. Depending on what the national civil law allows, the acquirer may try to obtain a contractual arrangement between the target and the seller in order to set in advance the way the financial burden will be shared between those two entities, the goal being, of course, to try having most of the burden borne by the seller.
55. It must also be noted that some risks may hardly be captured by financial warranties, such as the inherent reputational risk of any antitrust proceedings or claims or the eventuality that the conviction may amount to recidivism.
56. Prior to the closing, anticipation of potential antitrust proceedings can also involve organising the terms of the future defence, when the latter will have to be conducted both by the seller and the target. Thoughts should be given to each party’s responsibilities regarding the defence, i.e. which party will bear the costs, which party will retain control over the defence. In this regard, it is possible to organise a coordinated or common defence between the target (i.e. in practice, the acquirer) and the sellers. Furthermore, it can be useful to have commitments taken from the party in possession of the information necessary to prepare the defence, providing that it will share this information with the other.
57. Post-closing, it may also be useful to conduct follow-up audits to further investigate suspicions of anticompetitive conduct detected during the due diligence process. If such audits confirm the suspicions, it may allow the acquirer to apply for leniency (when available) and obtain an exemption from fines. It may also put pressure on the target’s managers to immediately stop any infringement, thus protecting the acquirer against the risk of becoming itself jointly liable. General compliance audits may also be launched to assess compliance of the target with antitrust laws more generally. In any event, if the due diligence process has revealed that the compliance programmes in place are flawed or non-existent, diligence should be taken to ensure that alert mechanisms in case of detection of anticompetitive behaviour are put in place as soon as possible and that the target employees receive adequate training on antitrust law, in particular salespeople.
58. Practice shows that the decisional practice and case law are not lenient toward “naïve” acquirers  and confirms that conducting antitrust due diligence is essential before completing M&A transactions. However, as seen above, the efficiency of antitrust due diligence is unequal and the acquirer can never be completely assured that it has properly anticipated, estimated and limited all potential antitrust risks.
59. There is no standard approach to follow when conducting antitrust due diligence and the approach should be adapted on a case-by-case basis, in particular, depending on the business of the target, the type of M&A transaction, the existence of past convictions and the risks disclosed by the seller.