CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, New York, NY 10022
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
To: Harrison Wexford, Responsible Partner, M&A; Tiffany Rosenthal, Lead Associate, M&A
From: Elaine Forsythe, Specialist Partner, Antitrust & Competition
Date: December 3, 2023
Re: EU Merger Regulation Jurisdictional Analysis — Proposed Acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP
Matter No.: 1041-00003
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I. Executive Summary
The purpose of this memorandum is to analyze whether the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Target") by Solara Digital Infrastructure Fund VI LP ("Fund VI" or the "Acquirer") triggers a mandatory pre-notification filing obligation under the EU Merger Regulation, Council Regulation (EC) No 139/2004 (the "EUMR"). This analysis has been prepared at the request of the deal team in connection with the regulatory workstream for the proposed transaction, and should be read in conjunction with the companion memoranda addressing other regulatory filing obligations identified in the regulatory matrix circulated on November 20, 2023.
Conclusion. Based on the turnover analysis set forth in detail below, we conclude that the proposed transaction does not meet the jurisdictional turnover thresholds under either Article 1(2) (the primary jurisdictional test) or Article 1(3) (the alternative jurisdictional test) of the EUMR. The transaction does not have a "Community dimension" within the meaning of the Regulation, and accordingly, no EU merger filing with the European Commission is required.
The principal reasons for this conclusion are as follows:
(a) the combined aggregate worldwide turnover of all undertakings concerned falls well below the €5 billion threshold required under Article 1(2), rendering the primary jurisdictional test inapplicable on its first criterion alone;
(b) neither Cloudium nor Fund VI (together with its controlled portfolio companies) generates sufficient Community-wide turnover to satisfy the €250 million individual threshold under Article 1(2) or the relevant individual thresholds under Article 1(3);
(c) the three-Member-State combined turnover test under Article 1(3) is not met, as no three EU Member States produce combined turnover in excess of €100 million from the undertakings concerned; and
(d) critically, following the United Kingdom's withdrawal from the European Union ("Brexit"), Cloudium's substantial UK revenue — approximately £312 million for the fiscal year ended September 30, 2023 — does not count toward Community-wide turnover for EUMR purposes, significantly reducing the relevant EU turnover figures.
Recommendation. No further action is required at the EU level with respect to the EUMR. However, we recommend that the deal team continue to monitor for any potential referral requests under Article 22 of the EUMR from individual EU Member State national competition authorities. We assess the risk of such a referral as low given the revenue profile of the parties and the absence of obvious horizontal overlap concerns in the EU, but this risk cannot be excluded entirely in light of the European Commission's expanded approach to Article 22 referrals following the Marlowe Group/GRAIL enforcement guidance. This risk assessment is discussed in further detail in Section VIII below.
II. Transaction Overview
A. The Buyer
The proposed acquirer is Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership with a 2022 vintage year and approximately $12.4 billion in committed capital. Fund VI is investing through its wholly owned subsidiary, Stratos Merger Sub Inc., a Delaware corporation incorporated on January 8, 2024, formed as a special-purpose acquisition vehicle for the proposed transaction.
Fund VI is managed by its sponsor, Solara Digital Infrastructure LP (together with its affiliated management entities, "Solara"), a Delaware-based private equity firm focused on digital infrastructure and enterprise software investments. Solara manages approximately $38 billion in assets under management across six flagship funds. The general partner of Fund VI is Solara Digital GP LLC, whose managing partners are Marcus Elliston and Priya Narasimhan. Solara's investment track record includes significant investments in cloud computing, data center infrastructure, cybersecurity platforms, and enterprise SaaS businesses, predominantly in North America.
For purposes of the EUMR jurisdictional analysis, the relevant "undertaking concerned" on the buyer side is Fund VI together with those portfolio companies over which Fund VI exercises sole or joint control, as discussed in further detail in Section V below.
B. The Target
The proposed target is Cloudium Technologies plc, a public limited company incorporated under the laws of England and Wales (Company No. 09734521). Cloudium's shares are listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium's principal US headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103, and its registered office is at 45 Broadwick Street, London W1F 0DB, United Kingdom.
Cloudium is a provider of cloud-based enterprise resource planning ("ERP") and customer relationship management ("CRM") software solutions. The company serves a global customer base, with significant operations in the United States, the United Kingdom, and, to a lesser extent, Continental Europe. Cloudium reported last-twelve-months revenue of approximately $1,620,000,000 for the fiscal year ended September 30, 2023, and annualized recurring revenue ("ARR") of approximately $1,740,000,000 as of December 31, 2023.
Cloudium's principal European subsidiary is Cloudium Technologies UK Ltd. (Company No. 11287456), which employs approximately 1,200 individuals in London and Manchester, and generated revenue of approximately £312,000,000 (approximately $390,000,000 or €358,000,000) for the fiscal year ended September 30, 2023. Cloudium also operates Cloudium Solutions GmbH, a German subsidiary headquartered in Berlin, with approximately 400 employees focused on sales and customer success operations for the DACH region (Germany, Austria, and Switzerland) and, to a limited extent, other EU markets.
C. Transaction Structure and Consideration
The proposed transaction is structured as a reverse triangular merger under the Delaware General Corporation Law. Under this structure, Stratos Merger Sub Inc. will merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. Following closing, Cloudium will be de-listed from the Nasdaq Global Select Market and will operate as a private company.
The aggregate deal value is $6,800,000,000, representing approximately $36.92 per share for 184,200,000 shares of Cloudium common stock outstanding. The consideration will be payable in cash, subject to customary purchase price adjustments.
It is noted that the transaction contemplates rollover equity participation by two existing Cloudium stakeholders: (i) Jonathan Hargrove, the Chief Executive Officer of Cloudium, who holds a 4.2% equity stake and will roll over approximately 50% of his holdings into the surviving entity; and (ii) Pinnacle Growth Ventures LLC, a venture capital investor holding an 11.6% stake, which will roll over approximately 60% of its holdings. As discussed in Section III.B below, neither of these rollover participants will hold a controlling or jointly controlling stake in Cloudium post-closing; Fund VI will hold sole control.
D. Transaction Timeline
The parties are targeting execution of the definitive merger agreement on or about January 22, 2024, with an anticipated closing in the second quarter of 2024, subject to satisfaction of customary conditions, including regulatory approvals. The regulatory workstream contemplates parallel filings in multiple jurisdictions, as identified in the regulatory matrix, with the EUMR analysis addressed herein.
III. Applicable Legal Framework — EU Merger Regulation
A. Overview of the EUMR
Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings — the EU Merger Regulation — establishes a mandatory, suspensory pre-notification regime for mergers, acquisitions, and joint ventures that have a "Community dimension." The Regulation constitutes the primary instrument of EU merger control and operates as a "one-stop shop": transactions that meet the jurisdictional thresholds set forth in Article 1 are subject to the exclusive jurisdiction of the European Commission (the "Commission"), while transactions falling below those thresholds are, in principle, subject to the merger control regimes of individual EU Member States (if applicable national thresholds are met).
The EUMR system is built on three foundational principles relevant to this analysis:
First, a transaction that constitutes a "concentration" with a Community dimension must be notified to the Commission prior to its implementation (Article 4(1)) and may not be implemented (i.e., "put into effect") before it has been declared compatible with the internal market or otherwise cleared (Article 7(1)). This is the so-called "standstill obligation" or "gun-jumping" prohibition.
Second, the jurisdictional thresholds under the EUMR are based solely on turnover — that is, on the revenue of the undertakings concerned. Market share, competitive effects, and other substantive considerations are irrelevant to the question of whether the Commission has jurisdiction. The turnover thresholds serve as a proxy for the economic significance of the transaction to the EU internal market.
Third, the relevant turnover figures are to be determined in accordance with the detailed rules set forth in Article 5 of the EUMR and elaborated upon in the Commission's Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the Control of Concentrations between Undertakings (OJ 2008 C 95/1) (the "Consolidated Jurisdictional Notice" or "CJN").
A concentration that does not have a Community dimension falls outside the EUMR's mandatory notification obligation and the Commission's exclusive jurisdiction. However, as discussed in Section VIII below, the Commission has in recent years adopted an expansive approach to accepting referral requests from Member State national competition authorities under Article 22 of the EUMR, even where the referring Member State's own national merger control thresholds are not met.
B. Definition of "Concentration" — Article 3
Before analyzing the turnover thresholds, it is necessary to confirm that the proposed transaction constitutes a "concentration" within the meaning of the EUMR. Article 3(1) of the Regulation defines a concentration as arising where a "change of control on a lasting basis" results from, inter alia, the acquisition by one or more undertakings of "direct or indirect control of the whole or parts of one or more other undertakings" (Article 3(1)(b)).
The proposed transaction plainly satisfies this definition. Through the reverse triangular merger, Fund VI will acquire sole control of Cloudium. Following the merger, Cloudium will be a wholly owned subsidiary of Fund VI, and Fund VI will exercise decisive influence over Cloudium's strategic commercial behavior, including the composition of its board and the adoption of its business plans and budgets.
We have considered whether the rollover equity arrangements with Jonathan Hargrove and Pinnacle Growth Ventures LLC could give rise to any argument that the post-closing governance structure involves joint control rather than sole control by Fund VI. We conclude that they do not. Mr. Hargrove's post-closing equity stake — representing approximately 2.1% of the surviving entity's equity (i.e., 50% of his current 4.2% stake) — does not confer any blocking rights, board veto rights, or other governance protections that would give rise to negative sole control or joint control within the meaning of the CJN. Similarly, Pinnacle Growth Ventures' post-closing rollover stake — representing approximately 6.96% of equity (i.e., 60% of its current 11.6% stake) — is a passive minority interest without any special governance rights. Based on our review of the draft stockholders' agreement and governance term sheet circulated on November 28, 2023, neither Mr. Hargrove nor Pinnacle Growth Ventures will possess any veto rights over the appointment or removal of senior management, the approval of the budget, or the business plan of the surviving entity, nor will either hold any other right that would constitute a basis for joint control under the Commission's established decisional practice and the CJN.
Conclusion: The proposed transaction constitutes a "concentration" within the meaning of Article 3(1)(b) of the EUMR. The sole remaining question is whether the concentration has a "Community dimension" under the turnover thresholds set forth in Article 1.
C. Article 1(2) Thresholds — Primary Jurisdictional Test
Article 1(2) of the EUMR establishes the primary jurisdictional test for determining whether a concentration has a Community dimension. Under Article 1(2), a concentration has a Community dimension where all three of the following cumulative conditions are satisfied:
1. The combined aggregate worldwide turnover of all the undertakings concerned exceeds €5,000,000,000 (five billion euros);
2. The aggregate Community-wide turnover of each of at least two of the undertakings concerned exceeds €250,000,000 (two hundred and fifty million euros); and
3. Unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State (the "two-thirds rule").
The three conditions are cumulative. If any one of the three conditions is not satisfied, the concentration does not have a Community dimension under Article 1(2), and it is necessary to proceed to the alternative test under Article 1(3).
The two-thirds rule operates as a carve-out: even if the turnover thresholds in conditions (1) and (2) are met, no Community dimension arises if each of the undertakings concerned derives more than two-thirds of its Community-wide turnover from a single Member State. The rationale for this carve-out is that, where the economic activity of all parties is concentrated in a single Member State, that Member State's national competition authority is best positioned to assess the transaction.
D. Article 1(3) Thresholds — Alternative Jurisdictional Test
Where the Article 1(2) thresholds are not met, Article 1(3) provides an alternative, lower set of thresholds designed to capture transactions with significant cross-border effects within the EU. Under Article 1(3), a concentration that does not have a Community dimension under Article 1(2) nevertheless has a Community dimension where all five of the following cumulative conditions are satisfied:
1. The combined aggregate worldwide turnover of all the undertakings concerned exceeds €2,500,000,000 (two billion five hundred million euros);
2. In each of at least three Member States, the combined aggregate turnover of all the undertakings concerned exceeds €100,000,000 (one hundred million euros);
3. In each of at least three of those Member States identified in condition (2), the aggregate turnover of each of at least two of the undertakings concerned exceeds €25,000,000 (twenty-five million euros);
4. The aggregate Community-wide turnover of each of at least two of the undertakings concerned exceeds €100,000,000 (one hundred million euros); and
5. Unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State (the two-thirds rule, applied in the same manner as under Article 1(2)).
As with Article 1(2), these conditions are cumulative. If any one of the five conditions is not met, the concentration does not have a Community dimension under Article 1(3), and no EUMR filing obligation arises.
The Article 1(3) thresholds were introduced by the EUMR in 2004 as a mechanism to extend the Commission's jurisdiction to transactions that, while not meeting the higher Article 1(2) thresholds, involve parties with significant turnover in multiple Member States such that a multi-jurisdictional filing obligation would otherwise arise. The three-Member-State test in conditions (2) and (3) is designed to ensure that the transaction has a sufficiently cross-border character to justify Commission-level review.
IV. Turnover Calculation — Cloudium Technologies plc
A. Cloudium Worldwide Turnover
For purposes of the EUMR turnover analysis, the relevant turnover figure is the net turnover derived from the sale of products and the provision of services by the undertaking concerned during the last completed financial year, calculated in accordance with Article 5(1) of the EUMR and the Consolidated Jurisdictional Notice.
Cloudium's most recently completed fiscal year ended on September 30, 2023. Based on Cloudium's publicly filed financial statements (Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission), Cloudium reported consolidated net revenue for the fiscal year ended September 30, 2023 ("FYE 2023") of approximately $1,620,000,000.
Applying an exchange rate of approximately $1.09 per €1.00 — the rate used consistently across the regulatory workstreams for this transaction and broadly in line with the average USD/EUR exchange rate during the relevant fiscal year — Cloudium's worldwide turnover is approximately €1,486,000,000.
We note for reference that Cloudium's annualized recurring revenue ("ARR") as of December 31, 2023, is reported to be approximately $1,740,000,000. However, consistent with Article 5 of the EUMR and the Consolidated Jurisdictional Notice, the jurisdictional analysis is based on turnover for the last completed financial year, not ARR or other forward-looking revenue metrics. Accordingly, the $1,620,000,000 FYE 2023 figure is the controlling figure for this analysis.
B. Cloudium EU Turnover Breakdown
The determination of Cloudium's "Community-wide turnover" — that is, the turnover achieved within the European Union — requires careful allocation of Cloudium's revenue by geography. This analysis is particularly significant in light of Brexit, as turnover generated in the United Kingdom no longer qualifies as Community-wide turnover for EUMR purposes.
Cloudium's EU-relevant operations are primarily conducted through the following channels:
(a) Cloudium Solutions GmbH (Berlin, Germany): This is Cloudium's principal EU subsidiary. It employs approximately 400 individuals and is responsible for sales, account management, and customer success operations across the DACH region (Germany, Austria, and Switzerland). Revenue generated by Cloudium Solutions GmbH is booked at the entity level and reflects subscription and professional services fees earned from EU-based customers in the DACH region.
(b) Cross-border SaaS subscription revenue: Certain EU-based customers subscribe to Cloudium's SaaS platform through contracts with Cloudium Technologies UK Ltd. (the UK entity) or directly with the US parent entity, Cloudium Technologies plc. Under the EUMR, turnover is generally allocated to the location of the customer (i.e., the place where the customer is established), not the location of the invoicing entity. Accordingly, SaaS subscription revenue earned from EU-based customers is properly treated as Community-wide turnover regardless of whether it is booked by the UK or US entity.
A critical point in this analysis concerns Cloudium Technologies UK Ltd. (Company No. 11287456), Cloudium's principal UK operating subsidiary. This entity employs approximately 1,200 individuals in London and Manchester and generated revenue of approximately £312,000,000 (approximately $390,000,000 or €358,000,000) for FYE 2023. Prior to Brexit, this revenue would have been included in Cloudium's Community-wide turnover for EUMR purposes, which would have significantly altered the jurisdictional analysis. However, following the UK's departure from the European Union on January 31, 2020, and the expiry of the transition period on December 31, 2020, UK revenue is no longer counted as Community-wide turnover under the EUMR. This has a material impact on the jurisdictional analysis, as the UK accounts for the substantial majority of Cloudium's European revenue.
Based on our review of Cloudium's publicly filed financial statements (including the geographic revenue disclosures in the Form 20-F and the segmental disclosures in the statutory accounts of Cloudium Solutions GmbH filed with the German Handelsregister) and data room materials reviewed as of the date of this memorandum (including the management-prepared geographic revenue breakdown), we estimate Cloudium's total EU turnover at approximately €95,000,000 to €115,000,000.
This estimate comprises the revenue of Cloudium Solutions GmbH (which accounts for the majority of the EU total) plus direct EU SaaS subscription revenue booked by the US and UK entities to EU-based customers. The range reflects uncertainty regarding the precise geographic allocation of certain cross-border subscription revenues, which we understand the Company's finance team is in the process of disaggregating at a more granular level as part of the ongoing due diligence process. We expect to be able to refine this estimate as additional data becomes available.
Key Point: The substantial majority of Cloudium's European revenue is generated in the United Kingdom (approximately £312 million, or roughly 70% of total European revenue). Following Brexit, this UK revenue is excluded from Community-wide turnover for EUMR purposes. Cloudium's EU-only revenue — estimated at approximately €95 million to €115 million — represents a relatively modest portion of the company's total global turnover of approximately €1,486 million (roughly 6–8%).
C. Cloudium Turnover by EU Member State
For purposes of the Article 1(3) three-Member-State test, it is necessary to estimate Cloudium's turnover on a Member State-by-Member State basis. Based on available data, we estimate the following breakdown:
Germany is by far Cloudium's largest EU market, reflecting the presence of Cloudium Solutions GmbH in Berlin and the company's established customer base in the DACH region. France and the Netherlands represent smaller but identifiable markets. Revenue from other EU Member States (including Ireland, Spain, Italy, Sweden, and others) is individually modest and collectively estimated at €15 million to €20 million.
No single EU Member State accounts for a level of turnover that would affect the two-thirds rule analysis in any material respect. Cloudium's EU turnover is distributed across multiple Member States, with Germany representing the largest single concentration (approximately 55–65% of total EU turnover).
V. Turnover Calculation — Solara / Fund VI (Acquirer Group)
A. Applicable Undertaking for Turnover Purposes
The identification of the relevant "undertaking concerned" on the buyer side requires careful application of the rules set forth in the EUMR and the Consolidated Jurisdictional Notice, particularly as they apply to acquisitions by private equity funds.
Under the Commission's established practice, as set forth in paragraphs 196–204 of the Consolidated Jurisdictional Notice, where an acquisition is made by a private equity fund, the relevant "undertaking concerned" is generally the fund itself (here, Fund VI), together with those portfolio companies over which the fund exercises sole or joint control. The rationale is that a private equity fund, together with the companies it controls, constitutes a single economic unit for turnover purposes.
Critically, the turnover of portfolio companies controlled by other funds managed by the same private equity sponsor (here, Solara's Funds I through V) is not attributed to Fund VI unless those other funds are themselves controlled by the same entity that controls Fund VI, such that the entire fund family constitutes a single undertaking. This determination depends on the governance and fund structure, including whether the general partner exercises control over the investment decisions of multiple funds simultaneously. Based on our preliminary review of the Solara fund structure — in which each fund operates as an independent limited partnership with a separate investment period, separate limited partner advisory committees, and separate portfolio management authority (albeit managed by the same general partner entity, Solara Digital GP LLC) — and consistent with the Commission's general approach, we proceed on the basis that only Fund VI's own portfolio companies are relevant for purposes of the turnover calculation.
Solara Digital Infrastructure Fund VI LP is a relatively recent fund (2022 vintage) and has made a limited number of platform investments to date. Based on publicly available information and information provided by the client, Fund VI currently controls 14 platform investments across Funds IV through VI; however, of these, only those portfolio companies in which Fund VI holds a controlling interest are relevant for the EUMR turnover analysis. We understand from the client that Fund VI's current portfolio includes approximately five to seven platform companies, predominantly in the digital infrastructure and enterprise software sectors, with operations concentrated in the United States.
B. Solara / Fund VI Worldwide Turnover
Based on a portfolio summary provided by Solara's deal team on November 15, 2023, the aggregate worldwide turnover of Fund VI's controlled portfolio companies is estimated at approximately €800,000,000 to €1,200,000,000.
This range reflects uncertainty regarding the precise turnover attributable to certain portfolio companies in which Fund VI shares control with co-investors, as well as the fact that several portfolio companies have fiscal years ending on dates other than September 30, 2023. We have used the most recently completed financial year for each entity, consistent with the requirements of Article 5 of the EUMR.
It is important to note that this figure includes only portfolio companies in which Fund VI holds a controlling interest (sole or joint). It does not include the turnover of portfolio companies controlled by earlier Solara funds (Funds I through V) or by co-investors exercising independent control. We have not independently verified the portfolio turnover figures provided by Solara, and we recommend that these figures be confirmed with the client's finance team prior to finalization of the regulatory filings matrix.
C. Solara / Fund VI EU Turnover
The estimated aggregate EU turnover of Fund VI's controlled portfolio companies is approximately €40,000,000 to €70,000,000.
Fund VI's portfolio is predominantly US-focused, reflecting Solara's investment thesis centered on North American digital infrastructure and enterprise software assets. The portfolio companies have limited direct sales operations in the European Union. EU revenue is primarily generated through cross-border SaaS subscriptions sold to EU-based customers by US-headquartered portfolio companies, with a small amount attributable to one portfolio company that maintains a modest sales office in Dublin, Ireland.
The following table summarizes the estimated EU turnover of Fund VI's principal portfolio companies:
None of Fund VI's portfolio companies individually generate EU turnover that would be material for purposes of the Article 1(2) or Article 1(3) thresholds. The EU revenue is geographically dispersed across multiple Member States, with no significant concentration in any single country.
VI. Application of Article 1(2) Thresholds
A. Combined Aggregate Worldwide Turnover — €5 Billion Test
The first condition of the Article 1(2) test requires that the combined aggregate worldwide turnover of all undertakings concerned exceed €5,000,000,000.
The combined worldwide turnover of the undertakings concerned is calculated as follows:
The combined worldwide turnover of the undertakings concerned is approximately €2,286,000,000 to €2,686,000,000, which does not exceed the €5,000,000,000 threshold.
The combined worldwide turnover falls approximately €2.3 billion to €2.7 billion below the Article 1(2) worldwide threshold. This shortfall is substantial and not sensitive to reasonable variations in the turnover estimates.
Result: The first condition of Article 1(2) is not satisfied. Because the conditions under Article 1(2) are cumulative, the failure to meet the first condition is dispositive: there is no need to analyze the remaining conditions (Community-wide turnover of individual undertakings or the two-thirds rule). Article 1(2) is clearly not met.
B. Supplementary Analysis (For Completeness)
Although the analysis could properly end with the conclusion that the €5 billion worldwide threshold is not met, we provide a supplementary analysis of the remaining Article 1(2) conditions for the benefit of the deal team and for completeness of the record.
Community-wide turnover — €250 million individual threshold. Even if the combined worldwide turnover threshold were satisfied, the second condition of Article 1(2) requires that each of at least two of the undertakings concerned achieve Community-wide turnover exceeding €250,000,000. The estimated Community-wide turnover of each party is as follows:
• Cloudium EU-wide turnover: approximately €95,000,000 to €115,000,000 — this falls well below €250,000,000, by a margin of approximately €135 million to €155 million.
• Fund VI portfolio EU-wide turnover: approximately €40,000,000 to €70,000,000 — this falls far below €250,000,000, by a margin of approximately €180 million to €210 million.
Neither party comes close to the €250 million threshold. This confirms, independently of the worldwide turnover analysis, that Article 1(2) is not satisfied.
Two-thirds rule. The two-thirds rule analysis is moot given that neither of the first two conditions is met. However, we note that neither Cloudium nor Fund VI achieves more than two-thirds of its Community-wide turnover within a single Member State. Cloudium's largest EU market is Germany, which accounts for approximately 55–65% of its EU turnover, but this does not exceed two-thirds. The two-thirds rule would not have operated as a carve-out.
Overall Conclusion on Article 1(2): The proposed transaction does not have a Community dimension under Article 1(2) of the EUMR. The analysis proceeds to the alternative thresholds under Article 1(3).
VII. Application of Article 1(3) Thresholds
A. Combined Aggregate Worldwide Turnover — €2.5 Billion Test
The first condition of the Article 1(3) alternative test requires that the combined aggregate worldwide turnover of all undertakings concerned exceed €2,500,000,000.
As calculated above, the combined worldwide turnover is approximately €2,286,000,000 to €2,686,000,000.
This result is marginal. At the lower end of the range (approximately €2,286,000,000), the combined worldwide turnover falls approximately €214 million below the threshold and the first condition is clearly not met. At the upper end of the range (approximately €2,686,000,000), the combined worldwide turnover exceeds the threshold by approximately €186 million, and the first condition may be satisfied.
The uncertainty in this estimate arises primarily from the imprecision in the Fund VI portfolio company turnover figures, which are based on a summary provided by the client and have not been independently verified. If Fund VI's portfolio turnover is at the higher end of the estimated range (approximately €1,200,000,000), the combined worldwide turnover would slightly exceed €2.5 billion. If Fund VI's portfolio turnover is at the lower end (approximately €800,000,000), the threshold would not be met.
For purposes of this analysis, and in an abundance of caution, we assume that the €2.5 billion worldwide threshold could be met at the upper bound of the estimated range and proceed to analyze the remaining conditions of Article 1(3). This is a conservative approach; if Fund VI's actual portfolio turnover proves to be at the lower end of the range, Article 1(3) would fail on the first condition alone.
B. Three-Member-State Test — €100 Million Combined / €25 Million Each
The second and third conditions of Article 1(3) are the so-called "three-Member-State test." This test requires the identification of at least three EU Member States in which:
(i) the combined aggregate turnover of all undertakings concerned exceeds €100,000,000; and
(ii) in each of those three Member States, the aggregate turnover of each of at least two of the undertakings concerned exceeds €25,000,000.
Both conditions must be satisfied in each of the same three Member States.
We analyze the principal EU markets as follows:
Germany:
• Cloudium turnover (Germany): estimated at approximately €60,000,000 to €70,000,000 (representing revenue of Cloudium Solutions GmbH plus direct SaaS subscriptions to German customers booked by the US and UK entities).
• Fund VI portfolio turnover (Germany): estimated at approximately €10,000,000 to €20,000,000 (based on allocable German-sourced revenue from the portfolio companies identified in Section V.C).
• Combined turnover (Germany): approximately €70,000,000 to €90,000,000.
• Result: The combined turnover in Germany does NOT exceed the €100,000,000 threshold. Even at the upper bound of both estimates, the combined figure (€90 million) falls short of the €100 million threshold by €10 million.
Additionally, Fund VI's estimated German turnover of €10,000,000 to €20,000,000 falls below the €25,000,000 individual threshold that would be required under the third condition, meaning that Germany would also fail the individual party test.
France:
• Cloudium turnover (France): estimated at approximately €10,000,000 to €15,000,000.
• Fund VI portfolio turnover (France): estimated as minimal (likely less than €5,000,000).
• Combined turnover (France): approximately €10,000,000 to €20,000,000.
• Result: Clearly below the €100,000,000 combined threshold. France also fails the individual €25 million test for both parties.
Netherlands:
• Cloudium turnover (Netherlands): estimated at approximately €8,000,000 to €10,000,000.
• Fund VI portfolio turnover (Netherlands): estimated as minimal (likely less than €3,000,000).
• Combined turnover (Netherlands): approximately €8,000,000 to €13,000,000.
• Result: Clearly below the €100,000,000 combined threshold.
Other EU Member States:
No other individual EU Member State produces sufficient turnover from the undertakings concerned to come close to the €100 million combined threshold. Cloudium's revenue in other Member States is individually modest, and Fund VI's portfolio companies have minimal revenue in EU markets outside Germany.
Result: There are no three Member States in which the combined aggregate turnover of all undertakings concerned exceeds €100,000,000. Indeed, there is not even one Member State that meets this threshold. The three-Member-State test under Article 1(3) is not satisfied.
Because the conditions of Article 1(3) are cumulative, the failure of the three-Member-State test is dispositive. However, for completeness, we address the remaining condition below.
C. Community-Wide Turnover — €100 Million Each Test
The fourth condition of Article 1(3) requires that the aggregate Community-wide turnover of each of at least two of the undertakings concerned exceed €100,000,000.
• Cloudium EU-wide turnover: approximately €95,000,000 to €115,000,000. At the lower end of this range, Cloudium's Community-wide turnover falls below the €100 million threshold. At the upper end, it narrowly exceeds the threshold. The position is therefore borderline for Cloudium.
• Fund VI portfolio EU-wide turnover: approximately €40,000,000 to €70,000,000. This is well below the €100,000,000 threshold under any reasonable set of assumptions, falling short by at least €30 million and possibly as much as €60 million.
Even assuming the most favorable turnover estimates for Cloudium, Fund VI's Community-wide turnover is clearly insufficient to satisfy the condition that at least two undertakings each achieve Community-wide turnover exceeding €100 million. The fourth condition of Article 1(3) is not satisfied.
Overall Conclusion on Article 1(3): The proposed transaction does not have a Community dimension under Article 1(3) of the EUMR. The three-Member-State test is not met in any Member State, and the Community-wide individual turnover condition is not met for the acquirer group. Even if the combined worldwide turnover threshold were assumed to be met at the upper bound, the remaining conditions are clearly not satisfied.
VIII. Consideration of Article 22 Referral Risk
A. Background — Post-*Marlowe Group/GRAIL* Enforcement Guidance
In March 2021, the European Commission issued guidance indicating that it would accept and encourage referral requests from Member State national competition authorities under Article 22 of the EUMR, even in cases where the referring Member State's own national merger control thresholds are not met. This represented a significant departure from the Commission's prior practice, under which it had generally discouraged such referrals.
The Commission's revised approach was prompted by concerns that certain transactions — particularly in the digital, pharmaceutical, and technology sectors — involving the acquisition of companies with significant competitive potential but limited current revenue may escape merger review at both the EU and national levels because turnover-based thresholds fail to capture the competitive significance of the target. The Commission's approach was subsequently tested in the Marlowe Group/GRAIL case (Case M.10188), in which the Commission accepted referrals from France, the Netherlands, Belgium, Greece, Iceland, and Norway, and ultimately prohibited the transaction (a decision currently subject to appeal before the Court of Justice of the European Union following the General Court's judgment in Case T-227/21).
The relevance of Article 22 to the present transaction must therefore be assessed, notwithstanding our conclusion that the EUMR jurisdictional thresholds are not met.
B. Risk Assessment
We assess the risk of an Article 22 referral in the present case as low for the following reasons:
First, Cloudium's EU market presence is relatively limited. Its estimated EU-wide revenue of approximately €95 million to €115 million, while not negligible, reflects an established business with meaningful but not dominant revenue streams in the EU. This is distinguishable from the paradigmatic Article 22 scenario — a "killer acquisition" or an acquisition of a nascent competitor with minimal revenue but significant competitive potential. Cloudium is a mature, revenue-generating enterprise software company, not a pre-revenue or early-stage innovator. The Commission's Article 22 guidance was principally aimed at transactions where traditional turnover thresholds fail to capture the target's true competitive significance due to its early stage of development.
Second, the transaction does not raise obvious horizontal overlap concerns in the EU. Based on our review of the deal materials and Solara's portfolio, Fund VI does not control any portfolio companies that compete directly with Cloudium's cloud-based ERP/CRM software offerings in the EU or globally. There is no indication that the transaction would result in a significant elimination of competition in any relevant product or geographic market within the EU.
Third, no EU Member State national competition authority is expected to have independent jurisdiction over the transaction under its own national merger control rules. In Germany — the Member State where Cloudium has its most significant EU presence — the merger control thresholds under the Gesetz gegen Wettbewerbsbeschränkungen ("GWB") are analyzed separately in a companion memorandum. As discussed in Section IX below, the German thresholds may or may not be met depending on the precise allocation of Fund VI's German turnover, but the German Bundeskartellamt would need to have independent jurisdiction or at least be aware of the transaction in order to initiate an Article 22 referral request. The absence of jurisdiction at the national level makes such a referral procedurally less likely, although the Commission's 2021 guidance technically permits referral requests from Member States that lack jurisdiction.
Fourth, the transaction is a private equity acquisition of an enterprise software company with a predominantly US and UK revenue base. While the Commission has shown willingness to scrutinize digital-sector transactions, the factual profile of this case does not match the characteristics of transactions that have historically attracted Article 22 referral interest.
C. UK CMA Review
We note that the UK Competition and Markets Authority (the "CMA") will conduct its own independent review of the proposed transaction. A UK CMA merger notice is being prepared and will be submitted to the CMA (anticipated CMA Case No. ME/7184/24). The CMA's review is entirely separate from the EUMR analysis and does not affect our conclusion regarding the absence of EU jurisdiction. The UK is no longer a Member State of the European Union and cannot make an Article 22 referral request to the Commission.
D. Recommendation
We recommend that the deal team continue to monitor for any Article 22 referral requests during the period between announcement and closing. In practice, this means tracking any public statements or press reporting regarding Member State competition authority interest in the transaction, and maintaining lines of communication with regulatory counsel in key EU jurisdictions (particularly Germany). No affirmative action — such as a voluntary notification to the Commission or pre-notification contacts — is warranted at this time.
If a Member State competition authority were to make an Article 22 referral request, the Commission would have 10 working days following receipt of the request to invite other Member States to join, and 25 working days from receipt of the referral request to decide whether to accept jurisdiction. In such a scenario, we would recommend that the parties engage immediately with the Commission to present arguments against the acceptance of jurisdiction.
IX. Consideration of Other EU Filing Obligations
In addition to the EUMR analysis, we provide a brief assessment of whether individual EU Member State merger control filings may be required. A detailed analysis of each relevant national regime is beyond the scope of this memorandum, but we note the following key points:
A. Germany (GWB / Bundeskartellamt)
The German merger control regime under the GWB applies where the following turnover thresholds are met:
(i) the combined aggregate worldwide turnover of all undertakings concerned exceeds €500,000,000;
(ii) the domestic (German) turnover of at least one undertaking concerned exceeds €50,000,000; and
(iii) the domestic (German) turnover of at least one other undertaking concerned exceeds €17,500,000.
Based on the turnover estimates set forth above:
• The combined worldwide turnover condition (€500 million) is clearly met.
• Cloudium's estimated German turnover of approximately €60,000,000 to €70,000,000 appears to exceed the €50,000,000 threshold.
• Fund VI's estimated German turnover of approximately €10,000,000 to €20,000,000 may or may not exceed the €17,500,000 threshold, depending on the precise allocation.
This question is flagged for further review in a separate companion memorandum, which will also address German foreign direct investment ("FDI") screening under the Außenwirtschaftsverordnung ("AWV"). We recommend that the deal team obtain more precise German turnover data for Fund VI's portfolio companies to resolve this question definitively.
B. France
Based on available turnover data, Cloudium's French revenue of approximately €10,000,000 to €15,000,000 appears insufficient to trigger the French merger control thresholds under the Code de commerce, which generally require worldwide turnover exceeding €150 million and French turnover of at least two parties exceeding €50 million each. We do not believe a French filing is required, though this should be confirmed as more granular revenue data becomes available.
C. Netherlands
The Netherlands does not have a mandatory merger control regime based on turnover thresholds comparable to France or Germany; the thresholds under the Mededingingswet require combined worldwide turnover exceeding €150 million and Dutch turnover of at least two parties exceeding €30 million each. Based on the estimates above, neither party's Dutch turnover appears to approach the €30 million individual threshold. No Dutch filing appears to be required.
D. Other EU Member States
Based on available turnover data, no other individual EU Member State merger control filing obligation appears to be triggered. Cloudium's revenue in other EU Member States is individually modest, and Fund VI's portfolio companies have minimal EU presence outside Germany. We recommend confirming this conclusion as more precise geographic revenue breakdowns become available during the due diligence process.
E. EU Foreign Subsidies Regulation (FSR)
A separate memorandum, also dated December 3, 2023, addresses the notification analysis under the EU Foreign Subsidies Regulation (Regulation (EU) 2022/2560), which imposes a mandatory pre-notification obligation for concentrations where the target, acquirer, or joint venture generates EU turnover exceeding €500 million and the parties received aggregate financial contributions from third-country governments exceeding €50 million in the three preceding fiscal years. That analysis is not repeated here but should be reviewed in conjunction with this memorandum.
X. Conclusion and Recommendation
Based on the foregoing analysis, we reach the following conclusions:
1. The proposed acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP does not have a Community dimension under either Article 1(2) or Article 1(3) of the EU Merger Regulation (Council Regulation (EC) No 139/2004).
2. No EU merger filing with the European Commission is required.
3. The primary reasons for this conclusion are as follows:
(a) The combined aggregate worldwide turnover of all undertakings concerned (approximately €2.3 billion to €2.7 billion) falls below the €5 billion threshold required under Article 1(2), and the primary jurisdictional test fails on its first criterion alone.
(b) Neither Cloudium (approximately €95 million to €115 million in EU-wide turnover) nor Fund VI (approximately €40 million to €70 million in EU-wide turnover) generates sufficient Community-wide turnover to satisfy the €250 million individual threshold under Article 1(2) or the €100 million individual threshold under Article 1(3).
(c) The three-Member-State combined turnover test under Article 1(3) is not met, as no three EU Member States — and indeed no single EU Member State — produces combined turnover of the undertakings concerned in excess of €100 million.
(d) Following Brexit, Cloudium's substantial UK revenue of approximately £312 million (approximately €358 million) does not count toward Community-wide turnover for EUMR purposes, materially reducing the relevant EU turnover figures.
4. The risk of an Article 22 referral by an EU Member State national competition authority is assessed as low, but should be monitored during the period between announcement and closing. No affirmative action is required at this time.
5. Individual EU Member State merger control filings are assessed as unlikely required, subject to final confirmation of Fund VI's German turnover figures. The German filing analysis is addressed in a companion memorandum.
6. No further action is recommended at this time with respect to the EU Merger Regulation or EU-level merger control. The deal team should ensure that the regulatory conditions precedent in the definitive merger agreement do not include an EU merger control condition, as no such filing is required.
XI. Assumptions and Qualifications
This analysis is subject to the following assumptions and qualifications, which should be noted by the deal team: