When planning transactions, parties are increasingly required to assess the application of merger control regimes worldwide, with the UK merger control regime often requiring careful consideration.

One reason for this is the "voluntary" nature of the UK merger control regime. This means that there is no general legal requirement for parties to obtain clearance in the UK before completing a transaction.

But, "voluntary" does not mean "optional". The UK competition authority (the CMA) is able to investigate completed transactions, and has considerable discretion to decide when to do so. In addition, when investigating transactions, the CMA is able to prevent businesses being integrated, and can order integration that has already occurred to be undone.

Even where parties notify their transactions to the CMA and seek to obtain clearance before completion, the CMA's analytical approach can lead to it identifying competition concerns that the parties have not anticipated. In some cases, remedying these concerns would make the planned transaction commercially unviable, with the parties abandoning the transaction as a result.

However, for completed transactions, abandonment is not an option. Instead, the acquirer typically bears the risk of remedies, with the CMA ultimately able to require that a completed transaction is undone (i.e. with the acquired business being sold in its entirety to a third party).

Against this background, our experts have contributed an overview of the current UK merger control regime to Chambers and Partners' Merger Control Global Practice Guide, which highlights legal and practical considerations when planning transactions with links to the UK.

Where planned transactions could fall within the ambit of the UK merger control regime, parties should have in mind the following five points when assessing the risk of the CMA identifying competition concerns:

  • Don't assume that jurisdictional arguments will "win the day", as the CMA has a broad discretion to assert jurisdiction.
    • The CMA can investigate a wide range of transactions, including investments in minority shareholdings,[1] and acquisitions of non-trading assets.[2]
    • The CMA is also able to exercise its judgement and discretion when applying the "share of supply" test to assert jurisdiction.[3] Notably, the "share of supply" test can be satisfied even if none of the parties to the transaction achieve turnover in the UK, provided that the parties supply or acquire goods or services of the same description in the UK.[4]
  • If the CMA investigates, be prepared to fully explain the rationale for the transaction, and to provide contemporaneous internal documents evidencing this.
    • In particular, when considering whether a transaction may be expected to result in the loss of actual and/or potential competition, the CMA will consider how the acquirer has valued the transaction (including in relation to synergies expected to result from the transaction), having regard to the acquirer's contemporaneous internal documents and valuation models.[5]
    • The CMA may also consider what would have happened in the absence of the transaction, and seek evidence in relation to this issue (e.g. would there have been an alternative purchaser, which would have resulted in a more competitive outcome?).[6]
    • If the parties' contemporaneous internal documents do not support the position they present to the CMA, this may result in the CMA placing greater weight upon the evidence of the internal documents. This could in turn weaken the parties' arguments that the transaction does not give rise to competition concerns.
  • Be aware that when assessing competitor acquisitions, the CMA will focus upon closeness of competition, rather than market definitions and market shares.
    • This means that general arguments in favour of wide market definitions – whereby the parties then have correspondingly low market shares – will not be convincing.
    • Instead, using market definition as a framework, the CMA will seek to understand:
      • the extent of competition that will be lost as a result of the transaction (including future competition, where relevant); and
      • whether the rival firms remaining will impose sufficient constraints upon the parties post-transaction to offset this loss of competition.
    • For example, the CMA has previously identified competition concerns where:
      • a leading supplier acquired a competitor, and the number of significant rivals reduced from four to three as a result;[7]
      • the parties were close competitors in a differentiated market, and although a number of rivals remained post-transaction, all but one imposed only weak competitive constraints upon the parties;[8] and
      • in a concentrated sector, the target firm was expected to expand its activities, and to compete more closely with the acquirer in the future.[9]
    • In addition to considering unilateral effects, the CMA will address a range of theories of harm on a case-by-case basis (including co-ordinated effects, as well as vertical and conglomerate effects). Depending upon the case in question, the CMA may consider a combination of theories of harm.[10] In so doing, the CMA will scrutinise competitive interactions (including considering the parties' abilities and incentives to engage in certain strategies), rather than simply focussing upon market definitions and market shares.
  • Be prepared to provide the CMA with a significant volume of information, including commercial data
    • The CMA will consider a range of evidence "in the round", and will determine the weight that it places upon different types of evidence on a case-by-case basis.
    • While the evidence assessed by the CMA will vary depending upon the transaction and the affected sector, when assessing closeness of competition (e.g. in the context of the acquisition of a competitor) the CMA generally will consider:
      • the characteristics of the products and/or services offered by the parties;
      • the parties' internal documents, (including the extent to which they identify each other as close competitors, and/or indicate that they are expected to compete more closely in the future);
      • the views of the parties' customers and competitors, which the CMA will actively seek in the context of an investigation; and
      • evidence of customer switching, and/or the parties' competitive responses to each other over time (e.g. obtained from the parties' records, or compiled using third party data sources, if available).
    • The CMA can consider evidence of any explicit intention to take action that would give rise to competition concerns (e.g. where the acquirer has already planned price increases post-transaction). However, the CMA is not required to find direct evidence of any such intention, and is able to rely instead upon an assessment of the parties' economic incentives.[11]
  • Claims that rivals' entry and/or expansion will address competition concerns are unlikely to be successful.
    • The CMA will expect to receive robust evidence that any claimed entry and/or expansion will be:
      • timely – typically within two years of the transaction;
      • likely - such that rivals are already monitoring the sectors in question, and actively planning their entry or expansion; and
      • sufficient to prevent competition concerns arising – with the newly entered or expanded rivals increasing the competitive constraints upon the parties (e.g. by offering new, or more competitive, products and/or services).
    • However, the CMA considers that rivals' entry and/or expansion will only rarely serve to prevent competition concerns arising.[12]
    • Similarly, the CMA will require robust evidence to substantiate claims that merger-specific efficiencies will prevent competition concerns arising, and it is very rare for efficiency claims to be successful.

For more information about how we can assist in navigating the UK merger control regime, please contact mergercontrol@uk.gowlingwlg.com.

Footnotes

[1] See, Amazon.com NV Investment Holdings LLC / Roofoods Ltd (Deliveroo).
[2] See, Société Coopérative de Production SeaFrance SA v CMA [2015] UKSC 75.
[3] See, Sabre Corporation v CMA [2021] CAT 11.
[4] See, Roche Holdings, Inc. / Spark Therapeutics, Inc.
[5] See, Provisional Findings in Illumina Inc/Pacific Biosciences of California Inc.
[6] ibid.
[7] See, Tobii AB v Competition and Markets Authority [2020] CAT 1, paragraph 353.
[8] See, Hunter Douglas NV/247 Home Furnishing Ltd.
[9] See, Provisional Findings in Illumina Inc/Pacific Biosciences of California Inc.
[10] See, Breedon Group plc / Cemex Investments Limited.
[11] See, Merger Assessment Guidelines, CMA 129, paragraph 2.26.
[12] ibid, paragraph 8.29.