The Competition and Markets Authority (CMA) prohibited three merger & acquisition deals in 2021/22, the highest on record in a single year. The number of blocked deals in 2021/22 equates to 5.5% of all deals reviewed by the CMA that year, says Thomson Reuters.
In the previous decade, the CMA only prohibited an average of one transaction a year, around 1.5% of M&A deals reviewed.
Warsha Kalé, Senior Legal Editor at Thomson Reuters says that whilst the number of prohibited deals may still seem low overall, this increase supports the idea that the CMA is reviewing more significant transactions post-Brexit – if the number of deals which raise competition issues increases, so does the number that face a rigorous review and which can ultimately be blocked.
In the US, EU and UK, corporates expect regulators to scrutinise significant M&A deals carefully to ensure consumers are not negatively impacted by the lessening of competition that may result. M&A deals can be prohibited where regulators are concerned that the deal will significantly reduce competition in a given market, to the detriment of consumers. International merger regulation is also collectively adapting to enable greater scrutiny in key fast-evolving markets, such as the digital sector.
Following Brexit, the CMA has more powers to look at a broader range of cross-border M&A transactions that would previously have been reviewed solely by the European Commission. On top of an expanded jurisdiction, the CMA has also stated it will become more active in fast-evolving digital markets, and more active in reviewing ‘killer acquisitions’ – where large firms, often in the technology sector, buy out a potential competitor before it has a chance to challenge their competitive positions.
Merger filing is not mandatory in the UK. However, the CMA can investigate deals and force companies to delay integration, as well as unwind completed transactions. The CMA has jurisdiction to investigate when the target company has an annual UK turnover of at least £70m, or if the parties make up 25% or more of any given market (loosely defined). These thresholds are subject to ongoing reform, which may soon raise the thresholds and exempt smaller company transactions. At the same time, however, CMA jurisdiction may expand to include no-overlap deals where only one operator has material market share.
One prominent example of a CMA merger prohibition was its ruling on a US social media group’s $315m acquisition of an online image company last year. The regulator decreed that the deal would lead to a significant lessening of competition, and ordered it to be unwound. The CMA’s competition assessment in this case was recently upheld on appeal.
Thomson Reuters adds that the CMA has set up a new Digital Markets Unit which is expected to start work in the coming year. This will mean greater CMA scrutiny of the technology sector may be just around the corner.
Under the proposals, the Digital Markets Unit can designate key large companies with ‘Strategic Market Status’, which then requires them to report all transactions to the CMA before completion. This mandatory reporting is seen as a significant departure for the UK merger regime. The UK Government is also planning to empower the regulator to impose one-off penalties of up to 1% of annual global turnover on firms which refuse to cooperate with inquiries, and daily penalties of up to 5% of daily worldwide turnover for continued non-compliance.
