Key UK Competition Law and Regulatory Considerations in M&A Deals
Competition law plays a crucial role in determining whether transactions involving businesses in the UK can proceed without remedies or restrictions.
If you are thinking of acquiring or disposing of a UK business, you need to be aware of the following key UK competition law considerations.
Merger Control Regime
1. UK: Competition and Markets Authority (CMA)
Voluntary regime: notification is not mandatory, but the CMA has the power to investigate certain completed or anticipated mergers (‘Relevant Mergers’).
Jurisdictional thresholds: relevant mergers are as follows:
(i) the target company has a UK turnover of over £100 million, or
(ii) the parties have a combined share of supply of 25% or more of goods/services in the UK (or a substantial part), and the merger increases that share; or
(iii) where one party (most likely the acquirer) has a share of supply of 33% in the UK (or a substantial part), a UK turnover of £350 million, and the other party (most likely the target company) carries on activities in the UK.
2. Notification and Clearance Process
If you notify your merger to the CMA, you need to complete a ‘Merger Notice’.
This form asks detailed questions about the merger parties, the transaction and the likely effects of the transaction on competition in the relevant markets.
Pre-notification discussions: if you propose to formally notify your merger to the CMA, it is advisable to submit a draft Merger Notice to the CMA to ensure it includes all the information the CMA requires prior to formal submission. This will avoid delays during the formal consideration period.
Phase I and Phase II investigations: Phase I: Initial review (40 working days) and Phase II: In-depth investigation if competition concerns arise (90 working days).
Merger control fees: upon conclusion of a Phase I investigation by the CMA, merger control fees are payable by the Buyer. These vary from £40,000 to £160,000 depending upon the UK turnover of the target company.
Submitting a briefing paper: to save costs, it is possible to get informal and non-legally binding comfort on a deal from the CMA by submitting a briefing paper on the transaction to the CMA’s Merger Intelligence Committee. If the CMA raises no further questions, this can be looked at as a type of informal clearance. The parties can then close the deal. However, it is not without risk. It is possible for the CMA to open an investigation if further information comes to light, but from our experience, this seldom happens. We are seeing this route being increasingly used by parties to deals where there are no substantive competition issues present.
3. Substantive Assessment
The CMA assesses whether the merger is likely to result in a significant lessening of competition (‘SLC’) on the relevant markets, particularly through:
Horizontal mergers: mergers between competitors could result in an SLC if it significantly reduces the level of effective competition on the relevant markets.
Vertical mergers: between suppliers and customers, may raise barriers to market entry or lead to foreclosure.
Conglomerate mergers: may raise concerns in certain circumstances (e.g. bundling or tying).
In reviewing any merger transaction, the CMA will have regard to the market shares of the parties and the level of concentration on the market, whether barriers to entry/ expansion are high, and whether large buyers present in the market would counteract the increased market power of the merged group. Finally, the regulator will look at whether the merger is likely to produce efficiencies and, if applicable, whether it is necessary to give new life to a failing enterprise.
4. Remedies and Commitments
If competition concerns arise, merging parties may offer structural remedies: e.g. divestitures of business units or behavioural remedies; commitments to grant access or not raise prices. In offering remedies, the parties must ensure they are effective, proportionate and capable of being monitored and enforced.
5. Standstill Obligations (Gun-Jumping)
In contrast to other merger control jurisdictions, there are no standstill requirements pre-completion under UK merger control, but if the CMA calls in a completed transaction for investigation, it will intervene to impose hold-separate orders during its investigation.
6. Coordinating Multi-Jurisdictional Filings
The one-stop shop under the EU Merger Regulation no longer applies to the UK post-Brexit. Dual filings may be necessary if thresholds are met under UK merger control and under the EU Merger Regulations. For cross-border deals, flag all relevant jurisdictions where filings may be required early. Coordinate filings and timelines to avoid delays or inconsistent outcomes. Consider whether to seek waivers to allow regulatory authorities to share information to shorten consideration periods.
National Security & Investment Act 2021 (‘NSIA’) Notifications
The NSIA introduced for the first time a formal system of investment scrutiny in the UK. This is separate from any merger control assessment. The UK Government has the power to impose conditions or block transactions which the UK Government deems a risk to national security.
The NSIA applies to the acquisition of certain levels of shareholdings in companies active in the UK or which relate to the acquisition of assets with a UK nexus. The legislation requires the notification of certain transactions in particular key sectors of the economy, which include defence, critical suppliers to Government, data communications, energy and the use of advanced materials. Failure to notify relevant transactions and/or to complete a relevant transaction before clearance under the NSIA is received is a criminal offence carrying substantial fines and imprisonment of up to 5 years. In addition, relevant transactions not notified under the NSIA are void and unenforceable.
Other countries have similar regimes to the NSIA, and so for any cross-border transactions, it is important to consider whether notifications may also be required under those, and to do so at an early stage to avoid any delays.
Conclusion
If you are contemplating or proceeding with a transaction where you think UK merger control and/or the NSIA may apply, we can help you assess their applicability and assist with preparing and submitting any notifications to the relevant authorities.
Please contact Robert Bell for expert guidance on the UK merger control regime or the NSIA, or get in touch with our Corporate & Commercial team if you are considering, or need any advice on, buying or selling shares or assets in a company.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. Greenwoods Legal Services Limited is a Limited company, registered in England, registered number 16115882. Our registered office is Queens House, 55-56 Lincoln’s Inn Fields, London, WC2A 3LJ. Authorised and regulated by the Solicitors Regulation Authority, SRA number 8011813. Details of the Solicitors’ Codes of Conduct can be found at www.sra.org.uk. All instructions accepted by Greenwoods Legal Services Limited are subject to our current Terms of Business.