The advent of the UK’s new Competition and Markets Authority (CMA) has resulted in a surge of interim enforcement orders (IEOs). IEOs typically require a standstill in relation to acquired businesses, and prevent purchasers from integrating acquired businesses with their own, or can require existing integration tobe unwound. The CMA maintains that IEOs apply on a global basis. The surge in IEOs is significant for bolt-on acquisitions by PE investee companies, where the timely integration of an acquired business and the realisation of synergies is likely to be a central component of the business plan.
Since coming into being, the CMA has issued almost as many interim enforcement orders in its first six months as its predecessor, the Office of Fair Trading, did in its busiest full year.
The CMA has typically issued IEOs in two circumstances. First, where purchasers have chosen not to notify a transaction and the CMA has issued an IEO and information production notice after completion. The CMA has the ability to issue an IEO for a period of four months following completion and after adequate publicity of the transaction – but the CMA also has the power to issue an IEO prior to completion.
Second, when a filing is made the CMA has issued an IEO to preserve the acquired business as a standalone undertaking, pending completion of its review. The number of IEOs issued has shown a rapid upward trajectory in recent years, with 44% of Phase 1 decisions involving an IEO in 2014 as opposed to just 4% a decade ago.
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As a result, PE acquirers are giving early consideration to UK merger control, whether or not there are substantive antitrust issues. On the one hand, where a filing is made pre-completion the PE portfolio company has comfort that the acquired business can be integrated promptly post-completion. On the other hand, filing in the UK is voluntary: unless there is clear evidence that a filing threshold is met, a seller is unlikely to expose a transaction to CMA review, particularly given that the UK Phase 1 process is more lengthy (40 working days compared with 25 for the European Commission) and the information burden is greater than for other developed jurisdictions.
For bolt-on transactions, the emerging behaviour of the CMA means early assessment of the application of merger control across jurisdictions is key. This allows the PE portfolio company to consider the likelihood of a seller sharing the anti-trust risk with the possibility of a pre-completion filing to permit post-completion integration plans to proceed with certainty, or not filing pre-completion, but making provisions for post-completion contingencies in the case of an IEO.