The UK Competition and Markets Authority (CMA) has given the go ahead to a US$300 million merger between structural assemblies and parts manufacturers Gardner Aerospace and Northern Aerospace.
The CMA said on 20 July that the merger “does not give rise to a realistic prospect of a substantial lessening of competition . . . in any market or markets in the UK”, and that while both companies produce wing spars and fuselage frames for the UK market, it could find no evidence that the two companies were considered “alternatives” to each other.
The two companies’ “manufacturing processes and capabilities differ significantly and are currently used to serve customers with different needs”, the CMA said, adding that as a result the “constraint” that would be lost between them as a result of the merger was rendered immaterial.
The CMA also found that the post-merger entity’s products would be sufficiently constrained by other competitors.
The merger was initially referred to the CMA by Secretary of State for Business, Energy and Industrial Strategy Greg Clark on 17 June under the Enterprise Act of 2002, which allows the secretary to “intervene” in such transactions on national security grounds.
Partners John Schmidt and Jeremy Willcocks, and associate Ludovica Pizzetti, from Arnold & Porter in London noted in a memo that this is the first merger to fall under an amended version of the Act which saw the threshold required for intervention lowered from £70 million to £1 million.
Up until recently, they said, the UK government could only review mergers and acquisitions “where the target's turnover exceeded £70m or where the transaction resulted in the creation or increment to a share of supply of 25 percent”.
This is the first step in a wider regime change, they suggested, as the government has published proposals to replace and extend the previous amendments to the Act, by “separating the foreign investment review from the merger control review” and “removing the jurisdictional thresholds for the former altogether”.
The proposals could mean greater scrutiny over foreign acquisitions as well as some “additional complexity and timing implications”, they said, as well as some initial uncertainty around “how the Government will apply the new test and which transactions it calls in for review”.
In a blog post, senior solicitor Jacqueline Greenwood at Macfarlanes in London observed that the CMA’s initial enforcement order (IEO) preventing the companies from completing the merger until the end of the investigation had fallen away after the transaction was approved on 20 July.
It is “rare” that an IEO issued in such circumstances would prevent the parties from completing the transaction, she said, noting that it “now appears more likely that IEOs will be used to prevent completion of anticipated acquisitions where public interest considerations may be concerned”.
The merger will see Gardner acquire 100% of shares in Northern Aerospace from its parent company Better Capital, which previously also owned Gardner before its sale to Chinese firm Shaanxi Ligeance Mineral Resources (SLMR) in 2017. The existing Northern Aerospace management team will remain in place.
According to Gardner, the expanded operation will allow it to offer a broader product and service offering and increase its manufacturing capacity in terms of both complexity and variety.
Gardner further said that it would build a new manufacturing facility in Chengdu, China, intended to replicate the company’s European offering to the Chinese domestic aerospace market.
In a statement, Nick Sanders, executive chairman of Gardner Aerospace, said that the company has “implemented a strategy of organic and acquisitive growth” since its acquisition by SLMR, adding that the merger with Northern Aerospace will bring a “substantial ‘very large’ machining capability” to the company’s business.