The UK Competition and Markets Authority (CMA) is actively and aggressively investigating mergers and acquisitions pre- and post-closing, including transactions that do not appear to have a significant UK connection.
Famous for its voluntary notification regime, in 2019 the CMA has focused on catching global transactions that try to “fly under the radar”, which will, and has, caused significant delays in closing global transactions and delays to the companies integrating the businesses.
Although statistically the CMA is not reviewing more transactions (approximately 63 a year since its formation five years ago), through its Merger Intelligence Committee (MIC) it actively scans over 600 transactions globally throughout the year, and evaluates whether or not to assert jurisdiction over these. The MIC evaluates transactions that other regulators cannot, and allows the CMA to focus on markets that are of political significance, particularly digital and innovation-driven markets.
The past year has, therefore, seen the CMA open more in-depth phase 2 investigations than the European Commission, underlining its drive to thoroughly investigate potential and somewhat novel antitrust issues. MIC’s review and outreach accounts for approximately 30 per cent of all deals reviewed by the CMA (16 out of 56). It is worth noting that 38 per cent of transactions even extended past the statutory eight months review period.
The CMA expects that its merger review case load will at least double if the United Kingdom leaves the European Union, and has therefore received additional budget to enforce antitrust law (as opposed to industrial policy) globally. There is no doubt that it will utilise this increase in funds.
THRESHOLDS FOR CMA JURISDICTION
In the United Kingdom, unlike in the majority of jurisdictions worldwide, filing a deal with the national competition authority is voluntary. The CMA will, however, investigate transactions, both pre- and post-closing, that fall within its jurisdiction, thereby creating potential risks, particularly for the buyer if the transaction has already closed.
The test for the CMA’s jurisdiction is twofold: either the target meets the revenues threshold of over £70 million in the United Kingdom, or £1 million where the target is active in markets associated with national security; or the parties meet the “share of supply” threshold, which provides the CMA great flexibility. The latter threshold requires the parties to assess whether their combined share of supply exceeds 25 per cent in the United Kingdom or a substantial part of it. The expansive definition of this threshold applied by the CMA provides it with a broad scope to assert jurisdiction and find that parties exceed the threshold.
The impact of MIC, the broad scope of the jurisdictional thresholds, and the effects of a CMA investigation were exemplified in 2019 by the CMA asserting jurisdiction to review Farelogix’s acquisition of Sabre and Roche’s acquisition of Spark, despite the targets having a limited presence in the United Kingdom.
Following an outreach by MIC, the CMA established jurisdiction over the transaction because Farelogix and Sabre’s combined wallet share of one customer —British Airways—was sufficient to exceed the 25 per cent threshold. As a result, Farelogix had to file the transaction with the CMA more than seven months after the deal was signed and announced.
DELAY, FINES AND UNCERTAINTY
If the parties decide not file with the CMA, but the MIC learns of the transaction, the CMA can, and will, issue an initial enforcement order (IEO), particularly where the transaction has closed. The IEO typically requires the buyer to “hold separate” the target until the CMA completes its review or unwinds pre-emptive actions, plus it requires the submission of compliance statements to the CMA. In the past three years, the CMA has issued an IEO on between 30 and 50 per cent of the deals it has reviewed annually.
In July 2019, for example, the CMA imposed an IEO preventing Salesforce from integrating its acquisition of Tableau Software, even though the US and German antitrust regulators had quickly cleared the transaction. In order to remain compliant, Salesforce had to negotiate several derogations to the IEO after it closed the transaction until the IEO was revoked on 5 November 2019. An IEO will generally remain in place until the CMA has reached a decision to either clear the transaction or begin a phase 2 review.
The additional procedural and financial burden of complying with the IEO adds further complexity to dealings with the CMA. In 2019, the Authority issued several decisions that fined parties for procedural noncompliance, including
• The appointment of a director at the target (£200,000 fine)
• The relocation of staff to the acquirer, use of the target’s assets, and failing to provide a compliance statement on time (£146,000 fine)
• The sale of the target’s assets (£120,000 fine).
NEW TECHNOLOGIES TRANSACTIONS
One area where other EU antitrust regulators are trying to catch-up with the CMA is in its review of transactions concerning new technologies. The CMA is actively asserting jurisdiction over transactions that involve new technologies or sellers with limited revenues but innovative products. In contrast, other EU regulators have a more difficult time asserting jurisdiction as a result of their focus purely on revenue based filing thresholds or more rigid standards for jurisdiction.
One example is the CMA’s review of Illumina’s proposed acquisition of Pacific Biosciences (PacBio), a gene sequencing company. PacBio did not meet the revenue filing threshold, but the CMA exercised jurisdiction based on a narrow definition of DNA sequencing systems and innovation concerns. This led to the parties holding a combined share well in excess of the share of supply.
Similarly, the CMA is also investigating acquisitions of minority interests in technology companies. For example, the CMA opened an investigation into Amazon’s acquisition of a minority interest in Deliveroo, an online food service provider.
As a result, of these factors, companies contemplating a transaction with minimal revenues in and only tangential connection to the United Kingdom need to assess carefully whether to file with the CMA, or risk the CMA affirmatively requesting a filing after deal announcement or closing, which can create significant delay and costs to the deal or post-closing integration efforts.