The Enterprise Act 2002 (the "Enterprise Act") provides the primary legislative basis for the UK merger control regime. The Competition and Markets Authority (CMA) is the investigating authority and decision-maker under the general UK merger control regime (see 1.3 Enforcement Authorities).
The CMA has issued a range of guidance, which is available on its website. Key guidance documents include "Mergers: Guidance on the CMA’s jurisdiction and procedure (CMA2 revised)" (the "J&P Guidance"), and "Merger assessment guidelines (CMA 129)" (the "Merger Assessment Guidelines").
There is no merger control legislation in the UK which specifically addresses foreign investment.
The National Security and Investment Act (the "NSI Act") entered into force in March 2021 (see 9.1 Recent Changes or Impending Legislation). Once fully implemented, the NSI Act will remove certain national security considerations from the ambit of the UK merger control regime (see, for example, Sections 23A, 58(1) and 58(2) of the Enterprise Act 2002). For the purposes of this chapter, these national security considerations are therefore not considered further.
The Enterprise Act establishes a general merger control regime in the UK (see 2.5 Jurisdictional Thresholds), and includes specific jurisdictional and procedural provisions in relation to:
The Secretary of State is able to intervene in public interest and special public interest mergers. Further guidance on these types of mergers is included within the J&P Guidance. On this basis, for the purposes of this chapter, these types of mergers are generally not considered further.
Under the general UK merger control regime, the CMA is the investigating authority and decision-maker at Phase 1. At Phase 2, investigations are conducted by a group of independent panel members, supported by CMA staff (see 3.8 Review Process).
Notification is voluntary. There is no general requirement for parties to obtain clearance before completing a transaction. However, the CMA is able to investigate "non-notified" transactions and has a dedicated mergers intelligence function. This monitors merger activity, and identifies candidate transactions for possible investigation.
Where the CMA is expected to have jurisdiction to investigate, and the transaction gives rise to prima facie competition concerns, the parties can include UK merger clearance as a condition precedent for completion, and proceed to engage in the process of formally notifying the transaction (see 3.4 Parties Responsible for Filing, 3.5 Information Included in a Filing, and 3.9 Pre-notification Discussions with Authorities).
Informal Briefing Note
If the parties do not intend to obtain clearance, but wish to bring the transaction to the CMA's attention (eg, to seek to avoid the CMA commencing an investigation based upon publicly available information), the parties can submit a short briefing note to the CMA. This will typically explain why, in the parties' view, the CMA does not have jurisdiction to investigate, and/or the transaction does not give rise to competition concerns.
As a general rule, the CMA will only consider a briefing note once the parties have entered into an agreement in respect of the transaction. In practice, this means that the parties will need to have considered the application of the UK merger control regime before entering into the transaction agreement.
Having received a briefing note, the CMA may request additional information to determine whether to investigate. If the CMA does not investigate the transaction following receipt of a briefing note, the CMA remains able to investigate subsequently, provided that it does so within the relevant four-month statutory time limit (see 2.2 Failure to Notify). Further guidance is available in the "Guidance on the CMA’s mergers intelligence function (CMA56 revised)".
As notification is voluntary, there are no financial penalties for failing to notify the CMA.
Where a relevant merger situation is completed without clearance, the CMA is able to investigate (see 2.3 Types of Transaction), and could ultimately require a completed transaction to be undone (see 5.1 Authorities' Ability to Prohibit or Interfere with Transactions).
In addition, when investigating anticipated and completed transactions, the CMA is able to impose interim measures (see 2.12 Requirement for Clearance before Implementation).
The CMA is able to investigate a “relevant merger situation”, which arises when:
Concept of an "Enterprise"
Under the Enterprise Act, an “enterprise” is defined as “the activities, or part of the activities, of a business”. The acquisition of certain assets of a business could therefore constitute the acquisition of an enterprise. There is no requirement for the business or assets to be trading.
When assessing whether assets constitute an enterprise, the CMA will consider whether there is "economic continuity", whereby:
In doing so, the CMA will examine the facts of the case in their totality, and have regard to whether the transaction includes the transfer of:
The concept of "control" is not limited to legal and de facto control (see, the J&P Guidance), but also includes the ability to exercise material influence over the target.
The CMA will assess on a case-by-case basis the acquirer's ability to materially influence the policy of the target business in relation to its conduct on the market (eg, the strategic direction and commercial objectives of the target business). Such an ability may arise as a result of shareholdings in the target business, board representation, and/or contractual, financial or other arrangements. The CMA will have regard to the commercial reality of the transaction, including the overall relationship between the acquirer and the target business.
As a general rule, the CMA will view a shareholding exceeding 25% as enabling the acquirer to exercise material influence. The CMA will also consider whether a shareholding of 15% or more (and exceptionally, less than 15%) may confer material influence.
Increasing Control in Stages
A transaction resulting in an increase in the acquirer's level of control (eg, increasing from material influence to de facto control, or from de facto control to legal control) may give rise to a new relevant merger situation.
Where an acquisition takes place in stages, and control is acquired over a number of transactions or events in a single two-year period, the CMA has the discretion to treat these as occurring on the date of the last transaction. In so doing, the CMA can also take into account transactions that are in contemplation.
Under the general merger control regime, there are two alternative jurisdictional thresholds – the Turnover Test, and the Share of Supply Test.
The Turnover Test
The Turnover Test is satisfied if the UK turnover of the target exceeded GBP70 million in its financial year preceding either:
"Turnover" for these purposes is the amount achieved by the target in the relevant financial year from the sale of products and/or the provision of services in the ordinary course of business in the UK (net of any sales rebate, value added tax and other taxes directly related to that turnover). Turnover may be adjusted if the CMA considers it appropriate to do so (eg, an acquisition or divestment since the end of the financial year has had a material impact upon the turnover value).
Specific provisions apply in relation to what constitutes "turnover" where enterprises are (in whole or in part) credit institutions, financial institutions, or insurance undertakings. These specific provisions are set out within the J&P Guidance.
In addition, the J&P Guidance details the approach to be taken when calculating the relevant value of turnover to be used in the Turnover Test (eg, in the context of a joint venture).
The Share of Supply Test
The Share of Supply Test is satisfied where:
Significantly, neither enterprise is required to have any turnover in the UK for the Share of Supply Test to be satisfied (see, for example, Roche/Spark), and there is no de minimis increment in the share of supply or procurement (see, Sabre v CMA Farelogix  CAT 11).
In essence, the Share of Supply Test comprises three key elements:
The CMA has a broad discretion to describe the goods or services supplied or procured by the parties. Significantly, the Share of Supply Test is not a market share test, and while the CMA will have regard to any "reasonable description" of a set of goods or services, this is not required to constitute a relevant economic market.
The CMA has a broad discretion to determine what constitutes a substantial part of the UK. The CMA will take into account factors including the size, population, and economic significance of an area. There is no need for a "substantial part of the UK" to constitute a single, undivided geographic area.
The CMA has a broad discretion to apply whatever measure it considers appropriate to determine the parties' combined share of supply or procurement, and whether this satisfies the 25% threshold.
Consequently, the Share of Supply Test affords the CMA a considerable discretion to assert jurisdiction.
Sector-Specific Jurisdictional Thresholds
As noted within the J&P Guidance, in certain circumstances, mergers involving two or more water and sewerage (or water-only) companies are subject to sector-specific jurisdictional thresholds (see "Water and sewerage mergers: Guidance on the CMA's procedure and assessment, CMA49").
See 2.5 Jurisdictional Thresholds.
See 2.5 Jurisdictional Thresholds.
The jurisdictional thresholds are applicable by reference to the parties' activities in the UK, irrespective of whether the parties are UK entities (see 2.5 Jurisdictional Thresholds).
There is no market share jurisdictional threshold test in the UK. The Share of Supply Test is not a market share test (see 2.5 Jurisdictional Thresholds).
The creation of a joint venture, or a change in the ownership or control of an existing joint venture, would be capable of investigation under the UK merger control regime if it constitutes a "relevant merger situation" (see 2.3 Types of Transactions).
The CMA has a period of four months from a completed transaction being publicised or notified to the CMA within which to commence a Phase 1 investigation and make its Phase 2 reference decision.
The CMA will consider that a transaction has been publicised by the acquirer where:
Where the transaction is neither publicised, nor notified to the CMA, the four-month period does not start to run (see, for example, Hunter Douglas/247 Home Furnishings).
As notification is voluntary, there is no general requirement for parties to obtain clearance before completing a transaction.
However, when the CMA investigates anticipated and completed transactions, it is able to impose interim measures to (i) prevent pre-emptive action being taken by the parties and/or (ii) require any pre-emptive action already taken to be undone.
In the context of the UK merger control regime, pre-emptive action is action which might prejudice the outcome of a Phase 2 investigation, or impede appropriate remedial action being taken (see, Facebook v CMA  EWCA Civ 701). This could include the parties:
Phase 1 Investigations
At Phase 1, the CMA can impose an initial enforcement order (IEO) to prevent, and/or undo, pre-emptive action. When imposing IEOs, the CMA will generally use its standard IEO template (available from its website). The CMA frequently imposes IEOs in relation to completed transactions, and at times imposes IEOs in the context of anticipated transactions.
The CMA is also able to prevent the completion of the transaction if this in itself could result in pre-emptive action (see, for example, Gardner Aerospace/Northern Aerospace) and the CMA's guidance provides as examples of where the act of completion would:
However, the CMA does not typically prevent completion where it imposes an IEO in the context of an anticipated transaction.
Phase 2 Investigations
If the transaction is referred for a Phase 2 investigation, the IEO will remain in force unless the CMA imposes an interim order at Phase 2, or accepts interim undertakings from the parties at Phase 2.
In any event, even in the absence of interim measures, where a reference is made for a Phase 2 investigation, the Enterprise Act prevents the parties:
Derogations from Interim Measures
Following receipt of written requests from the parties, the CMA may grant derogations from interim measures, and consent to the parties taking actions that would otherwise be prohibited.
Derogations will not be granted retrospectively (eg, to permit acts that have already occurred) and parties should therefore engage as early as possible with the CMA to discuss any derogation requests they consider to be urgent and necessary (including requests to enable the integration of non-UK aspects of a transaction).
Guidance addressing the CMA's approach to interim measures and the grant of derogations set out in "Interim measures in merger investigation, CMA108".
Compliance with Interim Measures
To ensure compliance with interim measures, the CMA will generally require the CEOs of the acquirer and the target business to each provide a compliance statement on a fortnightly basis, confirming that the relevant business has complied with the interim measures over that period.
The CMA may also require the appointment (at the parties' cost) of a monitoring trustee, and/or a hold-separate manager, to ensure compliance, and the CMA is able to impose penalties in the event of breaches.
If an addressee fails to comply with any interim measures without reasonable excuse, the CMA may impose a penalty of up to 5% of the total value of the worldwide turnover of the enterprises owned or controlled by the addressee.
See 2.12 Requirement for Clearance before Implementation.
See 2.12 Requirement for Clearance before Implementation.
See 2.12 Requirement for Clearance before Implementation.
There is no mandatory notification requirement, and no deadline for notification.
There is no requirement for the parties to have entered in a transaction agreement prior to formally notifying a transaction. Instead, the CMA will generally need to be satisfied that there is a good faith intention to proceed with the transaction.
However, if the parties submit an informal briefing note to the CMA for consideration (see 2.1 Notification), then the CMA will generally only consider this once the parties have entered into an agreement in respect of the transaction.
As a general rule, a merger fee is payable when the CMA reaches a Phase 2 reference decision (irrespective of whether the transaction is notified by the parties to the CMA, or is investigated by the CMA on its own initiative).
For cases in which UILs are accepted by the CMA (see 5.4 Typical Remedies) the merger fee is payable upon the CMA’s acceptance of those UILs.
Current Merger Fees
Merger fees vary by reference to the UK turnover of the target in its financial year preceding the transaction. At present, merger fees payable are:
A merger fee is to be paid within 30 days of the date of the CMA's invoice.
A merger fee is not payable if a transaction is notified, but is found not to constitute a relevant merger situation.
A merger fee is also not payable where the acquirer and its group is a small or medium-sized enterprise (as defined under the Companies Act 2006).
No fee is payable in relation to the submission of an informal briefing note (see 2.1 Notification).
Where a transaction is formally notified, a so-called "merger notice" may be submitted to the CMA by any person carrying on an enterprise to which the notified transaction relates.
The CMA's template merger notice (available from its website) sets out the categories of information to be provided by the parties when notifying a transaction to the CMA. The specific information necessary to assess a given transaction will depend upon the facts of that transaction (including, for example, the parties' activities and the extent to which these overlap).
The CMA asks that parties prepare and submit a draft merger notice for the purpose of pre-notification discussions (see 3.9 Pre-notification Discussions with Authorities), with this draft including:
The parties may also include submissions in relation to the application of the de minimis exception to enable the CMA to consider whether the case is a possible "de minimis" candidate (see 4.1 Substantive Test).
Parties should not underestimate the level of detail required to be provided in a draft merger notice. For example, the CMA will typically expect to receive a significant volume of the parties' internal documents, including:
Requesting Further Information
The CMA is able to request further information from the parties, including information going beyond what is included within the merger notice template. The CMA will generally make a number of requests for further information during the course of pre-notification discussions.
Satisfactory Merger Notice
For a merger notice to be accepted by the CMA as satisfactory (such that the CMA's Phase 1 investigation may commence), the merger notice must include the prescribed information, and confirm that the transaction has been made public.
Merger notices should be provided in English, and the CMA has issued guidance addressing how documents should be submitted (see "Providing documents to the CMA", November 2017).
CMA's Own Initiative Investigations
If the parties choose not to notify the transaction, and the CMA instead investigates on its own initiative (eg, on the basis of publicly available information, and/or customer complaints), the CMA will generally seek information by issuing notices under Section 109 of the Enterprise Act (each, a "Section 109 Notice") to obtain the information it requires to progress its investigation.
Provision of evidence
Section 109 of the Enterprise Act empowers the CMA to give notice to any persons requiring them to provide documents, information, or witness evidence (including by formal interview) by a set deadline (see, for example, Amazon/Deliveroo). All documents that are responsive to a Section 109 Notice must be submitted to the CMA. Where a party does not meet the stated deadline to respond, the CMA is able to extend the statutory timetable for its review of the transaction (see 3.8 Review Process).
If the CMA investigates on its own initiative, parties may still make submissions regarding the de minimis exception to enable the CMA to consider whether the case is a possible "de minimis" candidate (see 4.1 Substantive Test).
Penalties are not imposed where parties submit an incomplete draft merger notice. However, the CMA's Phase 1 investigation will not begin until after the CMA has confirmed that it has received a satisfactory merger notice.
It is a criminal offence for an individual to:
Upon conviction on indictment, an individual would be liable for a term of imprisonment of up to two years, or a financial penalty, or both.
The CMA can impose administrative penalties in certain circumstances, including where parties intentionally or without reasonable excuse fail to comply with the requirements of a Section 109 Notice (see 3.5 Information Included in a Filing).
The CMA can impose an administrative penalty of up to:
There are two formal phases of investigation, Phase 1 and Phase 2.
In addition, prior to the commencement of a Phase 1 investigation, where the parties notify a transaction to the CMA they will typically engage in pre-notification discussions with the CMA (see 3.9 Pre-notification Discussions with Authorities).
In a Phase 1 investigation, the CMA has a statutory time period of 40 working days from the commencement of its investigation within which to decide whether its duty to refer the transaction for a Phase 2 investigation is met (see 4.1 Substantive Test).
During this time, the CMA will actively seek comments from interested third parties to inform its investigation (see 7.1 Third-Party Rights). The CMA is able to extend the statutory time period in certain circumstances, including where the parties fail to respond to a Section 109 Notice by the stated deadline (see 3.5 Information Included in a Filing). During the period from 1 April 2020 to 28 February 2021, the average length of a Phase 1 investigation was 35 working days, with 19 cases cleared unconditionally at Phase 1 in this period (out of 36 Phase 1 case decisions).
In a Phase 2 investigation, the CMA has a statutory time period of up to 24 weeks to conclude its investigation. This time period can be extended, once, by up to eight weeks if there are special reasons why the investigation cannot be completed within this time period. This time period can also be extended if parties fail to respond to a Section 109 Notice by the stated deadline.
In practice, parties are generally expected to engage in pre-notification discussions where they intend to submit a merger notice to the CMA. Pre-notification discussions are not time limited, and can last for a number of months in certain transactions. Pre-COVID-19, the average length of pre-notification discussions was 37 working days during the period from 1 April 2019 to 29 February 2020.
The content of pre-notification discussions is confidential. However, where a transaction has already been publicised by the parties, the CMA may wish to begin informal market testing during pre-notification discussions.
Case Team Allocation
Parties that wish to engage in pre-notification discussions should submit to the CMA a Case Team Allocation Form (available from the CMA’s website), and the CMA will aim to allocate a case team for the transaction within five working days.
Once allocated, the case team will review a draft of the merger notice, and identify any areas where it considers that additional information is required. In practice, it is not uncommon for the parties to receive two (or more) separate rounds of questions before a merger notice is considered to be satisfactory, enabling the CMA's Phase 1 investigation to commence.
Public Interest Concerns
In addition, where a transaction raises potential public interest concerns, parties are generally encouraged to engage with the relevant government departments as early as possible (see 1.2 Legislation Relating to Particular Sectors).
Before the start of the Phase 1 investigation (ie, the 40 working day statutory time period), parties are required to provide a substantial volume of information and evidence to the CMA, irrespective of whether transactions are notified by using a merger notice, or investigated by the CMA on its own initiative (see 3.5 Information Included in a Filing).
Despite this, parties may also receive detailed requests for information during a Phase 1 investigation, particularly if third parties raise credible competition concerns in relation to a transaction (see 7.1 Third-Party Rights).
During a Phase 2 investigation, in addition to relying upon relevant information received during its Phase 1 investigation, the CMA will request a significant amount of additional information and evidence from the parties.
Where a transaction is subject to other regulatory processes (eg, the City Code on Takeovers and Mergers, or merger control regimes in other jurisdictions), the parties can inform the CMA of any timing constraints, and request that the CMA exercises its discretion to make its decision in advance of the relevant statutory deadline. The CMA is then able to decide whether to exercise its discretion to consent to this request.
Exceptionally, following a request by the parties to do so, the CMA may decide to "fast-track" a transaction from a Phase 1 investigation into a Phase 2 investigation (see, for example, Crowdcube/Seedrs).
CMA – Phase 1
At Phase 1, subject to limited discretionary exceptions outlined below, the CMA is required to refer transactions for a Phase 2 investigation where it forms a reasonable belief, objectively justified by the relevant facts, that it is or may be the case:
The CMA does not apply market share or concentration thresholds to determine whether a loss of competition is substantial. Instead, the CMA considers that "substantial" in the context of an SLC has a range of meanings, and will depend on the facts of the case.
On the basis of the "is or may be the case" standard, the CMA must make a Phase 2 reference where it believes that a transaction is likely to result in an SLC (ie, a 50% likelihood), and the CMA is required to exercise its judgement to decide whether to make a Phase 2 reference when the likelihood of a transaction resulting in an SLC is below 50%, but greater than fanciful. However, the CMA is able to exercise its discretion not to make a Phase 2 reference where it believes the following.
Further guidance on these discretionary exceptions is available at "Mergers: Exceptions to the duty to refer (CMA64)".
In the event that these discretionary exceptions are not applicable, it may still be possible for the parties to offer UILs to the CMA, whereby the CMA will not make a Phase 2 reference if it ultimately accepts the offered UILs (see 5.4 Typical Remedies).
CMA – Phase 2
At Phase 2, the CMA is required to decide on the balance of probabilities whether it is more likely than not:
If relevant, the CMA must then decide:
The CMA uses market definition as a framework for assessing the competitive effects of a transaction. For this purpose, a relevant market will typically comprise both a product dimension, and a geographic dimension.
At Phase 1, the CMA may undertake an initial analysis of the boundaries of the relevant market without necessarily reaching a conclusion. At Phase 2, the CMA will usually reach a conclusion upon the boundaries of the relevant market.
However, the boundaries of the relevant market are not determinative of the outcome of the CMA's competitive assessment. In particular, the CMA recognises that it may need to consider constraints imposed from outside of the relevant market, or as a result of segmentation within the relevant market, or other ways in which certain constraints may be more important.
The relevant product market will include the most significant competitive alternatives available to the customers of the parties to the transaction. For the purposes of this assessment, the CMA will generally consider evidence including:
As a starting point, in a horizontal merger (ie, where the parties are competitors), the CMA will focus upon the parties' overlapping products in the narrowest plausible candidate product frame of reference. In a non-horizontal merger (ie, where the parties are either active at different levels of the supply chain ("vertical mergers"), or at the same level of the supply chain but without competing ("conglomerate mergers")), the CMA will take at least one party's product as its starting point.
The CMA will then consider whether this product frame of reference can be widened, generally on the basis of demand-side substitution (eg, how the parties' customers would respond to a small, but significant and permanent, increase in product prices (eg, a 5% increase)), although the CMA may also consider aspects including supply-side substitution (eg, how existing competitors would respond to a small, but significant and permanent, increase in product prices) (see, for example, Danspin/Certain assets and goodwill of LY Realisations).
In addition, where competition concerns may arise in relation to non-price aspects (eg, product quality, and levels of innovation), the CMA will assess evidence in relation to non-price considerations (see, for example, Provisional Findings in Illumina/Pacific Biosciences of California).
The CMA may also have regard to ongoing dynamics when considering a product frame of reference in which competitive conditions are expected to evolve. In this context, the CMA will seek to ensure that the relevant market captures the most significant competitive constraints that currently exist, as well as those that are expected to exist in the future (see, for example, Sabre/Farelogix).
The relevant geographic market will include the geographic area within which the parties'customers can obtain the most significant competitive alternatives (see, for example, Iconex/Hansol Denmark and R+S Group). For the purposes of this assessment, the CMA will generally consider evidence relevant to demand-side substitution.
Further guidance on the CMA's approach to market definition is provided in the Merger Assessment Guidelines (see 1.1 Merger Control Legislation).
As the CMA's assessment is case-specific, and dependent upon the particular circumstances of the transaction and affected markets, the CMA's decision will be based upon the available evidence. This means that the CMA is not required to follow its own previous decisions.
A transaction gives rise to an SLC where it has a significant effect on rivalry, reducing competitive pressures upon firms to improve their offerings to customers, or to become more innovative or efficient over time. An SLC will therefore be expected to lead to an adverse outcome for customers.
In broad terms, there are three main types of competition concerns that may result in an SLC.
These may arise in horizontal mergers where the transaction removes or reduces the rivalry between the parties (or will remove or reduce expected future rivalry), thereby enabling the combined entity to profitably increase prices, or worsen non-price aspects of competition.
When assessing unilateral effects, the CMA is increasingly focussing upon the how closely the parties compete (or would be expected to compete in the future in the absence of the transaction) (see, for example, Provisional Findings in Illumina/Pacific Biosciences of California).
Significantly, where parties are considered to be close competitors, even small increments in market shares as a result of a transaction can give rise to material competition concerns.
These may arise in horizontal mergers, as well as non-horizontal mergers, where the transaction either enables firms, or increases the ability of firms, to profitably align or co-ordinate their behaviour tacitly (see, for example, Breedon Group/Cemex Investments).
Vertical or Conglomerate Effects
These may primarily arise in non-horizontal mergers, where the transaction creates or strengthens the combined entity's ability and incentive to use its market power in at least one relevant market to reduce rivalry (see, for example, Google/Looker in relation to a vertical effects theory of harm, and Danone/Harrogate Waters in relation to a conglomerate effects theory of harm).
As noted in 3.5 Information Included in a Filing, the CMA will obtain a substantial volume of evidence during its investigation.
In addition to economic evidence (including customer survey evidence and economic modelling), the CMA is increasingly focussing its analysis in relation to competition concerns upon:
Further guidance on the CMA's approach in relation to the assessment of competition concerns is provided in the Merger Assessment Guidelines (see 1.1 Merger Control Legislation).
The CMA is able to consider transaction-specific economic efficiencies in its substantive assessment. Where efficiencies are claimed, the parties will need to provide compelling evidence that these are:
The types of efficiencies the CMA generally expects to consider can broadly be categorised as:
Where parties intend to claim efficiencies, they are encouraged to engage with the CMA as early as possible in relation to these aspects.
Under the general merger regime, the assessment of a transaction is undertaken on competition grounds.
In relation to public interest mergers, a transaction may be assessed on the basis of public interest considerations (potentially in addition to competition grounds). Special public interest mergers are assessed on the basis of public interest considerations only (see 1.2 Legislation Relating to Particular Sectors).
The CMA does not apply special considerations in the context of the substantive review of joint ventures under the UK merger control regime.
At the end of a Phase 2 investigation, if the CMA considers that it is more likely than not that a transaction results in an SLC (see 4.1 Substantive Test), it will identify remedies which effectively address the SLC and its adverse effects.
In practice, this means that the CMA is able to impose remedies at the end of a Phase 2 investigation, including prohibiting an anticipated transaction, or undoing a completed transaction.
Parties are able to offer remedies to address competition concerns in the context of Phase 1 and Phase 2 investigations, as well as during pre-notification discussions (see 5.4 Typical Remedies).
In practice, parties are unable to negotiate remedies with the CMA, and it is for the CMA to decide whether to accept any remedies offered by the parties.
Where a given transaction is expected to result in competition concerns, parties will typically consider at an early stage the extent of the possible remedies that they would be required to offer (eg, to avoid reference for a Phase 2 investigation), and how these remedies would affect the commercial viability of the transaction.
When determining a remedy, the CMA is required to have regard to the need to achieve as comprehensive a solution as is reasonable and practicable for the purpose of remedying, preventing or mitigating the SLC and any adverse effects resulting from it.
If a transaction satisfies the test for a Phase 2 reference, the CMA is able to exercise its discretion to accept undertakings in lieu of such a Phase 2 reference (UILs) offered by the parties where these are appropriate to remedy, mitigate, or prevent the SLC. The CMA cannot impose UILs upon the parties.
To be able to accept offered UILs, the CMA needs to be sufficiently confident that the identified competition concerns would be resolved by the UILs. This is because once the CMA accepts UILs, it ceases to be able to refer the transaction for a Phase 2 reference.
Offered UILs must therefore be capable of timely implementation, and be "clear-cut", meaning that:
The CMA's starting point is to seek to ensure that offered UILs would restore competition to the level that would have existed in the absence of the transaction.
On this basis, the CMA's preference is for UILs to take the form of structural remedies (ie, divestment), and the CMA is generally unlikely at Phase 1 to consider behavioural UILs to be sufficiently clear-cut.
Where a divestment is to be made, the CMA will generally expect this to relate to the acquired business. However, the CMA will consider the divestment of aspects of the acquirer's business if this does not present a greater risk in relation to addressing the SLC. In determining the scope of a divestment, the CMA will seek to identify the smallest viable, standalone business which can compete successfully on an ongoing basis. Depending upon the transaction, this could be a single site, or a number of sites, or a business division, or a subsidiary, or the acquired business in its entirety.
At Phase 1, unless the CMA considers there are reasonable grounds for not doing so, the CMA will generally require that a divestment is made to an "upfront buyer" (ie, a purchaser approved by the CMA, who has contractually committed to acquire the divestment business). If an "upfront buyer" cannot be identified, the CMA remains able to refer the transaction for a Phase 2 investigation.
At Phase 2, the CMA's preference is also for structural remedies. While parties may offer remedies, the CMA is ultimately able to impose remedies.
Further guidance in relation to remedies is available at "Merger Remedies (CMA87)".
See 5.2 Parties’ Ability to Negotiate Remedies and 5.4 Typical Remedies.
Before offering UILs, the parties are able to consider the CMA's reasons for identifying an SLC (the "SLC decision").
The parties have up to five working days after receipt of the SLC decision to offer UILs to the address the SLC. Offered UILs, together with the parties' proposed draft text of the offered UILs, should be formally submitted using the CMA’s Remedies Form for Offers of UILs, and the CMA’s UILs template (available from the CMA's website).
If UILs are offered, the CMA then has until the tenth working day after the parties received the SLC decision to decide whether the offer (or a modified version) might be acceptable.
Where the CMA proposes a modified version of the offer, it will ask the parties if they agree to this, and the parties will have a short period of time to confirm whether or not they wish to offer the modified UILs.
If the CMA decides that the offered UILs might be acceptable, it will inform the parties, and publish a non-confidential version of its decision that the UILs may be acceptable in principle.
The CMA will then undertake a detailed assessment of the offered UILs, and must decide whether to accept the offered UILs within 50 working days of the SLC decision (with this time period capable of extension by up to 40 working days if the CMA considers there are special reasons for doing so, including in the context of an upfront buyer) (see 5.4 Typical Remedies).
During this period, the CMA must undertake a public consultation upon the offered UILs, and provide interested third parties with a period of not less than 15 calendar days in which to provide comments. If the offered UILs are modified, a second public consultation of not less than seven days will be required (unless the modifications are immaterial).
If the offered UILs are considered acceptable following the public consultation(s), the CMA will request that the parties sign the UILs, after which they will be accepted by the CMA.
The CMA will announce its acceptance of the UILs, and publish these upon its website.
If the CMA reaches a provisional finding of an SLC, it will consult on possible remedies, and will consider remedies proposed by the parties and third parties, in addition to its own proposals.
Following this consultation process, the CMA will prepare a remedies working paper, which assesses different options and sets out the CMA’s provisional decision on remedies.
The parties will receive the remedies working paper, and will generally have at least five working days to respond to this. The CMA may also consult third parties in relation to the proposed scope of remedies (and can publicly consult where deemed necessary).
Following this engagement on the remedies working paper, the CMA will make its final decision on the competition issues, and any remedies, which is published in a final report on its website.
Following publication of the final report, the CMA may choose to implement remedies by accepting undertakings (where provided by the parties), or otherwise by making an order, and the intended form of the remedies will be subject to consultation.
The CMA has a statutory deadline of 12 weeks following its final report to either accept undertakings, or to make an order (with this time period capable of extension by up to six weeks if the CMA considers there are special reasons for doing so).
See 5.4 Typical Remedies and 5.5 Negotiating Remedies with Authorities.
Where a divestment has an "upfront buyer" requirement (see 5.4 Typical Remedies), the acquisition of the divestment business by the "upfront buyer" will be conditional upon the CMA's acceptance of UILs, or undertakings at Phase 2.
In the context of a "non-upfront buyer" divestment, the parties will be required to:
The parties will generally be required to conclude the sale agreement within a relatively short time period (eg, three months), which will be set out in the context of the remedy.
If the parties are unable to identify an appropriate purchaser within this time period, the CMA will generally be able to appoint a monitoring trustee to sell the divestment business at no minimum price.
Interim Measures or Undertakings
Where interim measures or undertakings are in place (or the transaction has been referred for a Phase 2 investigation), provided that the parties are able to obtain the CMA's consent (see 2.12 Requirement for Clearance before Implementation), it would be possible for a transaction to be completed while the divestment process is ongoing.
If a party breaches any remedies, the CMA can commence civil proceedings to enforce the relevant remedies (eg, by seeking an injunction). Affected third parties can also commence civil proceedings.
A formal, confidential version of the CMA's merger decision (at Phase 1 and/or Phase 2) is provided to the parties, with third parties' commercially sensitive information excised.
In addition, a formal, non-confidential version of the CMA's merger decision (from which the parties' and third parties' commercially sensitive information will be excised) will be published on the CMA's website, and announced via the Regulatory News Service.
The CMA does not distinguish between transactions concerning only UK-based entities, and foreign-to-foreign transactions. The CMA is therefore able to impose remedies and prohibit foreign-to-foreign transactions.
As a general rule, the CMA will not consider whether a transaction-related restriction constitutes an ancillary restraint, on the basis that the merger parties are able to self-assess this aspect.
The CMA actively seeks comments from third parties when investigating a transaction, including in the context of remedies (see 5.5 Negotiating Remedies with Authorities).
The CMA is also able to use its information gathering powers under Section 109 of the Enterprise Act to obtain evidence from third parties (see 3.5 Information Included in a Filing).
See 7.1 Third-Party Rights.
Where the parties submit a merger notice, they are required to confirm that the transaction has been publicised before the merger notice can be accepted by the CMA as satisfactory (see 3.5 Information Included in a Filing). This is as the CMA will actively publicise the transaction during the course of its investigation (see 7.1 Third-Party Rights).
The parties are able to request that commercially sensitive information remains confidential, and the CMA will provide the parties with an opportunity to request the excision of such information from a range of documents published by the CMA in the context of its investigation.
Where the CMA is investigating a transaction that is subject to investigation in other jurisdictions, the CMA will generally seek to co-operate with other investigating competition authorities.
However, the Enterprise Act places certain restrictions upon the CMA's ability to exchange confidential information, and the CMA would therefore be expected to obtain the parties' consent to exchange such information.
Pursuant to section 120 of the Enterprise Act, a party aggrieved by a decision in relation to the reference or possible reference of a transaction can apply to the Competition Appeal Tribunal (CAT) for a review of that decision.
The CAT's review is limited to applying the same principles as would be applied by a court on an application for judicial review. This means that the CAT's examination is confined to the lawfulness of the decision.
The CAT cannot substitute its own decision on the merits of the case, but can either dismiss the application or quash the decision (in whole or in part). If the CAT quashes the decision, it will refer the matter back to the original decision-maker with a direction to reconsider and make a new decision, as directed by the CAT.
Parties wishing to appeal a point of law arising from the CAT’s judgment can apply to the Court of Appeal of England and Wales (the "Court of Appeal"), with the permission of either the CAT or the Court of Appeal.
Any application for review by the CAT must be made within four weeks of the earlier of:
There is no fixed timetable for the CAT's review. The CAT will generally regard applications to review a decision relating to a merger as meriting a high degree of urgency.
Aggrieved third parties can challenge clearance decisions (see, for example, IBA Health v OFT  CAT 27).
The full implementation of the NSI Act (expected by the end of 2021), will enable the UK government to review a wide range of transactions on the basis that these may give rise to risks to national security. Specific types of transaction in selected sectors will require mandatory notification and clearance pre-completion. Prior to the implementation of the NSI Act, certain transactions in the selected sectors would have been capable of investigation on national security grounds under the UK merger control regime.
Separately, the CMA has recommended that the UK government introduces a merger control regime application to technology firms with strategic market status (SMS). Amongst other aspects, this recommended regime would apply a more cautious legal test when assessing SMS transactions, and require the mandatory notification of such transactions to the CMA.
In terms of the CMA's record with regard to prohibiting transactions and imposing remedies, in recent years the CMA has referred a comparatively larger number of transactions for Phase 2 investigations. This has resulted in a greater number of transactions being abandoned by the parties, as well as more transactions being prohibited, or subject to imposed remedies.
The CMA has recently applied the Share of Supply Test to assert jurisdiction to investigate transactions with a comparatively limited nexus to the UK.
In addition, the CMA has recently identified competition concerns in a larger number of its Phase 1 investigations, including in the context of technology and pharmaceutical sectors, as a result of an increased focus upon:
UK Merger Control in 2021: The CMA, Brexit and Digital Platforms
Over the past 20 years, UK competition law enforcement has experienced continuous reform and innovation. That process has accelerated since the UK voted to leave the EU in June 2016. Brexit constitutes the most significant recalibration of the UK’s relationship with Europe since the UK joined the European Economic Community in 1973. Its implications have been far-reaching, including in the enforcement of merger control, where, as of 1 January 2021, the independent UK antitrust agency, the Competition and Markets Authority (CMA), has had jurisdiction to investigate the UK aspects of mergers that also qualify for review by the European Commission (EC).
The CMA’s leadership was quick to realise that Brexit provided an historic opportunity to strengthen the authority’s claim to being one of the world’s leading competition agencies. As the CMA’s Chief Executive, Dr Andrea Coscelli, has explained, the CMA’s “ambition is very much to be at the top table discussing international mergers.” To fulfil this ambition, the CMA secured considerable additional funding (around a 30% boost); moved to larger premises in London; opened new offices in Edinburgh, Belfast, and Cardiff; and increased its headcount (by 300 employees since 2016, a 55% increase). Dr Coscelli believes that the UK is now “in a very strong position to lead” global competition enforcement, because “the upside [of leaving the EU] is that you take back control – genuinely – of the decisions.”
In preparation for its expanded role, the CMA has become markedly more active and ambitious in its enforcement of UK merger rules. As described below, it has taken an increasingly expansive view of the jurisdictional scope of UK merger control, overhauled its procedural and substantive guidance, and challenged over 20 transactions since 2019, a number of which would likely have been approved in the past.
The CMA has taken an increasingly expansive and creative approach to applying the UK’s jurisdictional “share of supply” test. The CMA’s approach, which was recently confirmed by the Competition Appeal Tribunal (CAT) and Court of Appeal, has conferred jurisdiction over a number of transactions that were not obviously subject to UK merger control, including because one of the parties generated no UK sales.
The CMA’s substantive assessment has become stricter, reflected in new Merger Assessment Guidelines published this year. The CMA continues to place less weight on market shares, focusing instead on closeness of competition between the merging parties. As a result, it has intervened in transactions where the parties’ combined market shares were below 40% and/or where the share increment has been small.
The CMA routinely imposes hold-separate orders (called initial enforcement orders or IEOs) in all completed mergers. These orders impose wide obligations on both parties to maintain their businesses and seek consent from the CMA for minor organisational changes. IEOs typically cover the entirety of the merging parties’ businesses, not just those in overlapping markets, and apply on a global basis, as confirmed by the CAT.
The CMA has applied its formal investigation powers strictly, penalising companies for procedural failings, including minor infractions of hold separate orders or failures to respond correctly and completely to information requests.
Together, these trends and developments have created a complex and challenging merger regime in the UK. In addition, for a number of sectors, the regulatory environment is set to become even more onerous. The UK government is in the process of establishing a new regulatory regime for digital platforms and has enacted a sweeping national security screening regime, adding further complexity to the UK environment.
The CMA’s expanded role
The CMA’s role significantly expanded following the expiry of the Brexit transition period on 31 December 2020, when it acquired jurisdiction over cases previously reserved to the EC. Mergers that meet both the UK and EU jurisdictional thresholds are now subject to parallel review by the CMA and the EC. The CMA has already begun investigating international mergers that are also subject to review in Brussels and expects its merger caseload to increase by around 50% (approximately 50 additional merger cases per year) compared with the period before Brexit.
In parallel, the CMA has applied the “share of supply test” increasingly flexibly and creatively to review mergers which appear to have little to no nexus to the UK. The “share of supply” test is one of two jurisdictional tests that apply under UK merger control and in most cases allows the CMA to intervene where the merging parties’ activities overlap in the UK and they have a combined share of supply or purchases of at least 25%. This test has been applied to capture mergers even where one of the parties made no overlapping sales in the UK. In Sabre/Farelogix (discussed below), Farelogix had no UK sales, while in Roche/Spark, Spark had no UK sales and the CMA established jurisdiction by applying the “share of supply” test to the share of specialist researchers employed by the parties in the UK.
Most recently, in Facebook/Giphy, the CMA established jurisdiction by applying the “share of supply” test on two separate bases even though Giphy does not earn any revenue outside the US: the CMA calculated, first, the parties’ combined share of apps that allow UK users to search for GIFs (measured by average monthly searches), and, second, the parties’ combined share of searchable animated sticker libraries supplied to UK users (measured by sticker library size). The CMA has also displayed creativity in its on-going substantive assessment of the transaction’s impact on online display advertising and social media, by examining the merger against two different “realistic” counterfactuals: under the first, Giphy would have continued to operate independently of Facebook; while, under the second, Giphy would have been acquired by an alternative purchaser, possibly another social media platform.
The CMA’s expanded role has increased the risk of divergent outcomes across merger reviews in different jurisdictions, particularly in cases that require remedies. To manage this risk, the CMA is seeking to co-operate more closely with competition agencies around the world. Although the CMA has lost its automatic access to information shared within the European Competition Network, it continues to work closely with the EC and share information through the use of confidentiality waivers. It has also entered into new co-operation arrangements with other agencies.
Increased intervention rates
Over the past two years, the CMA has taken an increasingly interventionist approach.
Perhaps the most significant transaction to be prohibited over the past couple of years was Sabre/Farelogix, which involved suppliers of software solutions to facilitate airline travel. The case illustrates the CMA’s readiness to stretch the “share of supply” test to assert jurisdiction over transactions with very little UK nexus. As to the CMA’s substantive assessment, the transaction was found to reduce innovation and customer choice. The CMA’s prohibition decision was upheld on appeal in an important judgment that confirms the CMA’s expansive approach to establishing UK jurisdiction on the basis of the “share of supply” test.
Traditional sectors have not escaped the CMA’s enforcement over the last year. The CMA blocked JD Sports/Footasylum, a completed acquisition involving retailers of sports-inspired casual footwear and apparel. The prohibition decision was appealed and remitted (in part) to the CMA for reconsideration. JD Sports/Footasylum illustrates the importance of closeness of competition to the CMA’s substantive assessment, where the CMA concluded that the parties were close competitors on the basis of their internal documents, two customer surveys, the similarity of their offerings, and economic analysis.
The CMA also blocked TVS Europe Distribution/3G Truck Trailer Parts, a completed acquisition involving wholesalers of commercial vehicles and trailer parts to the UK independent aftermarket, and Hunter Douglas/247 Home Furnishings, a completed acquisition involving online retailers of made-to-measure blinds, both as “three to two” mergers.
Implications for parties considering a voluntary filing
UK merger control is voluntary, and there is no duty to notify to the CMA, even where the jurisdictional thresholds are met. As a result, parties can complete transactions without notifying the CMA, and many do. The CMA can, however, “call in” transactions that it believes may be caught by UK merger control. The increased risk of CMA intervention, described elsewhere, has raised increasingly difficult strategic questions for merging parties considering whether to notify transactions proactively.
The decision to notify the CMA requires an often finely-balanced assessment of whether the transaction meets the jurisdictional thresholds, whether it raises potential competition concerns, and the likelihood that the CMA will decide to open an investigation. This assessment has become more complex in light of the CMA’s recent enforcement practice. In many cases, it can be difficult to conclude with certainty that the jurisdictional tests are not met. In addition, the CMA’s move away from market share safe harbours and greater focus on dynamic competition has made it harder to predict the CMA’s substantive findings.
In these circumstances, rather than bearing the risks associated with closing a transaction without having secured CMA approval or incurring the costs and delay associated with a notification and CMA review, many companies are choosing to voluntarily inform the CMA about transactions by way of short briefing papers that explain why there are no competition concerns and seek the CMA’s confirmation that it does not intend to open an investigation.
Overhaul of procedural and substantive guidance
Over the last year, the CMA has overhauled its Merger Assessment Guidelines and its Guidance on Jurisdiction and Procedure. The CMA has emphasised that the new guidance reflects an evolution (not a revolution) in its practices and takes account of recent case law. The new guidance nevertheless gives a good insight into the CMA’s policy intentions.
The new Merger Assessment Guidelines give the CMA greater flexibility in assessing mergers. When determining the counterfactual to the merger, for example, the CMA will vary the time horizon over which it assesses the counterfactual depending on the context and notes that uncertainty about the future “will not in itself lead the CMA to assume the pre-merger situation to be the appropriate counterfactual.” This would in principle allow the CMA to intervene on the basis that competition might develop in different ways absent the transaction, even where those developments are uncertain and may not take place in the short term. An increasingly flexible approach to the counterfactual will make it more difficult for merging parties and their advisers to determine the baseline against which the effects of a transaction should be measured, creating greater uncertainty and unpredictability.
The new Guidelines also suggest the CMA will continue to rely on theories of harm based on a loss of potential competition between the parties and will focus on the closeness of competition between the parties, rather than simply looking at market shares. These factors can result in the CMA looking to intervene in mergers even where the combined market shares are low or where the evidence of current anticompetitive effects is slim, resulting in even less predictability for merging parties. The CMA will also continue to place reliance on reviewing internal documents. It has invested in its document review technology and often places considerable weight on the parties’ internal documents when conducting its substantive assessment.
Under the CMA’s new Guidance on Jurisdiction and Procedure, the CMA has signalled that it will continue to assert jurisdiction in any case that it suspects raises competition concerns even where the UK nexus is limited or the parties’ UK activities are small. The CMA has also sought to flex its processes to allow it to co-ordinate more closely with other competition agencies. Merging parties are able to: (i) request a fast-track Phase 1 process by conceding that the test for reference to Phase 2 is met; and/or (ii) make formal concessions during Phase 2 in order to shorten the CMA review process and facilitate co-ordination between the CMA and other agencies when assessing remedies.
Impact of COVID-19 on the CMA’s substantive assessment
In April 2020, the CMA published guidance on its approach to merger investigations during the COVID-19 pandemic. It explained that its substantive assessment and investigational standards would not change and reiterated that the test applied to the “failing firm” defence (where the parties maintain that the target is likely to exit the market in the counterfactual) is stringent and rarely met. The CMA’s recent practice has been consistent with that guidance, demonstrating that the CMA’s standard of review was not relaxed during the pandemic.
These cases underline the difficulties associated with assessing the impact of COVID-19, particularly while the crisis was ongoing. The reversal of the CMA’s provisional findings in Amazon/Deliveroo shows that the CMA is ready to revisit its substantive assessment should circumstances change. More generally, the CMA’s decisions during the course of 2020 and 2021 show the CMA’s reluctance to clear mergers on the basis that one or other business is suffering as a result of COVID-19; the CMA must be convinced that the businesses in question are suffering disproportionately or that the pandemic has resulted in enduring structural changes to the market.
Enforcement of procedural rules and use of IEOs
The CMA issued two penalty decisions for breaches of procedural rules over the past year, compared with nine in 2019: Amazon was fined GBP55,000 for failing to provide complete responses to requests for information in the context of its acquisition of a minority stake in Deliveroo, and JD Sports was fined GBP300,000 for failing to comply with a hold-separate order in relation to its acquisition of Footasylum. JD Sports filed an appeal, and the CMA withdrew the penalty before the Tribunal delivered its judgment. While the number of penalty decisions has fallen, it would be wrong to infer a wider change of policy from these statistics. The CMA continues to use its formal investigation powers, including mandatory information requests, on a regular basis.
Of particular note, the CMA continues to impose IEOs in completed merger cases on a routine basis. These orders go far beyond simply holding the businesses separate – they impose wide obligations on both parties to maintain their businesses, requiring CMA consent for even minor organisational changes. The CMA’s approach to IEOs has been endorsed by the CAT and Court of Appeal in connection with the Facebook/Giphy merger. The courts confirmed the CMA’s policy of imposing IEOs on a pre-cautionary basis, covering the whole of the merging parties businesses (including unrelated products and services) and on a global basis. Parties may seek derogations, although the CMA requires a reasoned submissions and must be satisfied that the steps in question would not prejudice the CMA’s investigation.
The CAT and Court of Appeal endorsed the CMA’s use of IEOs and emphasised that the CMA has a wide margin of appreciation in discharging its statutory functions, which includes deciding what information it requires to carry out its review. Unless the information the CMA requests is “so manifestly without reasonable foundation,” it is not for the courts to second-guess what information is sufficient for the CMA. Welcoming the Court of Appeal’s judgment, Dr Coscelli said that the judgments reinforce “an important and unequivocal message – initial enforcement orders are key to the CMA’s ability to protect UK consumers while carrying out its merger reviews. Both the Court of Appeal and Competition Appeal Tribunal have now endorsed our approach and our handling of this issue.”
Regulation of digital markets
Fostering effective competition in digital markets has been at the forefront of the CMA’s enforcement priorities in recent years. The CMA reviewed a number of digital mergers over the past year, including Taboola/Outbrain, Ion Group/Broadway Technology, viagogo/StubHub, Crowdcube/Seedrs, Facebook/Giphy, Adevinta/eCG, Uber/Autocab, and Imprivata/Isosec. Notwithstanding the possibilities under the present regime to review digital sector transactions, the CMA has concerns that its existing tools are insufficient to deal with the potential harms that digital mergers may raise.
Partly in response to these concerns, the UK government commissioned a Digital Markets Taskforce to provide advice to the government on the design and implementation of a pro-competition regime for digital markets. Published in December 2020, the Digital Markets Taskforce’s advice proposed, among other things, a new merger control regime specifically for firms with “strategic market status” (SMS). The proposed SMS merger regime has two main features that represent a significant departure from the UK’s existing regime:
In 2021, the government established a Digital Markets Unit, housed within the CMA, charged with administering the new regime, and continues to work on the legislative framework for the proposed new digital markets regime.
A new national security investment regime
In May 2021, the UK government enacted a new national security and investment regime, which will allow the Secretary of State for Business, Energy and Industrial Strategy to screen and prohibit ‘potentially hostile’ investments that threatened UK national security. The regime is set to be among the most wide-ranging and onerous in the world, adding a new layer of mandatory review and imposing non-trivial costs on investments in any company with UK activities. The new rules are expected to come into force towards the end of 2021, when the implementing regulations are expected to be introduced.
Following Brexit, the CMA has cemented its position as one of the leading global authorities in merger review. It has taken an expansive view of the jurisdictional scope of UK merger rules, has applied its procedural rules strictly, and, most importantly, has challenged a series of transactions that would in the past likely have been approved. The CMA’s muscular enforcement policy is likely to be maintained in the coming years, requiring companies and their advisors to take account of UK merger control early in the deal planning process.