As the Competition and Markets Authority (CMA) becomes a global player post-Brexit, Katy Mattingley reviews the latest trends in merger control and the regulatory landscape.
The transition period for Brexit has now expired and the UK is no longer part of the 'one-stop shop' for European merger investigations. The Competition and Markets Authority (CMA) is now a significant player in global merger investigations (alongside continuing to be responsible for domestic mergers).
The impact of this is yet to be seen, however trends in 2020 might indicate how the CMA may act.
Following our merger control insights issued in 2018, 2019 and 2020, we continue to report on an annual basis on the five-year trends in merger cases filed with the CMA. Key trends in the current period comprise:
Reduced number of cases due to COVID-19
As previously reported, the number of closed cases dropped in 2018 and 2019 by around 30%, potentially as a result of Brexit.
In 2020, the number of cases closed dropped by a further 65%, reflecting the slowdown in M&A activity in the first half of 2020 as coronavirus arrived. In addition, the number of open cases in 2020 fell by 40% against the average of the previous four years.
Voluntary merger notifications continues to rise
In the UK, unlike most other jurisdictions, merger notification is voluntary and this continues to be the case. Of the cases closed in 2020, 77% of these were as a result of voluntary notifications – an increase from 70% in 2019 and 50% in 2018.
The trend in increased voluntary merger notifications is perhaps a reaction to certain CMA decisions.
In order to ensure no action is taken pending the determination of a merger investigation, the CMA can issue an Initial Enforcement Order (IEO), following the opening of an investigation, or an Interim Order (IO) or Interim Undertakings, during phase two, which are collectively known as interim measures. These interim measures place obligations on the parties to hold-separate the merging business. This can extend to unwinding any integration that has taken place between completion and the opening of the merger investigation.
The CMA has imposed Initial Enforcement order (IEOs) in all completed merger investigations and is also taking a hard line to breaches of the IEO and other interim measures.
Voluntary notifications, while creating additional administration and costs for the parties, can result in fewer surprises.
In 2021 we can expect this trend to continue as the CMA takes a seat around the table for assessing global mergers and the parties avoid the 'surprise' of the regulator imposing hold separate measures when a merger has completed and other jurisdictions have cleared it.
Increased number of IEOs issued on anticipated mergers
IEOs are issued on the majority of completed mergers. IEOs can however be issued on anticipated mergers and we have seen an increase in the use of IEOs in these cases. This has mainly occurred in cases where the anticipated merger is expected to complete during phase one, or if the CMA believes that the two businesses have already ceased to become distinct.
As of 29 April 2021 there are several voluntary notified merger cases open and subject to an IEO: Veolia/Suez, Stryker/Wright Medical, Amazon/Deliveroo & Sabre/Farelogix. One voluntary notified merger case, in the motor vehicle sector, was closed in 2020 after receiving an IEO.
Increased use of monitoring trustees under IEOs
The proforma IEO allows for the appointment of a monitoring trustee to monitor the parties' adherence to the IEO. We reported a steady increase in the appointment of monitoring trustees under the IEO last year. This has continued in the cases closed in 2020 with 50% of IEOs resulting in a monitoring trustee appointment versus 22% in 2019.
In addition, of the 40 open cases as at 29 April 2021, 11 monitoring trustees (65% of IEOs) have been appointed: nine at phase one and two at phase two. The continued increase in the use of monitoring trustees pursuant to an IEO indicates that the CMA remains concerned that merging parties are not strictly adhering to interim measures.
High level of cases abandoned or withdrawn
Five cases closed in 2020 were cases that have been withdrawn, cancelled or prohibited. This remained high compared to 2019 (six cases), 2018 (two cases) and 2017 (two cases). In 2020 a further two cases have been withdrawn and two cases prohibited (these remain open at 29 April 2021).
This shows an increasing trend in both the withdrawal of cases, potentially as the merger no longer offers the same economic benefits if remedies are required to obtain clearance, and also the prohibition of cases.
As the CMA continues to take a hard line on the imposition of interim measures and becomes a competition regulator in global mergers, it will be key to understand the requirements of the IEO and how these should be implemented into the respective businesses on a day-to-day basis. Getting this wrong can be costly and potentially derail the merger.
If you would like more information on the results of our annual review, or to understand more about merger control and other advisory, contact Craig Reed or Katy Mattingley.