Private Equity

As the UK’s expected departure from the European Union approaches – currently scheduled for January 31, 2020 – the UK Competition and Markets Authority (CMA) has been developing a tougher and more interventionist approach to competition enforcement.

Low thresholds for merger review likely to capture more transactions

The CMA’s thresholds for review are set relatively low and enable it to investigate many transactions that may not be reviewable in many other jurisdictions. As the CMA looks to establish itself post-Brexit, it may use these already low thresholds to review more deals.

• Modest overlapping shares can be investigated even if the target has limited UK sales, provided the parties have at least a 25% “share of supply” – a flexible concept that broadens the CMA’s ability to assert jurisdiction (this is an alternative to the standard test that remains in place that requires the target to have UK sales of £70 million, a level that has not changed since 2003)
• Minority shareholdings can be investigated (provided the share of supply or turnover test is met) if they confer “material influence”, a threshold that can arise with shareholdings as low as 15% even where the buyer does not acquire strategic voting rights that are often considered to confer control

“Voluntary” merger regime looks increasingly mandatory and will expand post-Brexit

There is no general requirement to obtain CMA merger clearance prior to closing. However, the CMA’s powers give it considerable leverage to investigate deals that are of interest to it, and its current enforcement practice has become increasingly interventionist.

• Non-notified deals can be investigated, as the CMA has a dedicated unit that actively monitors for non-notified deals and routinely contacts parties to request details of transactions that may be of interest to it
• Post-closing investigations are common, as the CMA can investigate either pre-closing or for up to four months after closing, and also has the power to suspend closing if it has concerns that its investigation might otherwise be pre-empted
• Target companies must usually be held separate post-closing, as the CMA generally imposes initial enforcement orders at closing which require buyers not to integrate the target business until completion of the CMA’s review, and in the case of completed deals the CMA can exceptionally require that the parties unwind any integration that has already occurred
• Document production obligations are more onerous, as the CMA places increasing importance on review of the parties’ internal documents and has recently issued detailed guidance setting out much more burdensome document disclosure obligations
• Fines for non-compliance are more frequent, as the CMA is currently adopting a tougher approach to compliance and is now imposing fines more frequently for failure to comply with initial enforcement orders or document disclosure obligations

The CMA’s activities will expand post-Brexit and it will take on a more active role as powers currently exercised by the European Commission will no longer apply to the UK.

• More large-scale investigations will be opened by the CMA, as review of larger and more complex mergers (and antitrust investigations) currently reviewed by the European Commission will also be reviewable by the CMA post-Brexit
• Possible new suspensory merger control rules may be introduced, as the CMA has suggested that it may need a mandatory and suspensory merger filing regime for larger transactions to enable it to investigate major international deals concurrently with other regulators, while smaller deals remain subject to the current voluntary regime

Proposals to strengthen future CMA enforcement

The CMA is also seeking to expand its current powers to enhance its enforcement efforts. The UK Government has announced an upcoming green paper (discussion paper) to review and consider possible changes to the framework and enforcement of UK competition law, and has signalled an intention for the CMA to become more active (e.g., by opening more and varied cases, and completing investigations more quickly), more focused on consumers (e.g., by tackling market failures and protecting vulnerable consumers), and more ambitious in addressing the challenges of the digital economy (e.g., by expanding theories of harm to address issues such as the use of data to exploit economic dependence, or spontaneous collusion arising from the use of algorithms). In response, the CMA has recommended that its legal powers and enforcement practice be strengthened by the following:

• Duty to focus on “consumer interest” rather than competition to enable the CMA to examine new types of consumer detriment (such as access to personal data) not easily addressed by the current emphasis on competition
• Powers to impose higher fines for antitrust infringements and non-compliance with obligations to provide information, and powers to impose civil fines (rather than criminal fines) for the provision of false or misleading information and on individuals for committing serious competition law infringements
• General power to compel production of information even if the CMA has not opened a formal investigation
• Higher payments to whistle-blowers who inform the CMA of infringements
• Increased merger filing fees, currently set at up to £160,000 depending on transaction size
• Lower standard of review on appeal to enable antitrust infringements to be subject to judicial review (currently applicable to merger appeals) rather than a full merits appeal, in order to speed up appeals and reduce the evidentiary burden
• Greater emphasis on the digital sector, where the CMA has suggested a range of possible measures such as more novel approaches to theories of harm, merger filing thresholds based on transaction value, requirements for digital companies to inform the CMA of all deals, and increased use of the CMA’s in-house team of data scientists to guide its evolving approach