Merger regulation – don’t get caught out!

Matt Allen, Corporate and Commercial solicitor

Many people think that merger regulation isn’t relevant – that it only applies to very large companies, and could never catch them.

However, if you are selling your business, there is a possibility that merger regulation could apply to you!

Business mergers, whether through takeover, acquisition or joint venture, may have the effect of reducing competition in your particular field and therefore choice for customers. If the merger substantially lessens competition, it may be prohibited or you may have conditions imposed upon you by the Competition and Markets Authority (CMA) to allow a merger to take place.

The CMA has jurisdiction to investigate a merger where two or more entities cease to be distinct, or will cease to be distinct, as a result of being brought under common ownership or control AND either:

  • the UK turnover of the acquired business exceeds £70 million GBP; or
  • the transaction results in the creation of a 25% combined share of sales
  • or purchases in the UK (or a substantial part of it), of goods or services of a particular description.

So even if you do not exceed the turnover threshold, if your market is very niche, you could still fall foul of the second limb!

Although the CMA can investigate a merger, it is recommended that you notify the CMA of any potential merger that meets the above threshold prior to the deal being completed. Notifying the CMA of a merger is a voluntary act, regardless of whether the CMA has jurisdiction to review it or not.

However, if a transaction meets the thresholds and the parties do not voluntarily notify, the CMA can open an investigation on its own initiative providing it considers it necessary. Furthermore, not notifying the CMA where a merger reduces competition in the market and the thresholds are met carries risks of penalties from the CMA.

By way of example as to how much power the CMA has, Facebook has previously been fined £50.5 million for breaching an order imposed by the CMA during its investigation into Facebook’s purchase of Giphy. As a result, notifying the CMA of a potential merger can be a good money-saving exercise.

Many businesses do advise the CMA of a merger, typically before the transaction occurs, in order to gain legal certainty. This is carried out by completing a merger notice and as you may expect this service is not free of charge. A filing fee is payable dependent upon the turnover of the business being acquired.

If no notification of a merger is made to the CMA, this will not affect the CMA’s evaluation of it.

In fact, it is simply common sense that where there are clearly no competition concerns, notifying the CMA would likely be disproportionate and unnecessary.

Once the CMA are notified of a merger, or choose to investigate a transaction itself, it will usually speak with interested third parties such as customers, suppliers and/or competitors to try to get a feel for the specific sector.

The CMA have a 40 working day timescale to provide feedback on any notification made and so it is worth factoring this timescale in to any potential transaction.

When the CMA investigates a merger, it will publish its enquiry and the conclusion it comes to so that it is publicly available.

The investigation taken by the CMA can alter the shape of a transaction considerably. The CMA have the power to recommend alterations to any merger in order to remedy any competition concerns identified. For a merger yet to take place, the usual remedy is that the merger is prohibited, although it could be allowed to proceed subject to suitable conditions. For a merger that has already taken place, the CMA will normally seek to divest all or part of the acquired business to a suitable purchaser who can provide effective competition.

If you would like advice in relation to mergers that may be deemed to trigger any of the thresholds for the CMA, mfg solicitors are on hand to assist you with this every step of the way. Mfg solicitors are able to advise you in relation to whether an application to the CMA is necessary and can also assist in drafting the application too.

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