In 2021, the Competition and Markets Authority (CMA) assumed significant extra responsibilities on mergers and antitrust following Brexit. The ½Û×ÓÊÓƵ Global Index demonstrated that, last year, the CMA opened 53 cases related to mergers, which accounted for four-fifths of their total cases. And, in many of those cases, the CMA took action that went beyond what many had expected.
The CMA imposed record fines for breaches of initial enforcement orders (IEOs), for example. That included a fine of more than £50m for an IEO breach in the Facebook (now Meta) acquisition of Giphy and a fine of more than £4.7m for an IEO breach in the JD Sports acquisition of Footasylum.
The CMA’s extra responsibilities and closer scrutiny will have an impact on international mergers and acquisitions (M&As). In this article, we explore the background to the changes, the increasing complexity of cross-border transactions, and other issues that might arise around international M&As.
Let’s start with some context for the abovementioned fines. The CMA imposes IEOs as part of the . The purpose of an IEO is to prevent integration, or further integration, between two merging parties while the CMA completes its investigation. In simple terms, IEOs prevent actions that might sway or prejudice the CMA investigation.
The strengthened the CMA's powers to impose IEOs. In practice, the CMA imposed IEOs on all investigations that involved completed acquisitions. But, historically, the CMA seldom imposed fines, with only a small number of examples in previous years and the highest fine only amounting to £325,000, comparatively little compared to recent fines.
Parties are required to provide the CMA with regular IEO compliance updates, allowing the CMA to monitor the merger during its investigation. , among other things, refraining from changing key staff, continued independence of operations, refraining from the sharing of confidential information, honouring existing contracts, refraining from integrating IT, and so on.
The abovementioned fines for Facebook/Giphy and JD Sports/Footasylum demonstrate an increasing level of scrutiny from the CMA, empowered by recent reforms and extra responsibilities that follow Britain’s departure from the EU. As Nicole Kar, Global Head of our Antitrust Foreign Investment at , says in the GLP Index: ‘The CMA has been super-charged by reforms, both in merger control and other areas of competition law. This follows a trajectory of increasing interventionism by the CMA, which has been compounded by the addition of EU-sized cases to its docket following Brexit.’
The interventions look likely to continue. Consider Microsoft’s proposed acquisition of gaming giant Activision Blizzard for $68.7bn. The CMA has it will embark on an in-depth investigation, following that fact that previous concerns were not assuaged by merging parties. The CMA released an Issue Statement that gave more detail about their , which included the impact of the merger on console gaming platforms, multi-game subscriptions, and cloud gaming.
The investigation shows a continuation of the abovementioned trend: the CMA enforcing greater scrutiny on international M&As. That extra scrutiny adds a layer of complexity to international M&As, as argued by Alastair Chapman, antitrust partner at : ‘Our experience of complex cross-border transactions from 2021, particularly now that we are dealing with parallel US, EU and CMA reviews, has illustrated that a strategy to manage timing of reviews has become key.’
Merging parties need to navigate the practical difficulties of parallel proceedings. According to Chapman, they need to take a more global approach to antitrust to mitigate the added complexities.
Deirdre Trapp, anti-trust partner at , echoes Chapman’s general sentiment: ‘The increased attention…is driving more frequent cooperation and exchange among key competition regulators seeking to enforce laws vigorously. It’s increasingly important for businesses to match that coordination and to deliver clear and consistent narratives across all jurisdictions.’
Businesses need to take the global approach, aligning their strategies across various jurisdictions and ensuring clear reporting. They can essentially meet the challenge of complexity by providing clarity. They can meet the additional scrutiny with additional transparency. They can organise and prepare with full knowledge of the compliance expectations, taking into account demands of all jurisdictions.
The (NSI Act) poses even further complexities. The NSI Act gives the government the power to, among other things, intervene in a wide range of investments, prohibit transactions that may raise national security concerns, and apply mandatory notification obligations to acquisitions of certain shares or voting rights.
In short, the NSI Act gives the government the right to intervene on international M&As. The NSI Act adds another layer of complexity in a field of increasing complexity. It adds more scrutiny in an area of increasing scrutiny. One of the main consequences of that is expressed by Tom Brassington, partner at , in the ½Û×ÓÊÓƵ Market Tracker Report: ‘Some overseas bidders remain concerned as to whether their deals face an unacceptably high risk of hitting roadblocks.’
The NSI regime will be separate from the CMA merger regime, which will run in parallel. The CMA merger regime will only apply to competition, media plurality, financial stability, and public health emergency considerations. But the important point is that companies must meet the requirements of the NSI Act, the CMA merger regime, and additional CMA scrutiny. Companies effectively need to practice clarity and transparency to ensure they are not hit by roadblocks.
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