The merger landscape is notoriously hard to predict but, on the heels of a 2019 in which, according to PaRR analytics, the CMA imposed the largest number of M&A-related fines of any competition authority, here are some developments we can expect to see in the coming year.
Long un’winding road
In February 2019 the CMA broke new ground when, at the beginning of a Phase II investigation, it served its first ever unwinding order on Tobii AB/Smartbox Assistive Technology Limited. The order required Smartbox buyer Tobii to recommence selling a number of products which had been discontinued shortly before the merger and required Smartbox to reinstate a number of R&D projects which had been shelved. In August 2019 the CMA reached for unwinding orders again when they served the parties to the Bottomline/Experian merger, this time 7 days before the Phase I investigation had been initiated. The order prohibited further integration of the two businesses and rolled back the exchange of significant confidential data, preventing payment firm Bottomline from using Experian’s confidential information to solicit any customer in relation to a product or service that may compete with Experian’s business. The Bottomline/Experian order came just after the CMA published its guidance on Interim Measures in Merger Investigations in June 2019. This highlighted its willingness to use unwinding orders at both Phase I and Phase II and suggests that they may feature more heavily in future.
In August 2019 the CMA ordered Tobii to sell Smartbox to an approved buyer after finding their completed merger could lead to a reduction in the range of products available and higher prices for consumers. Tobii appealed this decision to the CAT in September and on 10 Jan 2020 the CAT quashed all but one of Tobii’s grounds against the CMA. The Bottomline/Experian investigation continues to progress and the CMA plans to announce its Phase II findings in early February.
Increased national security scrutiny
In October 2019 Boris Johnson’s new government made clear in its autumn Queen’s Speech that it intends to strengthen the government’s existing powers to scrutinise and intervene in business transactions to protect national security. This, in conjunction with the government’s introduction of lower thresholds for intervention in certain sectors in June 2018, has led to an increasingly interventionist regulatory climate for M&A in the defence sector. Up until the end of 2018 there had been 8 public interest interventions on national security grounds in the last 16 years but 2019 has seen an explosion of activity with 4 PIIN’s being issued. Connect Bidco/Inmarsat and Advent International/Cobham were issued pre-Queen’s speech and Gardner Aerospace/Impcross and Aerostar/Mettis were issued on 5th and 20th December respectively.
Increased scrutiny does not necessarily lead to prohibition of mergers. The accompanying Queens Speech briefing pack touts benefits of proposed legislation including ‘enhancing transparency for business’ and ‘ensuring the UK remains a global champion of free trade and investment’. December saw the clearance of the £4bn acquisition of UK defence company Cobham by US private equity firm Advent International, with UK Business Secretary Andrea Leadsom accepting undertakings rather than referring the transaction to the CMA for Phase II investigation. Whether increased scrutiny leads to more than simply accepting standard national security undertakings remains to be seen.
Closing in on killer acquisitions
Killer acquisitions, when large firms buy up smaller innovative firms who could potentially grow and compete for the market, have been an area of growing concern for a while. Worries over the power of BigTech and ill-suited merger regulation have led to a flurry of reports in the last year. The CMA’s Furman Review and Lear Report both tackled inadequacies in the current regulatory regime with Furman recommending that ‘merger assessment in digital markets needs a reset’ and that ‘the CMA should take more frequent and firmer action to challenge mergers’. The EU Commission also released its report ‘Competition Policy for the Digital Era’ which suggested a ‘reinforcement of European merger control’ along with possible new theories of harm being developed for mergers in the digital field.
The upshot of these reports is as yet unclear but we can expect increased scrutiny of any BigTech acquisitions in 2020. In December the CMA launched a Phase I probe into Google/Looker, a deal also facing antitrust examination in the US, and referred the investigation into Amazon’s investment in Deliveroo to Phase II, which will finish in June 2020. December also saw the publication of the CMA’s interim report on its market study into Online Platforms and Digital Advertising which will potentially be the regulators first attempt at implementing the recommendations stemming from the Furman review.
End of the track for transition
Assuming the European Parliament agrees to the Prime Minister’s Withdrawal Agreement Bill then the UK will formally leave the EU on 31 January 2020. Whilst the terms of the withdrawal agreement allow the UK-EU Joint Committee to extend the transition period by up to two years, the current transition period will last only until 31 December 2020.
The future of the UK mergers regime is hard to predict at this stage, but it is clear that the CMA can expect to be scrutinising many more mergers should the transition period indeed end in only 11 months’ time. Whilst a return to political intervention in all mergers as was the case pre-2002 seems unlikely, there are clear signs that the Government will not hesitate to use its powers to intervene where the national interest considerations are piqued. It remains to be seen whether more wholesale changes will flow, including a move away from the present ‘voluntary’ regime in light of the expected increase in the CMA’s mergers case load.