The new Digital Markets, Competition and Consumers Act 2024 implements the most extensive changes to the UK competition law (and consumer protection) landscape since the Enterprise Act brought about wholesale change to the merger control regime over 20 years ago, back in 2002.
In the merger control space, the Act updates the UK's jurisdictional thresholds, as well as introducing the UK's first 'no-increment' share of supply test (to capture so-called 'killer acquisitions' as well as vertical and conglomerate mergers), a new safe harbour for 'small mergers' and a specific reporting regime for designated tech firms.
Our six key take-aways are below.
- A new 'no increment' test designed to catch 'killer acquisitions'
- Scope for vertical and conglomerate mergers to be caught
- More scope for 'small mergers' to fall outside UK merger control review
- Mandatory merger reporting for designated tech deals
- Existing thresholds retained (subject to increased, but limited impact, turnover threshold)
- Procedural changes (including to improve timing)
A new 'no increment' test designed to catch 'killer acquisitions'
The CMA will have jurisdiction to review deals where one of the transaction parties has:
- at least a 33% share of supply of
goods/services in the UK or a substantial part of it; and
- total UK turnover of £350 million;
and another transaction party satisfies a 'UK nexus test' (i.e. is a UK company or equivalent, carries on activities in the UK or supplies goods or services in the UK).
This is perhaps one of the most significant of the DMCC's merger control provisions. The 33% share of supply test is extremely broad, and it may be difficult in many deals – including for asset managers with portfolios of varying investments unrelated to a target – to establish that an acquirer could not plausibly have a 33% share on some cut of the market or permutation of supply that the CMA could use to establish jurisdiction. The threshold for the target to have a UK nexus is also extremely low.
Scope for vertical and conglomerate mergers to be caught
The new 'no increment' threshold is not limited solely to dealing with the CMA's concerns over 'killer acquisitions'. It has wider application for deals that do not involve direct competitors, including vertical and conglomerate mergers. Guidance and decisional practice is keenly awaited to see the extent to which the CMA seeks to assert jurisdiction on these grounds in practice (given the voluntary nature of the UK's merger control regime).
More scope for 'small mergers' to fall outside UK merger control review
In addition to an increased turnover threshold (from £70 million to £100 million), a new 'small mergers' safe harbour is introduced. Mergers will be exempt from review where each party's UK turnover is less than £10 million. This provides welcome increased certainty over the application of UK merger control to, among other things, 'foreign to foreign' mergers where both parties have little or no UK turnover.
Mandatory merger reporting for designated tech deals
In a move away from the UK's otherwise voluntary regime, SMS firms (i.e. digital firms designated with 'strategic market status' under the DMCC Act's wider digital regulatory regime) will be required to report their M&A activity where:
- the total deal value/consideration is at least
£25m; and
- the SMS firm increases its percentage of shares or voting rights through certain thresholds (i.e. less than 15% to 15% or more, 25% or less to more than 25%, or 50% or less to more than 50%) in a target that carries on activities in the UK, or supplies goods and services in the UK.
Existing thresholds retained (subject to increased, but limited impact, turnover threshold)
The UK's 'share of supply test' has been maintained in its current form i.e. the CMA can find jurisdiction where the merger would result in the creation or enhancement of at least a 25% share of the supply of particular goods or services in the UK, or a substantial part of it. (The existing conservative Government has previously said that it would monitor the operation of the test, and may consider future reform given concerns raised in response to the consultation about unpredictability in its application.)
As already mentioned, the UK's 'turnover test' has been increased to reflect inflation. The target will need to have UK turnover of over £100 million (increased from the current £70 million) for the turnover test to be met. (Although public interest interventions in media and newspaper cases will remain at £70 million.)
A tailored regime for energy network mergers, to sit alongside the CMA's standard merger control powers, is also introduced (similar in form to the existing regime for water mergers).
Procedural changes (including to improve timing)
The Act introduces a number of changes to the CMA's merger processes, including provision for fast-track Phase 2 references on request from the merging parties and extensions to the Phase 2 timetable by consent of the CMA and the merging parties. Alongside the changes to the Phase 2 process that the CMA has already made, or planned, there are expected to be procedural and timing improvements for mergers referred to an in-depth Phase 2 review process.
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