M&A more likely to hit anti-trust hurdles in Europe than in China or US
Companies may be better off challenging phase 2 investigations than accepting conditions on a deal at the Phase 1 stage
Companies looking to complete deals in Europe face more stringent anti-trust merger controls than in either the US or China, according to research by global law firm Linklaters.*
The study, which compares merger control enforcement across the EU, US, China, UK, France and Germany over seven years,** has revealed a 6% enforcement rate by the European Commission during this period, which is more than double that of regulators in both the US and China. Indeed, despite common concerns about Chinese merger control, the research has shown that MOFCOM, the Chinese competition authority regulating mergers, had an enforcement rate of only 2.4% - the second lowest of any regulator in the study.***
The higher level of merger control enforcement in the EU – resulting in deals either being quashed or subjected to conditions – may be primarily due to the wider use by the European Commission of Phase 1 remedies, compared with other authorities. The number of phase 1 remedies in the EU was four times higher than in Phase 2.
Merger control systems around the world all have a short first phase, lasting around one month, which acts as a ‘first screen’, after which the deal is either cleared - with or without conditions – or referred for a longer, in-depth ‘Phase 2’ investigation. This second phase entails a more detailed investigation, which can result in a substantial delay to the completion of a deal.
Companies in the EU can more easily avoid this second phase by opting to accept remedies to a deal following the Phase 1 investigation. However, the research has also shown that of those deals that went onto a Phase 2 investigation, 40% of them in the EU, UK and Germany resulted in an unconditional clearance – meaning companies may often be better off fighting a Phase 2 investigation than accepting conditions to a deal at the Phase 1 stage. This is in stark contrast to the substantially lower chance (around 20%) of avoiding enforcement action in the US once a Second Request has been issued by the Federal Trade Commission or Department of Justice.
Gavin Robert, a senior consultant with Linklaters who conducted the research, said:
“These findings give companies planning mergers or acquisitions plenty of food for thought. The findings show that MOFCOM is actually one of the world’s less stringent merger control authorities – flying in the face of what many people commonly think.”
Simon Pritchard, Linklaters competition partner, added:
“The research also highlights that the wider use of remedies in Phase 1 by the European Commission is actually leading to greater merger control enforcement in the EU than elsewhere. Though welcome in helping companies avoid lengthy further investigation, it does raise the legitimate question whether it is leading to conditions being imposed on an unnecessarily high number of deals.”
For more information please contact Rupert Winlaw on +44 20 7456 3219.