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Faster short form filings (even in China), but longer review periods for complex deals

Competition authorities are getting faster at reviewing no-issues deals (even in China) reducing the impact of the regulatory approvals process on deal timetable. However, complex reviews such as bolt-on deals in the PE and financial sponsor context are taking much longer.

First the good news: merger authorities in the “big three” jurisdictions - EU, China and the US - have become faster at approving “no-issues” deals, which represent the vast majority of PE and financial sponsor deals:

Jurisdiction % of deals with no-issues Linklaters experience of typical simplified review period Fastest review in Linklaters’ experience
EU 73% of deals notified as “short Form CO” 4-6 weeks 18 days (1-day pre-notification, 17 days on the clock)
China 82% of deals approved under simple case procedure 4-8 weeks 15 days (2 days pre-notification, 13 days on the clock)
US 78% of early termination requests granted 2-3 weeks 5 days

On the other hand, the timeframes for review of complex deals (i.e. bolt-ons) which raise significant antitrust issues, are taking considerably longer or, in extreme cases, may even be abandoned. For example, Celanese and Acetow (a portfolio company of Blackstone) abandoned their proposed joint venture to combine their activities in the highly concentrated market for speciality materials used in the manufacture of cigarette filters after the EC opened an in-depth investigation into the proposed merger.

Ten years ago, a six-to-nine month merger review timeframe was usual for a complex transaction. Today, the review periods have almost doubled. In 2018, the average duration of in-depth reviews (from announcement of the deal to the date of decision) amounted to 10.5 months in the US, 13.5 months in the EU and 18 months in China (and in some cases, much longer).

The principal reason for the extended review periods on both sides of the Atlantic is increased scrutiny by the competition agencies as a result of:

  • expansive theories of harm (for example, in relation to “innovation” theories, a resurgence of vertical and co-ordinated effects theories of harm) and most recently, a concern in relation to “killer” acquisitions;
  • significant document and data requests - in the EU this trend has translated into requests for hundreds of thousands of internal documents. Until recently, this was only common in US second requests; and
  • growing concern around transactions involving sectors perceived to be sensitive or where industrial policy considerations are important (especially in China, but increasingly in the EU e.g. mergers in the tech sector). 

Longer review periods have been accompanied by an increased use of “stop the clock” decisions by the EC, pursuant to which the review is suspended for several weeks or even months (Qualcomm/NXP, Bayer/Monsanto, E.ON/Innogy and Dow/Dupont where the EC stopped the clock twice in each case). SAMR often asks the parties to pull and refile so that the lengthy review periods can start afresh.

Looking ahead, we expect to see simplified review periods stay broadly static – we doubt there is much appetite in China or the EU to aim for clearance in two or three weeks to match the US. Looking at the more complex deals, we suspect that the only way is up in terms of review timelines driven by increasingly politicised merger processes and the accompanying volume of documents which authorities will want to review.