Getting to grips with the new landscape in the UK

Dealmakers looking to execute acquisitions involving UK businesses face a new regulatory landscape with the UK’s CMA now having stand-alone merger control jurisdiction and the UK introducing its own national security review process this year. Investors will need to ensure that SPA provisions suitably address the additional risks introduced by these processes.

As of 1 January the UK’s CMA has jurisdiction to investigate mergers previously reserved for the EC. At the same time, UK turnover is no longer relevant for establishing EC jurisdiction and UK-centric deals will therefore be less likely to attract EU scrutiny.

This has a number of implications that deal-makers need to keep in mind:

  1. UK-centric deals may no longer require mandatory merger control approvals, although consortiums where investors each have joint control are still likely to require an EU approval. Stand-alone bidders for UK assets that do not raise competition considerations will thus have a distinct timing advantage.
  2. Deals involving UK targets with material EU revenues that once qualified for EU review now may face filings with multiple national Member State authorities. Consideration will need to be given whether an up-front referral to the Commission provides a faster / more efficient review process.
  3. Bolt-on acquisitions will still face scrutiny with, despite the UK regime’s “voluntary” moniker, the CMA having a very elastic jurisdictional test (able to review transactions where the target generates minor revenues or involving non-controlling shareholdings) and showing an increasing willingness to intervene (in 2019-2020, around 25% of mergers reviewed were referred to Phase 2, of which, around 70% were abandoned, blocked or unwound).
  4. For transactions involving parallel CMA and EC reviews, timetabling will now be more complex with the UK having one of the longest merger control processes in the world (particularly for Phase 1, as compared to the EU process). This will be particularly relevant for deals which may require remedies.

At the same time, the expected adoption of the National Security & Investment Bill brings  new challenges. The regime will involve mandatory and suspensory filing requirements for deals in sensitive sectors including defence, transport, energy, tech and communications. Indeed, the UK government predicts that up to 1,800 deals a year will be reviewed. The legislation will: (a) require that deals closing after enactment obtain prior approval and (b) mean deals closing before enactment are subject to retrospective review. Deal-makers will need to consider:

  1. how best to provide for the imposition of a mandatory approval requirement if closing may occur post-adoption; and
  2. whether early engagement with the relevant Government bodies can mitigate the uncertainty caused by the retrospective call-in powers.

For more on the UK’s NSI Bill please see this client alert as well as our series of podcasts.

Other themes in our series

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Private Equity & Financial Sponsors: Antitrust and Foreign Investment Outlook 2021

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State intervention – here to stay

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UK Takeover Code consultation – is logic prevailing?

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Europe – smoother sailing for many but a word of warning for some

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Impact of Covid-19 on merger reviews

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