La Mort Subite. The Case of Holmes vs. Poirot

Business travel is no longer carte blanche. This last week, Platypus pined for the Eurostar and had to settle for armchair amphibian. Inspired by M&A league tables in the Economist – gratis copies in the virtual Premier lounge! – Platypus unpacked its signature stat of deal mortality, and took a cross-Channel look at deals that did not survive (blocked, unwound, abandoned) over the last 11 quarters since the start of 2018 at the level of the UK and EUMR regimes.

How, Platypus wondered, would the body count discovered by Sherlock H. in the alleys around Bloomsbury stack up against the tally of the formidable grey cells of Hercule P. in Le Quartier Madou? The results are elementary.

The ratios show that, in the period, the UK regime

• saw almost 3x the number of transactions that did not survive to the end
• is associated with deal mortality by deal value around 8-10x that on a per capita/GDP basis of the EUMR regime.

That said, the period clearly includes one large outlier prohibition in the UK, Sainsbury’s/Asda (and, to a lesser degree, an unusually large EU prohibition, Siemens/Alstom), so we also report results with these two high-profile deals excluded as (ex largest).

Stripping these out, the UK regime deal mortality total is around 30% of the EU’s and the average target turnover per deal is less than 10% that of the EU: $194m to $2.0bn. Still, on a per capita/per unit of GDP basis, that’s twice the EU rate per capita and two-thirds larger relative to regime GDP.

Methodology

Deal mortality by volume is easy to calculate: it’s just the number of deals blocked, abandoned or (in the UK) unwound.

Deal mortality by value is more complicated. Using deal value in terms of announced purchase price works if this is public (not always) and an acquisition of sole control rather than full mergers and JVs (not always). Larger complex mergers/JVs can include assumptions of debt and equity ratios that inhibit clear comparisons across deals. Instead, the chosen value metric for acquisitions is target turnover in the prior year, converted into US dollars (for full mergers or JVs, it’s the smaller party, broadly consistent with UK turnover rules). This approach gives a proxy of the incremental effect of each relevant concentration. The value is then aggregated across all deals to arrive at total deal mortality value (DMV).

Due the outlier effect of the largest deal, we also report the DMV results excluding the largest deal in the UK (Sainsbury’s/Asda, 2019) and EU (Siemens/Alstom, 2019) sets, respectively with the (ex largest deal) results. The size of the circles are not to exact scale but indicative of relative target turnover of the largest deal and other deals for each jurisdiction.

And because the UK’s population and GDP is a fraction of that of the EU’s, we also compare deal mortality in terms of total deal value (aggregate target turnover of all deals that did not make it) on a per capita and per unit of GDP basis, using World Bank data.

Note that, in principle, a % of deal mortality value (or ratios across jurisdictions) can also be used as proxy for consumer welfare savings if (as the CMA’s impact assessment approach does) one were to assume that (i) all intervention decisions are correct and (ii) abandonments count the same as prohibitions.

Finally, the sample size and/or 2 ¾ year period used can fairly be criticised as small/short. However, one could equally criticise an approach that treats the CMA period from 2014-2020 YTD as one undifferentiated period for merger control. On any view, the public enforcement narrative has changed since, say, late 2017. Taking the 2014-20 period in aggregate produces blended results that do not seem very meaningful or realistic; 1 January 2018 therefore seemed, on balance, the best starting date. Platypus welcomes thoughts on this issue.

Platypus intends also to visit regimes more comparable in size to the UK, but for now, the trip to Brussels was the quickest and easiest from London (aided by a world-leading case search page on DG Comp).

Platypus would welcome crowdsourcing comments or criticism of the above at platypus@linklaters.com as we continue to refine analysis of our signature stat.