Antitrust considerations
UK merger control
US buyers will be used to considering antitrust issues as a standard step in assessing a transaction. However, a significant difference between the UK and US merger control regimes is that the UK has a voluntary notification system. This means that where either of the thresholds for jurisdiction are met, the parties are not mandated to seek clearance before closing of the transaction. This means that even where the transaction may raise antitrust concerns, the buyer can proceed to close without clearance.
The UK's merger control regime is overseen by the Competition and Markets Authority (CMA), which can review a transaction where two or more enterprises cease to be distinct (ie they're brought under common ownership or control). This covers any joint venture or acquisition of shares or assets that give total or partial control over any other entity. The relevant thresholds for CMA review are as follows:
- the target has turnover in the UK of in excess of GBP70 million (the 'turnover test'), or
- as a result of the transaction, the parties have a combined share in excess of 25% of the supply of any goods and services in the UK or a substantial part of it (the 'share of supply test').
Under new legislation which received Royal Assent in May 2024, the threshold for the turnover test will increase to GBP100 million and a new threshold will be introduced enabling the CMA to review transactions with a UK nexus where one party has both a UK share supply of at least 33% and UK turnover exceeding GBP350 million. These changes are expected to take effect in autumn 2024.
The responsibility for notifying the CMA is on the buyer. If the parties choose not to notify for clearance, the CMA has up to four months from the later of closing of the transaction or when the transaction became public to investigate.
If it decides to open a merger investigation, it will begin with a Phase 1 investigation to consider whether the merger raises prima facie antitrust concerns. This investigation technically runs for 40 working days but, when combined with the ancillary and preparatory steps, will likely take a minimum of four to six months, and is often significantly longer. A Phase 2 investigation is a more in-depth review reserved for more contentious mergers.
It should also be noted that merger control proceedings in the UK and EU are administrative proceedings: the competition authorities themselves can take decisions to prohibit a merger and any such prohibition can then be appealed to a court. This contrasts with the US position, whereby the Department of Justice or Federal Trade Commission (FTC) must make an application to court in order to block a merger in the first place.
National Security and Investment Act 2021 (NSIA)
Unlike the US, the UK does not have a specific foreign investment regime; however, the National Security and Investment Act 2021 (NSIA) is designed to consider and assess transactions that may give rise to national security concerns.
The NSIA applies to buyers from any country and has extraterritorial application, meaning it will apply to acquisitions in a non-UK jurisdiction of a non-UK entity which carries on activities in the UK or supplies goods and services in the UK, even if they don't have a direct presence in the UK. In addition, asset deals, IP licensing transactions and internal reorganisations are captured by the regime and clearance may need to be sought before proceeding.
A mandatory notification is required if the target is active in one of 17 key sectors of the economy (including advanced robotics, artificial intelligence, communications, computing hardware, data infrastructure, defence, energy and transport) and where there's an increase of shareholding and voting rights across 25%, 50% or 75% thresholds or the acquisition of voting rights that allows the passing or blocking of a resolution governing the affairs of the entity being acquired.
If closing occurs before mandatory clearance is obtained, the transaction will be void. There could also be substantial fines for non-compliance. If there are no security concerns, a decision will be made in 30 working days from the date that the government accepts the submission.
A voluntary filing can be made if the target falls outside of the 17 key sectors or is active in any sector and there are national security issues. Since it is voluntary, there's no obligation to wait for approval before completing. However, transactions which are not notified but that raise national security concerns might be called-in for review by the UK government.
The EU – merger control and FDI
US buyers will be familiar with the need to consider the potential for multiple merger filings in Europe where both the European Commission and individual Member States operate merger control regimes. Similarly, many EU Member States operate national-level FDI regimes. All will have different thresholds and filing requirements, so buyers will need to ensure that any acquisition doesn't trigger mandatory regimes. It should be noted that if a transaction is examined by three or more EU Member States, there is an obligation to co-ordinate with the EU Commission in order to exchange information.
As an international law firm, we have competition experts in our offices across Europe who can help if you need further advice on the relevant regimes applicable in certain EU Member States.