Legal briefing | |

Brexit: UK and EU merger control from 2021

Overview

This briefing was updated in February 2021. 

The end of the Brexit transition period on 31 December 2020 will make a difference to the way that the UK and EU merger control regimes work. Here's what you need to know:


UK will be outside the EUMR "one stop shop"

While the UK was an EU Member State and during the Brexit transition period, a merger which met the jurisdictional thresholds for notification to the European Commission under the EU Merger Regulation (EUMR) would not usually face scrutiny from any EU member state national merger control authorities, whether in the UK or elsewhere in the EU. Procedurally, this "one stop shop" can be advantageous for merging parties because it avoids having to make multiple filings in different EU jurisdictions. That advantage will continue to be available for mergers affecting EU Member States – but unless the parties' notification has been accepted by the European Commission prior to the end of the transition period, the UK will be outside the EUMR "one stop shop" and the merging parties may need to seek clearance separately from the UK authorities.

WILL FEWER MERGERS BE CAUGHT BY THE EUMR?

For mergers announced or agreed after 31 December 2020, UK turnover will no longer be relevant when assessing whether a merger is caught by the EUMR. This may result in a small reduction in the number of transactions which have to be notified to the European Commission. However, the Commission is not proposing to make any changes to the EUMR thresholds. This suggests that, despite the potential impact of the UK's departure from the EU, it is not particularly concerned about losing the ability to scrutinise larger mergers. That said, if fewer mergers are caught by the EUMR, it is likely to mean that merging parties will have to seek parallel clearance in a number of different EU Member States (as well as, potentially, the UK – see below).

It is also important to bear in mind that after 31 December 2020, even though turnover generated in the UK will no longer be relevant, mergers involving UK firms with turnover generated from the EU will continue to face scrutiny under the EUMR (subject of course to the relevant jurisdictional thresholds being met).


More merger filings will be needed in the UK

After 31 December 2020, we expect that a number of mergers which meet the thresholds under the EUMR will also need to be notified to the UK authorities. The UK Competition and Markets Authority (CMA) estimates that this could mean an additional 30-50 mergers per year needing to be scrutinised. For the CMA, this is a substantial increase in percentage terms (in the order of at least 50% based on the average number of cases over the last three years). However, it is important to emphasise that this increase arises purely as a result of the UK leaving the EU; the jurisdictional tests under the UK merger control regime are not being changed and notification will remain voluntary in most cases (see textbox below).

UK MERGER CONTROL: WHEN DOES IT APPLY?

The CMA has jurisdiction to scrutinise mergers in the UK where:

  • the target has annual UK turnover of over £70 million; or
  • the merger will create or increase a share of supply of 25% or more (i.e. there must be some overlap between the target and the acquiring party).

A lower set of thresholds applies where the merger involves certain military/dual use and advanced technology businesses (i.e. mergers which may raise national security issues) – for more detail, see the following briefings: 

The UK is also in the process of expanding its power to scrutinise mergers regarded as giving rise to national security concerns. Among other things, these reforms will make it mandatory to notify mergers involving certain categories of business. However, for the vast majority of mergers, notification in the UK will remain voluntary.

Could UK merger clearance take longer?

The merger clearance process in the UK is subject to a statutory timetable, which will remain the same after 31 December 2021. This means that, in theory, the end of the Brexit transition period should make no difference to the time taken to secure merger clearance. However, in practice, the CMA will not normally "start the clock" on the statutory timetable until it is satisfied that it has all the information it requires to assess the merger properly. This usually requires an extended period of pre-notification discussions and submission of a draft Merger Notice, for which there is no statutory timetable. As noted above, the CMA is facing a significant increase in its merger caseload and this could have an adverse impact on pre-notification timing. The Government has promised it more resources, which should help - but only time will tell whether this will be sufficient to avoid delays to what is already a lengthy pre-notification process in the UK.

What does the UK-EU Brexit trade deal say about merger control?

The Trade and Cooperation Agreement (TCA) signed by the EU and UK in December 2020 contains provisions requiring the UK and EU to respect certain very high level principles in the field of merger control.  As such, the UK will be free to diverge from the EU, at least as regards issues of relative detail (indeed, as explained above, its national merger control regime has always been somewhat different from the EU Merger Regulation).

These provisions are not subject to the level playing field "rebalancing mechanism" or the general dispute resolution regime of the TCA, which means they would be difficult to enforce in the event of a perceived breach.  However, both the UK and EU have well established merger control regimes and there are no indications of a desire to pursue radical reform.  As a result, we would not expect these areas to provide much of a focal point for future disputes between the parties.

The TCA also provides for the parties' competition authorities to cooperate as regards merger control. Beyond that, however, the TCA will make little difference in practice to merger control and the key issues arising out of the end of the Brexit transition period remain as described above.  For more discussion of the TCA, see our Business-friendly guide to the UK-EU Brexit trade deal.

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