The UK Government’s Strategic Steer to the CMA: Impact on UK M&A (Part 2)

Today, the UK government issued its draft strategic steer to the Competition & Markets Authority (CMA) for consultation. 

Our separate blog (The UK Government’s Strategic Steer to the CMA: resetting the priorities (Part 1)) summarises the government’s key directions to the CMA in the steer, and the impact that we think the steer is likely to have on the CMA’s overall approach.  Here we specifically consider what the strategic steer tells us about the future direction of UK merger control and what impact we believe the steer – and the CMA’s reaction to it – are likely to have on M&A activity in the UK. 

What does the strategic steer say in relation to M&A?

While the government’s previous strategic steer had encouraged the CMA to make “full use of its tools for merger control”, the position this year is markedly different. The new steer sends a clear message to the CMA: in discharging its statutory functions, the government expects the CMA to harness its tools to support and contribute to the “overriding national priority” of economic growth. It reiterates the government’s expectation that the CMA’s approach must clearly, and unambiguously, reflect the need to enhance the attractiveness of the UK as a destination for international investment. 

More specifically, in considering which cases to pursue (while the CMA’s merger control functions are, technically, mandatory the voluntary nature of the regime gives it some flexibility to shape its caseload), and/or which remedies to accept, the CMA is directed to: (i) prioritise pro-growth and pro-investment interventions; (ii) focus on markets and harms that impact UK-based consumers and businesses; and (iii) support growth and international competitiveness in the Industrial Strategy’s eight key sectors (advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences and professional and business services).

Moreover, while the previous steer encouraged the CMA to be an international “thought leader”, the government now urges the CMA to consider the actions being taken by competition agencies in other jurisdictions internationally, and to ensure that any parallel regulatory action it undertakes is “timely, coherent and avoids duplication”.

How has the CMA (already) responded?

The CMA (having presumably seen the draft steer) has already set out its intention to make a number of changes, including to:

• Complete the “pre-notification” process before a formal investigation begins within 40 working days (as compared to the current average of 65 and in some cases, longer);
• Approve “straightforward” Phase 1 cases within 25 working days (as compared to the current target of 35); and
• Clarify the approach that it will take to the application of two of the more flexible (and, in recent years, more controversial) aspects of the regime which the CMA recognises create particular uncertainty: the jurisdictional “material influence” and “share of supply” tests.

The CMA also flags other changes in the pipeline, most notably the previously announced review of its approach to merger remedies and an assessment of a “proportionate” approach to looking at global deals (under which it would “wait and see” whether actions taken by other authorities might address concerns in the UK).  A new “Mergers Charter” (to be published in March) will set out the CMA’s commitment to this new approach but will (it is hoped) make clear what will be required from businesses and advisers to give positive and practical effect to these changes.

What are we likely to see from the CMA, both immediately and in the longer-term?

• Quicker and more efficient reviews:  the new Chair of the CMA, Doug Gurr, had already highlighted the need to make investigations and processes “as simple and rapid as possible”. In recent years, deals have been spending increasingly longer periods of time in “pre-notification” – the duration of which has increased to the current average of 65 working days from an average period that was around half that just five years earlier.  The CMA therefore now faces the task of living up to its commitment to get deals “onto the clock” faster (while also trying to ensure that an obstructionist approach to engagement in pre-notification is not “rewarded” – with the CMA already making clear that this change will require the “cooperation of merging parties”).  Once the statutory clock does start, the CMA is eager to reach decisions as soon as possible.  So, in addition to issuing clearance decisions more quickly, the CMA is also likely to be open to solutions (e.g. early engagement on possible remedies) that allow cases with substantive concerns to reach a binding outcome more quickly.
• Engagement, engagement, engagement:  Doug Gurr has committed to engaging “directly and meaningfully” with the business community, with “an open door, open ears and open minds”.  The CMA continues put great weight on its revised Phase 2 process, which provides increased opportunities for engagement with businesses on both competition issues and remedies.  Some of these innovations – such as more senior-level engagement early in the review process, an earlier prioritisation of potential concerns, and the introduction of early “triggers” for remedies discussions – could find a place in the Phase 1 process, which has been criticised for compressing key interactions into the relatively narrow window (of a handful of days) provided by the “issues meeting” process.
• A reduced role on (at least some) global transactions:  there is clearly some dampening in the CMA’s appetite to be seen to be playing a prominent role in multi-jurisdictional mergers.  The suggestion that the CMA could “wait and see” how proceedings in other jurisdictions play out before deciding whether a formal investigation in the UK is necessary was originally highlighted in the refresh of the CMA’s procedural guidance prepared for Brexit (at the end of 2020) but has rarely been used.  The degree of certainty that the CMA is able to provide to merging parties in “wait and see” cases (given the impact that the opening of a CMA investigation at a later stage could have on overall transaction timing) is likely to be key to establishing whether this is a workable approach.  On cases where the CMA does choose to open an investigation (or merging parties choose to notify the deal to mitigate these timing risks), we could see the CMA seeking to make use of its new power to “pause” Phase 2 investigations, subject to the agreement of the merging parties, while the direction of travel in other key jurisdictions (particularly the US and the EU) becomes clearer.
• A “back to basics” approach:  given the focus on encouraging investment, removing regulatory burdens, and improving predictability and certainty for business, the CMA is expected to be less inclined to pursue the more “marginal” cases that have been a high-profile part of its portfolio in recent years.  So, deals that would involve a novel approach to the application of jurisdictional boundaries or pursue “fringe” theories of harm are less likely to be called in for review (or, if they are, referred for in-depth Phase 2 investigations), absent clear and obvious harm to UK businesses and consumers.

More radical changes on the horizon? 

On top of the shorter-term changes announced today, the CMA’s forthcoming review of remedies, now confirmed to be kicking off in March, offers the potential to bring about more significant changes to the “end game” for many transactions.  This review will include looking at an increased openness to behavioural remedies (of the type commonly accepted by the European Commission in recent years), the scope for remedies to play a role in “locking-in” pro-competitive efficiencies (which have been given limited weight in recent years – with the notable exception of Vodafone/Three), and the role of “relevant customer benefits” (which have barely been accepted outside of the very specific context of NHS hospital mergers) to offset any anti-competitive effects.

The CMA’s response also recognises, in several places, that its hands are tied to some extent by the existing law – and notes that it would be for the government to go further through legislative change.  So, while aspects of the UK regime will change, the key statutory tests (on jurisdiction and substance) remain the same. 

There is still no sense that wholescale legislative change is on the agenda, with the government likely to first assess the impact of these initial changes announced by the CMA.  In particular, notwithstanding the rumblings of government dissatisfaction, there is no indication that the government intends to pursue a more active role in individual merger decisions.

So, where does this leave us? 

In recent years, the CMA has established a reputation as a tough and forceful presence on the global merger control scene.  For deals that sit squarely within its centre of gravity (i.e. UK-centric deals with evidence of potentially significant direct harm for UK businesses/consumers), its approach to merger enforcement seems unlikely to soften, although there will be some differences in how those investigations are carried out.  For other deals, there is an opportunity for the CMA to pursue a more “pragmatic” approach (within the limits provided by law) –although not one in which it will wave through every deal with ill-substantiated claims to promote “growth”. The enforcement environment is likely to remain complex, so thoughtful deal planning and execution will continue to be essential.

If you would like to discuss these issues in more detail or respond to (or stay updated on) the consultations on the draft strategic steer, please speak to your usual Freshfields contact.  To read more about our thoughts on the key global merger control trends to be aware of in the coming year, request access to our Navigating antitrust in 2025: 10 key themes publication.