(Bloomberg) —
A more muscular approach to mergers has thrust the U.K.’s competition regulator into the spotlight and demonstrated its determination to be just as tough on dealmakers as its counterpart in Brussels.
The Competition and Markets Authority has emerged as one of the most active regulators globally in probing mergers, say lawyers. So far this year, the CMA has provisionally blocked Facebook Inc.’s acquisition of Giphy Inc. and JD Sports Fashion Plc’s purchase of smaller rival Footasylum Plc, for the second time.
The London-based watchdog is finding its feet since it took on extra powers to probe big international deals that were under the exclusive remit of the European Commission’s antitrust regulator pre-Brexit. The CMA has shown that it’s not afraid to intervene in deals that other key antitrust authorities are happy to push through, like the abandoned merger of Taboola.com Ltd. and Outbrain Inc.
“It’s served as a warning shot to global dealmakers that the U.K., always influential in European Commission decision making, will continue to play an important role in policing international mergers post-Brexit,” said Michele Davis, a lawyer at Freshfields in London.
Nvidia Corp.’s takeover of Arm Ltd. is being investigated by the CMA and the U.K. government because of “serious competition concerns” about the deal. British crowd-funding platforms Crowdcube and Seedrs terminated their merger after an in-depth CMA probe this year.
“This is an unprecedented period for the CMA,” the regulator said in a statement to Bloomberg. The new responsibilities it’s acquired since Brexit and steps the U.K. government has taken to bolster its powers “will enable us to take swifter, stronger action against companies which break the law and to tackle tech giants whose market power is a threat,” the CMA said.
The current chance of surviving one of its in-depth probes is low. Nearly 70% of deals subject to their phase-two investigations from January 2019 through September 2021 resulted in prohibition, unwinding, or abandonment of the deal, according to analysis by law firm Linklaters. That compares to only 30% from the regulator’s formation in late 2013 until the end of 2017.
“The CMA’s increasingly expansive use of powers to call in and review deals is creating a more challenging environment for international purchasers and investors,” said Sharon Malhi, a lawyer at Freshfields.
And the regulator’s strength is only set to grow. The U.K. government has plans to give the CMA new powers to block a wider range of takeovers including so-called “killer acquisitions,” where big tech companies buy small startups before they can grow. Proposals also include powers to fine companies for not complying with investigations.
“It’s certainly one of the merger-control regulators that most of our clients are wary of,” said Dominic Long, a lawyer at Allen & Overy in London.
The approach has also provoked responses from free-market advocates. The Washington-based Competitive Enterprise Institute and Adam Smith Institute, based in London, submitted joint comments to the CMA, accusing the regulator of overreach in its rejection of the planned Facebook-Giphy deal.
“This amounts to an assertion by the CMA that it intends to act as the world’s policeman of mergers and acquisition activity — a role that is clearly outside the scope of the CMA,” they said.
(Updates with comment in eighth paragraph)
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