Top 3 themes for 2021 for the UK Competition and Markets Authority (CMA)
The UK Competition and Markets Authority (CMA) is the UK’s competition and consumer enforcement body and its role has changed significantly since Brexit. This article looks at what to expect from the CMA this year, both based on changes arising from Brexit and on recent case trends, and how these changes could impact your business.
1. Mergers that used to be reviewed by the European Commission will now be reviewed by the CMA
Until 31 December 2020, mergers that satisfied an EU jurisdiction test and UK jurisdiction tests were exclusively reviewed by the European Commission, including any UK aspects to the mergers. This is called the ‘one-stop-shop’ principle in EU merger control, so that merging companies did not need to file for merger clearance in front of several national competition authorities in the EU. This changed from 1 January 2021 for the UK. Any merger involving UK markets or activities can be reviewed by the CMA, irrespective of whether the European Commission is reviewing the merger.
Why does this matter?
Mergers involving overlapping markets in both the UK and the EU face potential parallel review by the CMA in the UK and by the European Commission. This means more costs and regulatory intervention for merging parties. It also means that the CMA will have a 40%-50% increase in its annual merger workload.
2. The CMA is taking an expansive approach to jurisdiction in merger cases
The Enterprise Act allows the CMA broad discretion to claim jurisdiction over mergers that may affect a UK market. It defines a relevant merger situation as where two or more enterprises cease to be distinct and the main jurisdiction test is whether: (a) the UK turnover of the target exceeds £70 million (the turnover test) or (b) the parties supply or acquire at least 25% of a particular good or service in the UK (the share of supply test). These thresholds are supposed to identify mergers that are competitively significant in the UK. Recent years have seen the CMA take an expansive notion of jurisdiction. This has been particularly the case in mergers in software or technology sectors. Cases in the last year suggest that this trend will continue.
The CMA has found a merger situation arising from a minority investment by Amazon of 16% in Deliveroo based on various commercial factors and it did an in-depth investigation of the merger before finally clearing it (Amazon/Deliveroo, August 2020). Previously, an acquisition of such a minority stake would have been considered to trigger a relevant merger situation.
The CMA has found that the share of supply test was fulfilled where the target had minimal UK activity in several cases. The share of supply test gives the CMA more flexibility than EU or US merger authorities that are reliant on turnover tests. The CMA blocked a merger between US businesses supplying IT solutions to UK airlines where the target had only minimal and indirect revenues attributable to UK customers, a few British airways ticket sales (Sabre/Farelogix – April 2020). This was despite the fact that US authorities did not block the merger. In the Roche/Spark case, the target did not have UK sales or customers, but had a number of employees in the UK engaged in R&D activity and this was considered enough for the CMA to have jurisdiction to investigate the merger (Roche/Spark - December 2019).
The CMA has imposed global divestiture remedies on parties in a merger involving secondary ticketing platform services for resale of tickets. The parties both operated globally and were required by the CMA to divest the international businesses of the target outside of North America subject to the CMA’s approval of the identity of the purchaser and the terms of the transaction (Viagogo/StubHub - February 2021).
Why does this matter?
Parties to a merger with a UK connection – however tenuous – need to be aware that the CMA could intervene in their merger. The CMA’s willingness to ban mergers between parties based outside the UK with only minimal UK nexus and to impose global remedies indicates its expansive approach to jurisdiction.
3. Digital matters – the CMA plans to regulate digital platforms
The CMA has made several announcements about its enforcement policy in digital markets. In November 2020, it announced the creation of a Digital Markets Unit (DMU) which will be set up within the CMA to introduce and enforce a new code to govern the behaviour of platforms that currently dominate the market, to ensure consumers and small businesses aren’t disadvantaged. According to the CMA, the new code will set clear expectations for platforms that have considerable market power - known as strategic market status –(SMS) over what represents acceptable behaviour when interacting with competitors and users.
The new unit, which will begin work in April 2021, could also be given powers to suspend, block and reverse decisions of tech giants, order them to take certain actions to achieve compliance with a code of conduct, and impose financial penalties for non-compliance.
In December 2020, the CMA advised that the three key proposed pillars of the regime for SMS firms are:
A new, legally binding code of conduct, tailored to each tech firm and to where the evidence demonstrates problems might occur, designed and overseen by the DMU. The DMU will have a range of powers to address any concerns, including the potential to impose significant penalties for non-compliance with the code.
Pro-competitive interventions (regulatory) interventions allowing imposition of requirement to encourage competition. An example given by the CMA is to impose interoperability requirements on tech firms and better enabling consumers to control and share data.
Enhanced merger rules to allow closer scrutiny by the CMA of any transactions involving SMS firms. This would include mandatory notification regime, a more cautious legal test when looking at the likelihood of harm to consumers in order ‘to address concerns about historic under-enforcement of mergers involving big tech firms.’
Why does this matter?
Even if you are not a digital gatekeeper with Strategic Market Status (likely to be major tech companies only), any businesses involved as customer in digital markets may be impacted by these initiatives. If you are doing anything in the digital or online space and your business model is based on this, these proposals could change how digital markets operate in the UK. Indeed, any behaviour in these markets - whether a merger, acquisition or distribution deal - that impact competition is likely to be subject to scrutiny even before the new SMS regime comes into force.
This year, you can expect an active and interventionist approach from the CMA, especially in any transactions involving digital markets. Even if an acquisition appears to fall outside the UK merger control regime, you should take advice if there is any possible link to a UK market and any potential effect on UK competition in case the CMA decides to review it. This is particularly the case for any acquisitions or deals involving online or platform competition.