Author
Essentials
On 1 January 2025 the merger control provisions of the Digital Markets, Competition and Consumers Act 2024 (DMCC) came into force. Although the regime remains ‘voluntary’ with respect to notifications (other than in respect of entities designated as having Strategic Market Status (SMS) – see below), the new provisions make a number of changes to the UK merger control jurisdictional thresholds that define when the Competition and Markets Authority (CMA) can investigate and potentially take action in relation to a transaction.
Turnover thresholds
There is much speculation about the extent of the practical impact of the turnover threshold changes, but the general view seems to be that they will lead to:
- increased scrutiny for deals involving large acquirers (with a view to preventing ‘killer acquisitions’):
- one party has UK turnover of £350m or more and share of supply of 33 per cent or more and another party has a ‘UK nexus’ (the precise meaning of which remains to be clearly articulated); or
- SMS entities (see below); and
- modest reduction in potential scrutiny for mid-range transactions (turnover threshold for the acquired entity increases from £70m to £100m).
Share of supply test
The share of supply test remains largely unchanged.
This means that the CMA will continue to be able to investigate transactions where it considers that they create or enhance a ‘share of supply’ (which the CMA has considerable freedom to define) in a substantial part of the UK (which can be quite small) of 25 per cent or more.
However, there is a new exception to this which is where each of the parties’ UK turnover is £10m or less.
De minimis
In addition, it is worth noting that the Competition and Markets Authority has recently significantly amended its approach to assessing whether a market is not of sufficient importance to justify a detailed (phase 2) review, referred to as ‘de minimis’. This now applies to transactions where the total annual value in the UK of the relevant market(s) concerned is less than £30m.
Where this is the case the CMA may use its discretion not to investigate further depending on: (a) whether revenue is an appropriate basis to assess the size of market (including whether it is growing or contracting); (b) whether the transaction is potentially one of many and there may be cumulative effects; and (c) the nature of the potential detriment to competition (having regard to the CMA’s latest annual set of priorities).
Other changes
Phase 2
The two key changes here are: (i) the ability of parties to ‘fast track’ to phase 2 for mergers that clearly raise issues that will need to be addressed in depth, thereby saving the considerable time and effort of going through the phase 1 process; and (ii) allowing extensions of the phase 2 process to add flexibility, for example, where complex remedies are contemplated.
Increased procedural penalties
Fines for failing to provide information or providing misleading information will increase from the current £30k to 1% of annual worldwide turnover and additional daily penalties of up to 5% of daily worldwide turnover. These fines have rarely been imposed in the past, however, the increase in the potential fine and thus deterrent effect may well make them a tool the CMA uses more frequently in the future, so parties will need to take even greater care over the information they provide.
Strategic Market Status
(This section skates over the detail and potential complexities of SMS designation and the potential regulation –’conduct requirements’ and ‘pro-competitive interventions’ – that may be imposed on those designated in order to highlight briefly the implications from a merger control perspective.)
What is SMS?
The CMA may designate a firm as having SMS where in a digital market it has:
- substantial and entrenched market power; and
- a position of strategic significance.
Only the largest digital firms are expected to be designated as having SMS.
What is the significance of SMS designation from a merger control perspective?
A firm designated as having SMS (and any member of its corporate group) must report in advance to the CMA any acquisition of shares or voting rights which exceed thresholds of 15%, 25% or 50%, where the value of its consideration (or contribution to a joint venture) is £25m or more, and the target has a ‘UK nexus’.
The CMA has five working days to decide whether the report is complete and then a further five working days to decide whether to open an investigation and could require the transaction to be kept on hold until its investigation is complete.
Conclusion
The DMCC changes to the UK merger control jurisdictional thresholds reflect the growing concerns about large businesses, particularly in the tech/digital sectors, and their potential to limit competition through acquisition strategies that prevent competitors developing independently. This reflects the nature of the sector where innovation can result in substantial switches of market share in short periods of time and concerns that this may be stifled by incumbents.
If it would be helpful to discuss any of the impacts of these changes, please get in touch with Noel Beale or your usual Michelmores contact. We have considerable experience in helping companies navigate the complexities of UK merger control and have a very successful track record in advising on these issues.
Author