Post-Brexit merger control: Care needed on M&A deals in UK mid-market
This January, one of many Brexit-related changes will be the repatriation from Brussels of competition reviews for large M&A deals, explains Andrew Taylor, co-founder at Aldwych Partners.
High profile transactions, such as Google’s plan to buy Fitbit, which are now reviewed by the European Commission, will soon be reviewed by the UK’s Competition and Markets Authority (CMA).
The CMA is predicting a 50% increase in its merger caseload as a result. This will be on top of new transnational cartel cases and any state aid (i.e. subsidy control) regime that the UK agrees with the EC in the coming weeks as part of a trade deal.
A key question for UK business is whether the CMA will keep the same close eye on UK M&A deals given its increased responsibilities, and what this means for how they should engage with the CMA when making an acquisition.
Deciding whether to notify a deal to the CMA already involves a complex balancing of risks and costs, particularly for those acquisitions that are at the cusp of potential CMA interest.
CMA clearance can provide valuable certainty, but it also involves considerable costs. Not only are there fees for advisers and the CMA, there can also be a significant impact on business performance during a CMA review.
Not notifying the CMA can be tempting, and this temptation may well increase if, post-Brexit, the CMA’s attention seems to be on global deals rather than UK transactions.
The downsides to non-notification, however, can be substantial.
Just last week, Ardonagh Group – an insurance broker – announced the sale of Bennetts, a specialist motorcycle insurance broker, following a CMA investigation into its acquisition.
Ardonagh will bear transaction costs from both the purchase and the sale, the cost of the CMA review, and will be a forced seller of the business. All up, it sounds expensive.
The CMA seems alive to the incentives its increased responsibilities could have for UK M&A deals. In setting out its post-Brexit priorities, the CMA has said that it remains firmly committed to promoting competition in those cases that affect only the UK.
The scales clearly have not yet tipped in favour of a more aggressive non-notification strategy for UK mergers. Moreover, it seems likely that the CMA will want to reinforce this message in the new year by calling in a few transactions that might have otherwise slipped through the net.
The time may well be ripe for those in UK mid-market M&A to take another look at the competition risks associated with their acquisition plans.