By Jonathan Parker and Greg Bonné
As the UK Competition and Markets Authority (CMA) prepares to assume sole jurisdiction for UK competition reviews post-Brexit, private equity deal teams must evaluate the competitive consequences of deals bridging the Brexit period and update their competition strategy accordingly.
What is Changing?
The European Commission (EC) currently acts as a one-stop-shop supranational authority for large transactions that meet Europe-wide competition turnover thresholds, obviating the need for competition filings in individual Member States. However, post-Brexit, transactions impacting competition in the UK and the EU will become concurrently reviewable, i.e., the CMA will review UK aspects and the EC will review European aspects. A significant increase in the number of UK merger reviews carried out by the CMA is likely — the CMA believes that Brexit could result in a further 50 notifications per year, nearly doubling its current workload.
Why Does it Matter?
Timing for the establishment of the CMA’s separate jurisdiction is uncertain. At the earliest, jurisdiction could be effective immediately after the UK leaves the EU on 29 March 2019. A two-year stay is also possible, depending on the terms of separation. The period building up to the CMA’s separate jurisdiction is likely to be the trickiest for deal teams to navigate. PE firms may not be able to implement the same merger control strategies as in the past.
In contrast to the EC regime, the UK merger regime is voluntary, and is likely to remain so post-Brexit. However, there is a real risk that the CMA could request that deals be notified to it (if an EC review is ongoing pre-Brexit), or call-in the deal for review post-completion (if the EC process concludes after CMA jurisdiction is established). Further, the CMA may be more proactive in requesting that UK aspects of transactions be referred back from the EC. Alternatively, the CMA might be unwilling to agree to merging parties’ requests for referrals from Member State authorities up to the EC, in order to preserve the UK’s ability to review the transaction. Deal teams should be alert to resulting additional costs and/or delays to the deal timetable.
What Should Deal Teams Do?
PE firms should consider pre-notification discussions with the CMA pre-Brexit (before the CMA has jurisdiction) in order to ensure that a merger control filing can be progressed immediately post-Brexit. PE firms could submit a briefing paper to the CMA’s mergers intelligence committee, stating why the transaction does not raise UK competition concerns and need not be notified. Briefing paper submission has been possible for two years, but CMA practice is evolving — deals now need to be signed (on a binding basis) or completed prior to a paper being accepted. This is to prevent merging parties obtaining a backdoor steer on antitrust risk for deals that are not sufficiently advanced.
Alternatively, PE firms could submit a reasoned submission to the EC, requesting that UK elements of the transaction be immediately referred to the CMA. This would utilise a formal mechanism usually reserved for transactions that trigger an EC merger filing but have a particular nexus on one or two Member States — such that it makes sense for the transaction to be reviewed in that country. Such referrals are currently rare, but in our view, in the build-up to Brexit, the EC may take a more pragmatic approach in accepting such requests, even if the UK aspect is not the major part of the deal.