The UK Government’s responses to its consultations on ‘Reforming competition and consumer policy’ (April 2022) and ‘A new pro-competitive regime for digital markets’ (May 2022) included three proposals to amend or add jurisdictional or reporting criteria for the UK merger control regime. These would give the Competition and Markets Authority (CMA) oversight of a wider range of mergers if implemented. The reforms will be included in the Digital Markets, Competition and Consumer Bill which is due to be published in draft form in the 2022/2023 Parliamentary session (the Draft Bill). It is not expected to be introduced to Parliament before the 2023/2024 session at the earliest.
In this article, we summarise the proposed jurisdictional changes to provide an overview of what the new rules may look like in advance of the Draft Bill being published.
The standard regime – proposed changes to turnover thresholds
Under current rules, mergers are notifiable in the UK if:
- the target’s UK turnover exceeds £70 million (the turnover test); or
- the merger results in the creation of, or increase in, a 25% or more combined share in the UK of goods or services of any description (the share of supply test). This requires both parties to have activities that overlap. The CMA has considerable flexibility to define the relevant goods or services and these do not need to constitute a relevant economic market. It is not therefore a market share test.
The upcoming reforms will raise the turnover threshold from £70 million to £100 million. The Government will also introduce a small merger safe harbour, exempting mergers from review where each party’s UK turnover is less than £10 million. This is a welcome development for small and micro enterprises.
The proposed new regime for so-called ‘killer acquisitions’
In recent years there has been much debate about the risk of ‘killer acquisitions’, particularly in digital markets and the pharmaceutical sector. The theory of harm is that a large business may decide to acquire a smaller growing rival with the intention of preventing the smaller rival from competing with them. The risk is that the acquirer may decide to ‘kill’ the rival’s business post-acquisition, reducing competition in the market. In practice, it can be difficult to distinguish such a merger from a pro-competitive acquisition where the large business intends to develop and grow the smaller rival, using its greater resources. In some cases ‘killer acquisitions’ are not caught by existing jurisdictional tests in the UK as the target turnover is below the turnover test threshold and, if the acquirer does not have an overlapping business activity, the share of supply test may not be met.
To address this, the Government proposes to introduce a new threshold that would allow the CMA to review acquisitions by large companies, which may not otherwise meet the standard jurisdictional thresholds. The proposal is that the CMA will also have jurisdiction to review mergers where the acquirer has both:
- an existing 33% share of supply of goods or services of any description in the UK; and
- £350 million of UK turnover.
The proposal would not be limited to certain sectors—it would apply to all markets.
This is a significant reform, and the Government acknowledges that it received “mixed” responses from consultation respondents. One concern is that the CMA could use the new threshold to call in mergers where the target has little or no presence in the UK. The Government has indicated that it will introduce a UK nexus criterion to ensure that only mergers with an appropriate link to the UK will be captured, but details of what this would involve have not yet been provided.
The proposed new reporting regime for SMS firms in the digital sector
As we have previously reported, the Government is proposing to introduce a new digital regulatory regime targeted at a small number of firms designated as having Strategic Market Status (SMS) in relation to specific digital activities. As part of this regime, the Government will require SMS firms to report their most significant transactions to the CMA prior to completion. This will apply when:
- the SMS firm acquires at least a 15% equity/voting share after the transaction;
- the value of the SMS firm’s holding is over £25 million; and
- the transaction meets a UK nexus test.
This will not change the CMA’s thresholds for establishing jurisdiction (as described above), but will provide the CMA with greater visibility over SMS transactions. The proposal is for the CMA to undertake an initial assessment of the merger to determine whether to look into it further, for example by requesting further information, launching a merger investigation, or both. It is not yet clear how burdensome this process will be or how much information the CMA will expect SMS firms to provide when reporting a transaction—it may be that a short briefing suffices, or it may be that the CMA feels unable to make a determination until something closer to a full merger notification has been provided.
The UK’s move towards greater oversight of digital mergers is consistent with the trend in Europe and elsewhere. In the EU, the introduction of the Digital Markets Act (DMA) and new guidance on Article 22 of the Merger Regulation (Article 22 Guidance) will likely have a similar effect. The DMA will require online “gatekeepers” to inform the European Commission of intended mergers in the digital sector. Under the Article 22 Guidance, the European Commission may then invite Member States to refer the merger to it for investigation.
The detailed proposals are due to be published in the Draft Bill during the 2022/2023 Parliamentary session. If enacted, the new jurisdictional thresholds will result in considerably more mergers qualifying for review under the UK merger control regime and/or to be reported by SMS firms to the CMA. It will become even more important for merging parties to develop a CMA strategy early on in the transaction.
 Lower turnover thresholds apply for businesses operating in specified sectors.
 See further Levy, Mostyn and Buzatu, Reforming EU merger control to capture ‘killer acquisitions’ – the case for caution (July 2020).
 Text of the agreement on the Digital Markets Act (May 11, 2022), Article 14.
 The Article 22 Guidance explains that the European Commission intends to depart from its past practice by accepting referrals of merger cases where the referring Member State does not have jurisdiction. This is intended to catch “transactions where the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential” and “in particular transactions in the digital and pharma sectors.” Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases (March 26, 2021).