The UK Competition and Markets Authority (CMA) has identified “roll-up” acquisitions (the acquisition of several targets in the same sector) by financial investors, such as private equity firms, as an enforcement priority.  In this post, we discuss the CMA’s enforcement focus, its recent decisional practice, and implications for merging parties.  The main takeaways are:

  • The CMA is looking out for roll-up acquisitions, particularly those in consumer-facing sectors, such as healthcare, through its mergers intelligence function.
  • The CMA has “called in” transactions that completed many months (and in a recent case, almost a year) earlier and identified competition concerns that have resulted in investors having to divest businesses they had already acquired.
  • The CMA has applied its jurisdictional “share of supply” test creatively and expansively to capture transactions that, on first glance, fall below the UK thresholds.
  • Financial investors should consider engaging advisors early to assess the risks involved in UK transactions, how those risks can be mitigated, and how to allocate risk in transaction documents.

CMA’s enforcement focus

The UK has a voluntary merger control regime: there is no duty to notify a transaction to the CMA, even when the jurisdictional thresholds are met.  As a result, parties can complete transactions without notifying the CMA. 

The CMA, however, has a duty to track merger activity and can “call in” transactions that it believes[1] may pose competition concerns (even after they have completed). [2]  The CMA’s mergers intelligence unit actively monitors press reports, trade publications, and other sources of information (e.g., from competitors, customers, and other regulators). 

In a panel on 27 March 2023, Sarah Cardell, Chief Executive of the CMA highlighted the role of the mergers intelligence unit and said that the CMA has “[t]aken quite a conscious strategy” to look out for “roll-up” acquisitions.[3]  In addition to picking up these cases, she said that the CMA wants to “make sure the boardrooms are aware of the kind of deals that should or shouldn’t be going ahead” and that it is “sending a clear message this is a sector … going to come in for very close scrutiny”.

In terms of prioritisation, Ms. Cardell said that a particular focus for the CMA will be sectors that matter to consumers.  She highlighted the veterinary sector as an example where recent consolidation, driven in part by private equity acquisitions, has led to an “absolutely huge drop” of the proportion of independent veterinary practices in the UK from around 89% in 2013 to around 45% in 2021.

CMA’s recent decisional practice

The CMA has recently investigated a number of “roll-up” acquisitions in the dentistry and veterinary sectors, including VetPartners/Goddard, [4] Riviera/Dental Partners Group,[5] Portman/Dentex,[6] IVC/multiple independent veterinary businesses,[7] and Medivet/multiple independent veterinary businesses. [8]  The acquirer in each of these cases is controlled by one or more private equity firms.

The CMA conducted a detailed analysis of each local area affected by the transactions and identified competition concerns in each case (see also the summary table below): [9]

  • In the majority of these cases, the CMA “called in” the transaction for review after completion.  And in one case, the acquisition had completed almost a year before the CMA launched its investigation.[10]
  • The CMA applied its jurisdictional “share of supply” test expansively.  The share of supply test requires the CMA to demonstrate an overlap between the parties’ activities and that the transaction creates or strengthens a 25% share of supply or purchases in the UK or a substantial part of the UK.  The CMA applies this test creatively and flexibly, to capture transaction that would not meet the test when applying a traditional market share analysis.  In the cases above, the CMA measured shares by reference to the parties’ shares of practitioners, by shares of sites, and by shares of NHS-funded treatments in locally defined areas.
  • The CMA defined local areas by reference to distances/drivetimes from the relevant clinics/practices.  In a few cases, the parties had high shares in the local areas even though their national or regional shares were relatively low.
  • The CMA reviewed the parties’ internal documents closely to establish whether they are consistent with the stated rationale of the transactions. [11]
  • In all the cases, the CMA identified competition concerns and the parties had to offer divestment remedies in at least some of the local areas to secure Phase 1 clearance.
  • In half of the cases, the CMA required the parties to identify upfront buyers for the divestment assets (i.e., it would not accept the parties’ remedies unless and until they could find an approved purchaser).

Implications

Given the CMA’s enforcement priority, “roll-up” deals in consumer-facing sectors (e.g., healthcare) can expect heightened scrutiny.  Transactions with the following characteristics, in particular, could more likely attract the CMA’s attention:

  • A series of small transactions in the same sector within a year or so;
  • Transactions in sectors that are already concentrated or have seen significant consolidation over recent years;
  • Transactions in sectors that have already faced competition law scrutiny, including antitrust and merger control investigations; and
  • Transactions in sectors where competition takes place in local markets.

Conversely, transactions that involve business-to-business markets may have a lower risk profile than consumer-facing markets.

In terms of substantive assessment, although direct overlap remains the most likely to raise scrutiny, the CMA has shown an increased interest in vertical and conglomerate effects, and on future or dynamic competition.  Transactions in innovative and fast-growing markets, in particular, require careful analysis and assessment.

Accordingly, financial investors should consider engaging advisors early to assess the risks involved in UK transactions, how those risks can be mitigated (e.g., through the proactive submission of a briefing paper to the CMA), and how to allocate risk in transaction documents.

CMA recent investigations into “roll-up” acquisitions in the dentistry and veterinary sectors

CaseDate[12]Were the transaction(s) already completed?Did the CMA “call in” the transaction(s)?Did the CMA identify competition concerns?Did the CMA require an upfront buyer (if applicable)?
VetPartners / Goddard28 April 2022YesYesYesYes
Riviera / Dental Partners Group23 August 2022YesNoYesNo
Portman / Dentex3 February 2023NoNoYesNo
IVC / multiple independent veterinary businesses17 February 2023YesYesYesYes
Medivet / multiple independent veterinary businesses18 May 2023YesYesYesInvestigation ongoing

[1]              The test is whether the CMA believes there is a “reasonable chance” that the test for a reference to an in-depth investigation will be met: Guidance on the CMA’s intelligence function, December 2020.

[2]              The CMA has four months from (a) the date of completion or (b) the date on which material facts about a transaction are made available to the CMA or made public (whichever is later) to decide whether or not to launch an in-depth investigation.

[3]              Spring Enforcers Summit, “Panel: Challenges in Merger Review”, 27 March 2023.  The panel was specifically discussing roll-up acquisitions involving private equity firms.

[4]              ME/6967/21 Completed Acquisition by VetPartners Limited of Goddard Holdco Limited, Decision on relevant merger situation and substantial lessening of competition, 28 April 2022.

[5]              ME/6990/22 Completed acquisition by Riviera Bidco Limited of Dental Partners Group Limited, Decision on relevant merger situation and substantial lessening of competition, 23 August 2022.

[6]              ME/7017/22 Anticipated acquisition by Portman Healthcare (Group) Limited of Dentex Healthcare Group Limited, Decision on relevant merger situation and substantial lessening of competition, 3 February 2023.

[7]              ME/7022-7033/26 Completed acquisitions by Independent Vetcare Limited (IVC) of multiple independent veterinary businesses, Decisions on relevant merger situation and substantial lessening of competition, 17 February 2023.

[8]              ME/7022/22, ME/7046-7051/23, ME/7053/23, ME/7055-7060/23 Completed Acquisitions by Medivet Group Limited of 17 independent veterinary businesses.

[9]              Other than Medivet/multiple independent veterinary businesses where the CMA’s Phase 1 investigation is ongoing.

[10]            In IVC/multiple independent veterinary businesses, the CMA considered that materials facts about the acquisitions completed between 16 September 2021 and 22 March 2022 were not made available to it until after the parties responded to its request for information on 22 August 2022.

[11]            See e.g., VetPartners/Goddard, at paragraphs 24-27.

[12]            This is the date of the CMA’s Phase 1 decision.