Skip to content
Aerial view of traffic intersection with intersecting lines
Aerial view of traffic intersection with intersecting lines

Below-threshold deals increasingly face review

Antitrust authorities continue to grapple with how best to ensure that potentially anti-competitive transactions do not escape scrutiny. A solution gaining traction in a number of jurisdictions is to enable authorities to review deals that fall below merger control thresholds.

Calls for greater enforcement have been loudest in the digital and pharmaceutical sectors, where so-called “killer acquisitions” (acquisitions by large players of start-ups or small innovative firms) are, according to antitrust authorities, most prevalent. Unsurprisingly, therefore, this is where authorities and governments have focused their attention.

However, many of the reforms we saw proposed, enacted or confirmed in 2022 are not limited to digital/pharma deals – they could catch below-threshold deals across any sector.

This means increased uncertainty for merging parties. The possibility of review (including post-closing) must be taken into account in both deal documentation and transaction timetables. Risk assessment will inevitably be complex.

New EU referrals policy gets the green light

In July, the General Court upheld the European Commission (EC)’s decision to review Illumina’s acquisition of GRAIL after a referral by the French competition authority. This was the first use of the EC’s revised Article 22 policy, which encourages EU Member States to refer transactions (including completed deals) to it for review even where EU and national filing thresholds are not met.

The EC recently issued guidance on how merging parties can approach it for an indication of whether their deal would be a good candidate for a referral. This route will be helpful, giving parties a degree of comfort and certainty. But only to a point. The EC’s view is ultimately non-binding and cannot fully remove the referral risk.

Digital deals are among the most likely candidates for referral, particularly after the EU Digital Markets Act (DMA) starts to apply. Under the DMA, from 6 March 2024 (at the latest), “digital gatekeepers” must inform the EC (pre-closing) about all transactions involving services in the digital sector or that enable the collection of data. The EC will pass this information to Member State antitrust authorities, which may use it to request an Article 22 referral.

Other likely targets are transactions in the pharma and biotechnology sectors, as well as those involving innovative products or services.

So far, Illumina/GRAIL is the only deal to be captured under the new policy. But with the court’s endorsement, information requirements in the DMA and the fact that some Member States (eg France) are particularly keen to make use of the tool, we expect the EC will take jurisdiction over more below-threshold transactions in the coming year.

Separately, an Advocate General opinion late last year recommended the use of abuse of dominance rules to assess acquisitions by dominant companies that fall below EU and national thresholds. This is significant. If the European Court of Justice follows the opinion, the EC and national authorities will have yet another avenue to pursue below-threshold deals involving dominant firms.

FTC’s revised section 5 policy could catch mergers

The U.S. antitrust agencies already have the ability to review deals that fall below U.S. merger control thresholds.

However, a new Federal Trade Commission (FTC) policy statement threatens to give the agency even more scope to investigate below-threshold transactions. In the statement, the FTC embraces an expansive view of conduct that might amount to “unfair methods of competition” under section 5 of the FTC Act.

It gives several examples such as mergers, acquisitions and joint ventures that have the “tendency to ripen into violations of the antitrust laws” and series of transactions that “tend to bring about the harms that antitrust laws were designed to prevent”. The statement also mentions mergers or acquisitions of a potential or nascent competitor that may tend to lessen current or future competition.

Time will tell how much use the FTC will make of this new policy in the M&A context. To the extent that it does, merging parties face additional risks of divestiture or other remedial action.

Other jurisdictions bolster below-threshold review powers

In addition to the EU and U.S., a number of other jurisdictions have recently proposed or introduced new rules that enable the review of below-threshold transactions:

  • China: the amended Anti-Monopoly Law now explicitly recognises that the State Administration for Market Regulation (SAMR) has the power to investigate a transaction that falls below notification thresholds if there is evidence that it has or may have the effect of eliminating or restricting competition (before, this authority was only provided for in regulations). It suggests that SAMR may more actively investigate below-threshold deals going forward.
  • Italy: new rules allow the Italian Competition Authority to review below-threshold deals (up to six months post-closing) where: (i) only one of the standard turnover thresholds is met, or the aggregate worldwide turnover of the undertakings concerned exceeds EUR5 billion; and (ii) the deal could raise antitrust concerns in Italy.
  • Ireland: the Competition and Consumer Protection Commission (CCPC) will soon have a new power to require parties to notify below-threshold deals that, in the CCPC’s opinion, may have an effect on competition.
  • Japan: in a revised policy document, the Japanese Fair Trade Commission has announced it will actively review non-notifiable transactions.
  • South Africa: recent amendments enable the Competition Commission to request the notification of mergers that fall below the standard thresholds.

Explore the report