Antitrust authorities stay tough in a difficult M&A market
07 april 2021
Antitrust authorities across the world continued to frustrate transactions at a significant rate in 2020.
A total of 29 deals were either prohibited or abandoned during the year. This represents a 28% decrease in enforcement activity on 2019 due to two main factors:
- a sharp reduction in M&A activity, particularly in the first half of the year as the pandemic took hold
- reluctance by some companies to tackle highly strategic, transformational deals of the sort that would normally attract most attention from antitrust authorities
Overall, we do not believe the lower levels of enforcement in 2020 signal a more relaxed approach by antitrust authorities.
UK leads the pack
We saw record levels of activity in several jurisdictions, once again led by the UK where the Competition and Markets Authority (CMA) frustrated nine deals. This was one more than in 2019, with four deals prohibited and five abandoned.
2020 also saw the CMA increase its interventions in the form of remedies. There were eight phase 1 remedy cases and four at phase 2, compared with four and one, respectively, the year before.
All the signs are that the CMA is continuing on this path, at a time when the UK government is considering calls for the CMA’s enforcement powers to be strengthened and its workload is expected to grow as a result of Brexit (and the consequential disapplication of the EU Merger Regulation’s “one-stop-shop” principle).
U.S. hits a new peak
A peak in challenges by the U.S. antitrust agencies resulted in a record 10 deals being abandoned – double the number seen in 2019 – with one prohibition. This reflects an increased appetite by both the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to intervene.
The election of Joe Biden as President will likely increase this appetite further. A number of sectors are expected to be in the spotlight, including consumer-facing, digital and pharmaceutical companies.
Much will depend on key appointments at the FTC and DOJ, and it might be some time before the impact is fully felt.
EU quiet, China steady
By contrast, EU-level data shows a very different picture. Here there were no prohibited deals and just one transaction abandoned. While there are a number of on-going in-depth reviews, our report suggests that many of these appear more suited to remedy solutions rather than prohibition.
Enforcement activity in China was steady in 2020. The average duration of merger reviews fell, despite the disruption caused by the pandemic.
One consistent trend across the world was a move to establish or strengthen foreign investment controls. This was the case in 17 of the 26 jurisdictions we surveyed.
Digital sector targeted
From a sector perspective, life science transactions were particularly in the frame. They accounted for 22% of deals subject to antitrust intervention, despite accounting for just 8% of total M&A activity.
Transport and infrastructure deals also attracted a high level of attention, representing 9% of interventions while accounting for only 2% of activity. Remedy cases accounted for all this activity. All interventions in this sector resulted in remedies.
But across the world the digital sector has become a priority for antitrust authorities. This is only likely to intensify in the year ahead as reform proposals make their way onto the rulebooks. Although approaches differ, three main areas of focus are apparent:
- introducing new and separate merger control rules for digital firms, a route considered in the UK, U.S., Australia and South Africa
- using deal value thresholds to catch so-called “killer acquisitions” where a major tech firm buys a smaller business to stifle potential future competition
- reframing the way that digital mergers are assessed
Fines and remedies – no sign of easing
Overall, procedural merger control fines reached an unprecedented EUR6.65 billion in 2020. However, almost all of this amount related to action by Poland’s Office of Competition and Consumer Protection (UOKiK) against six energy companies for alleged gun-jumping.
Other fines amounted to EUR53 million compared with EUR145m in 2019, while the number of procedural enforcements (excluding the Polish case) fell from 40 to 33.
We do not believe this dip in the numbers should be read as a signal for companies to relax compliance. Antitrust authorities around the world show no sign of easingup on their activities.
Despite lower levels of M&A activity there was no reduction in remedy cases, which totalled 137 during the year. Of these, 44 were agreed at phase 1, 63 after in-depth reviews and 30 related to transactions in South Africa.
Where remedies are concerned, we find growing evidence of antitrust authorities working together across borders to design compatible packages.
Trends for 2021
Looking ahead, it is clear that a number of trends will be of particular interest:
- continued focus on scrutinising digital deals, as current proposals translate into action
- possible surge in “failing firm” cases, especially in key, vulnerable sectors such as retail and hospitality
- greater clarity about merger control policy in the U.S. as Biden appointees settle into their roles
- growing focus on the impact of common shareholdings on competition
- authorities taking sustainability issues into account in their deliberations
Dealmakers should expect greater scrutiny coupled with more sophisticated merger control assessments.
For more information on our report into Global Trends in Merger Control Enforcement, please get in touch with your usual A&O contact.