The Enterprise Act 2002 (the "Enterprise Act") provides the primary legislative basis for the UK merger control regime. The Competition and Markets Authority (CMA) is the investigating authority and decision-maker under the general UK merger control regime (see 1.3 Enforcement Authorities). 

The CMA has issued a range of guidance, which is available on its website. Key guidance documents include "Mergers: Guidance on the CMA’s jurisdiction and procedure (CMA2 revised, as amended on 4 January 2022)" (the "J&P Guidance"), and "Merger assessment guidelines (CMA 129)" (the "Merger Assessment Guidelines").

There is no merger control legislation in the UK which specifically addresses foreign investment.

The National Security and Investment Act 2021 (the "NSI Act") entered into full force on 4 January 2022, establishing an investment screening regime distinct from the UK merger control regime (see 4.6 Non-competition Issues).

The Enterprise Act establishes a general merger control regime in the UK (see 2.5 Jurisdictional Thresholds). 

The Enterprise Act also sets out specific jurisdictional and procedural provisions in relation to:

• "Public interest mergers": where transactions give rise to certain public interest considerations, including:
1. the need for a sufficient plurality of persons controlling media enterprises;
2. prudential regulation in the interest of maintaining the stability of the UK financial system; and
3. the need to maintain in the UK the capability to combat, and to mitigate the effects of, public health emergencies.
• "Special public interest mergers": where transactions involve:
1. government contractors that receive or hold confidential defence-related information; and
2. certain newspaper and broadcasting businesses.

The Secretary of State is able to intervene in public interest and special public interest mergers. Further guidance on these types of mergers is included within the J&P Guidance. For the purposes of this chapter, public interest mergers and special public interest mergers are generally not considered further.

Under the general UK merger control regime, the CMA is the investigating authority and decision-maker at Phase 1. At Phase 2, investigations are conducted by a group of independent panel members, supported by CMA staff (see 3.8 Review Process).

Notification is voluntary. There is no general requirement for parties to obtain clearance before completing a transaction. However, the CMA is able to investigate "non-notified" transactions, and has a dedicated mergers intelligence function. This monitors merger activity, and identifies candidate transactions for possible investigation.

Formal Notification

Where the CMA is expected to have jurisdiction to investigate, and the transaction gives rise to prima facie competition concerns, the parties can include UK merger clearance as a condition precedent for completion, and proceed to engage in the process of formally notifying the transaction (see 3.4 Parties Responsible for Filing, 3.5 Information Included in a Filing, and 3.9 Pre-notification Discussions With Authorities).

Informal Briefing Note

If the parties do not consider that the CMA has jurisdiction to investigate, and/or the transaction does not give rise to competition concerns, the parties can bring the transaction to the CMA's attention by submitting a short briefing note. Parties may decide to do this where they do not intend to obtain clearance, but wish to have a degree of comfort that the CMA does not consider the transaction to warrant further investigation.

As a general rule, the CMA will only consider a briefing note once the parties have entered into an agreement in respect of the transaction. In practice, this requires the parties to have considered the application of the UK merger control regime before entering into the transaction agreement. However, completion of the transaction agreement could be made conditional upon the CMA responding positively to the briefing note, and not opening an investigation.

Having received a briefing note, the CMA may request additional information to determine whether to investigate. If the CMA does not investigate the transaction following receipt of a briefing note, the CMA remains able to investigate subsequently (eg, if it receives credible additional information from third parties), provided that it does so within the relevant four-month statutory time limit (see 2.2 Failure to Notify). Further guidance is available in the "Guidance on the CMA’s mergers intelligence function (CMA56 revised)".

As notification is voluntary, there are no penalties for failing to notify.

Where a relevant merger situation is completed without clearance, the CMA is able to investigate (see 2.3 Types of Transactions), and could ultimately require a completed transaction to be undone (see 5.1 Authorities' Ability to Prohibit or Interfere With Transactions).

When investigating anticipated and completed transactions, the CMA is also able to impose interim measures (see 2.12 Requirement for Clearance Before Implementation).

The CMA is able to investigate a “relevant merger situation”, which arises when:

• two or more "enterprises" have either ceased to be distinct, or arrangements are in progress or contemplation which, if implemented, would result in the enterprises ceasing to be distinct; and
• the applicable jurisdictional thresholds are satisfied (see 2.5 Jurisdictional Thresholds); and
• the transaction either:
1. is not completed; or
2. was completed not more than four months before the CMA's decision on whether to refer the transaction for a Phase 2 investigation (the "Phase 2 reference decision"), except where completion occurred without being publicised and without the CMA being notified, in which case the four-month period starts from the earlier of the date upon which completion was publicised, or the CMA was notified (see 2.11 Power of Authorities to Investigate a Transaction).

Concept of an "Enterprise"

Under the Enterprise Act, an “enterprise” is defined as “the activities, or part of the activities, of a business”.

The assets of a business could therefore constitute an enterprise.  When assessing whether assets constitute an enterprise, the CMA will consider whether there is "economic continuity", whereby:

• the assets give the acquirer more than they might have acquired by going to market and buying the factors of production; and
• this "extra" obtained by the acquirer is due to the fact that the assets were previously used in the activities of the target business (see Société Coopérative de Production SeaFrance SA v The Competition and Markets Authority [2015] UKSC 75).

In doing so, the CMA will carefully consider the facts of the case, and have regard to whether the transaction includes the transfer of:

• tangible and/or intangible assets;
• business data (including customer databases);
• employees;
• trade marks, trade names, or domain names; and/or
• goodwill.

The concept of "control" is not limited to legal and de facto control (see the J&P Guidance), but also includes the ability to exercise material influence.

In this latter context, the CMA will assess the acquirer's ability to materially influence the policy of the target business as regards its conduct on the market (eg, its strategic direction and commercial objectives). This ability may arise as a result of shareholdings, board representation, and/or contractual, financial or other arrangements. The CMA consider the commercial reality of the transaction, including the overall relationship between the acquirer and the target business.

As a general rule, the CMA will view a shareholding exceeding 25% as enabling the acquirer to exercise material influence. The CMA will also consider whether a shareholding of 15% or more (and exceptionally, less than 15%) may confer material influence.

Increasing Control in Stages

A transaction that increases the acquirer's level of control (eg, increasing from material influence to de facto control, or from de facto control to legal control) may give rise to a new relevant merger situation.

Where an acquisition takes place in stages, and control is acquired over a number of transactions or events in a single two-year period, the CMA has the discretion to treat these as occurring on the date of the last transaction. In so doing, the CMA can also take into account transactions that are in contemplation.

There are two alternative jurisdictional thresholds under the general merger control regime – the Turnover Test, and the Share of Supply Test.

The Turnover Test

The Turnover Test is satisfied if the UK turnover of the target exceeded GBP70 million in its financial year preceding either:

• completion of the transaction; or
• the CMA’s Phase 2 reference decision, where the transaction has yet to complete.

"Turnover" for these purposes is the amount achieved by the target in the relevant financial year from the sale of products and/or the provision of services in the ordinary course of business in the UK (net of any sales rebates, value-added tax and other taxes directly related to that turnover). Turnover may be adjusted if the CMA considers it appropriate to do so (eg, if an acquisition or divestment following the end of the financial year has materially impacted upon the turnover value).

Specific provisions apply in relation to what constitutes "turnover" where enterprises are (in whole or in part) credit institutions, financial institutions, or insurance undertakings. These provisions are addressed within the J&P Guidance.

The J&P Guidance also details the approach to be taken when calculating the relevant value of turnover to be used in the Turnover Test (eg, in the context of a joint venture).

The Share of Supply Test

The Share of Supply Test is satisfied where:

• at least two enterprises ceasing to be distinct supply or procure goods or services of a particular description; and
• post-transaction, they will supply or procure at least 25% of those goods or services in the UK, or in a substantial part of it, with the transaction causing an increment in that share of supply or procurement.

Significantly, neither enterprise is required to have any turnover in the UK for the Share of Supply Test to be satisfied (see, for example, Roche/Spark), and there is no de minimis increment in the share of supply or procurement (see Sabre v CMA [2021] CAT 11).

In essence, the Share of Supply Test comprises three key elements:

• a product element (ie, the supply or procurement of goods or services of a particular description);
• a geographic element (ie, the UK, or a substantial part of it); and
• a quantitative element (ie, the 25% threshold).

Product element

The CMA has a broad discretion to describe the goods or services supplied or procured by the parties. Whilst the CMA will have regard to any "reasonable description" of a set of goods or services, the Share of Supply Test is not a market share test.

Geographic element

The CMA has a broad discretion to determine what constitutes a substantial part of the UK. The CMA will take into account factors including the size, population, and economic significance of an area. There is no need for a "substantial part of the UK" to constitute a single, undivided geographic area.

Quantitative element

The CMA has a broad discretion to apply whatever measure it considers appropriate to determine the parties' combined share of supply or procurement, and whether this satisfies the 25% threshold.

Consequently, the Share of Supply Test affords the CMA a considerable discretion to assert jurisdiction.

Sector-Specific Jurisdictional Thresholds

As noted within the J&P Guidance, in certain circumstances, mergers involving two or more water and sewerage (or water-only) companies are subject to sector-specific jurisdictional thresholds (see "Water and sewerage mergers: Guidance on the CMA's procedure and assessment, CMA49").

See 2.5 Jurisdictional Thresholds.

See 2.5 Jurisdictional Thresholds.

The jurisdictional thresholds are applicable by reference to the parties' activities in the UK, irrespective of whether the parties are UK entities (see 2.5 Jurisdictional Thresholds).

There is no market share jurisdictional threshold test in the UK (see 2.5 Jurisdictional Thresholds).

The creation of a joint venture, or a change in the ownership or control of an existing joint venture, would be capable of investigation under the UK merger control regime if it constitutes a "relevant merger situation" (see 2.3 Types of Transactions).

The CMA has a period of four months from a completed transaction being publicised or notified to the CMA within which to make a Phase 2 reference decision.

The CMA will consider that a transaction has been publicised by the acquirer where:

• material facts about the transaction have been published in the national or relevant trade press in the UK; and
• the acquirer has itself publicised the transaction, typically by prominently displaying a press release upon its website.

Where the transaction is neither publicised, nor notified to the CMA, the four-month period does not start to run.

As notification is voluntary, there is no general requirement for parties to obtain clearance before completing a transaction.

However, when the CMA investigates anticipated and completed transactions, it can impose interim measures to (i) prevent pre-emptive action being taken by the parties; and/or (ii) require any pre-emptive action already taken to be undone.

Pre-emptive Action

Pre-emptive action is action which might prejudice the outcome of a Phase 2 investigation, or impede appropriate remedial action being taken (see Facebook v CMA [2021] EWCA Civ 701). This could include the parties:

• closing or selling sites;
• failing to retain key employees;
• weakening the independence of brands;
• discontinuing competing products; and/or
• exchanging confidential commercially sensitive information.

The CMA can impose interim measures in the form of (i) an initial enforcement order (IEO) at Phase 1; and (ii) an interim order (IO) at Phase 2. In addition, the CMA can accept interim measures in the form of interim undertakings at Phase 2.

Phase 1 Investigations

The CMA can impose IEOs to prevent and/or undo pre-emptive action, and will generally use its standard IEO template (available from its website). The CMA frequently imposes IEOs in relation to completed transactions, and also imposes IEOs in the context of anticipated transactions.

The CMA can also prevent the completion of the transaction if this in itself could result in pre-emptive action (see, for example, Gardner Aerospace/Northern Aerospace), and the CMA's guidance provides as examples where completion would:

• directly lead to the target business losing key staff, management, or operational capacity; or
• result in significant changes to the acquirer's and/or the target's business that would be difficult or costly to reverse.

The CMA does not typically prevent completion where it imposes an IEO in the context of an anticipated transaction.

Phase 2 Investigations

If the transaction is referred for a Phase 2 investigation, the IEO will remain in force unless the CMA imposes an IO at Phase 2, or accepts interim undertakings from the parties at Phase 2.

In any event, even in the absence of interim measures, where a reference is made for a Phase 2 investigation, the Enterprise Act prevents the parties:

• in anticipated transactions, from acquiring any interest in shares in a company to which the Phase 2 investigation relates during that investigation without the CMA's consent; and
• in completed transactions, from completing any further matters in connection with the transaction, or transferring ownership or control of the target business, without the CMA's consent.

Derogations from Interim Measures

Following receipt of written requests from the parties, the CMA may grant derogations from interim measures, and consent to the parties taking actions that would otherwise be prohibited.

Derogations will not be granted retrospectively (eg, to permit acts that have already occurred) and parties should therefore engage as early as possible with the CMA to discuss any derogation requests they consider to be urgent and necessary (including requests to enable the integration of non-UK aspects of a transaction).

Compliance with Interim Measures

In both anticipated and completed transactions, the CMA will ask the parties to provide information relating to their obligations under interim measures, including: (i) details of action taken before the interim measures were in effect that would not have been permitted under the interim measures; (ii) plans for integration; (iii) management of information flows and the use of appropriate safeguards; and (iv) planned and actual internal and external communications addressing the transaction.

The CMA considers that interim measures are of vital importance to the functioning of the UK’s voluntary regime, and that parties should take a risk-based approach when designing and implementing steps to ensure compliance with interim measures. This requires a thorough review of every area of parties’ businesses to identify any compliance risks, with steps taken to ensure compliance being appropriately tailored to these businesses. 

The CMA will generally require the CEOs of the acquirer and the target business to each provide a compliance statement on a fortnightly basis, confirming that the relevant business has complied with the interim measures over that period.

In addition to the need for the parties to ensure compliance, the CMA may require the appointment (at the parties' cost) of a monitoring trustee, and/or a hold-separate manager, to oversee compliance with interim measures.

The CMA is able to impose penalties for non-compliance. If an addressee fails to comply with any interim measures without reasonable excuse, the CMA can impose a fine of up to 5% of the total value of the worldwide turnover of the enterprises owned or controlled by the addressee. For example, the CMA imposed fines totalling GBP52 million upon Meta for various failures to comply with an IEO imposed in relation to its acquisition of GIPHY.

Guidance addressing the CMA's approach to interim measures, the grant of derogations, and the steps that parties are expected to take to ensure compliance is provided in "Interim measures in merger investigations, CMA108". 

See 2.12 Requirement for Clearance Before Implementation.

See 2.12 Requirement for Clearance Before Implementation.

See 2.12 Requirement for Clearance Before Implementation.

There is no mandatory notification requirement, and no deadline for notification.

There is no requirement for the parties to have entered into a transaction agreement prior to formally notifying a transaction. Instead, the CMA will generally need to be satisfied that there is a good faith intention to proceed with the transaction. 

However, if the parties submit an informal briefing note to the CMA for consideration (see 2.1 Notification), then the CMA will generally only consider this once the parties have entered into an agreement in respect of the transaction.

Subject to limited exceptions, a merger fee is payable when the CMA reaches a Phase 2 reference decision (irrespective of whether the transaction is notified by the parties to the CMA, or is investigated by the CMA on its own initiative).

For cases in which UILs are accepted by the CMA (see 5.4 Typical Remedies) the merger fee is payable upon the CMA’s acceptance of those UILs.

Current Merger Fees

Merger fees vary by reference to the UK turnover of the target in its financial year preceding the transaction. At present, where payable, merger fees are:

• GBP40,000 where the UK turnover of the target was GBP20 million or less;
• GBP80,000 where the UK turnover of the target exceeded GBP20 million, but did not exceed GBP70 million;
• GBP120,000 where the UK turnover of the target exceeded GBP70 million, but did not exceed GBP120 million; and
• GBP160,000 where the UK turnover of the target exceeded GBP120 million.

A merger fee is to be paid within 30 days of the date of the CMA's invoice.

Exceptions

A merger fee is not payable if a transaction is notified to the CMA, but is found not to constitute a relevant merger situation.

A merger fee is also not payable where the acquirer and its group is a small or medium-sized enterprise (as defined under the Companies Act 2006).

No fee is payable in relation to the submission of an informal briefing note (see 2.1 Notification).

Where a transaction is formally notified to the CMA, a so-called "merger notice" may be submitted by any person carrying on an enterprise to which the transaction relates.

The CMA's template merger notice (available from its website) sets out the categories of information to be provided by the parties when notifying a transaction to the CMA. The specific information necessary to assess a given transaction will depend upon the facts of that transaction (including, for example, the parties' activities and the extent to which these overlap). 

The CMA asks that parties prepare and submit a draft merger notice for the purpose of pre-notification discussions (see 3.9 Pre-notification Discussions With Authorities), with this draft including:

• information that the parties consider necessary for the CMA's Phase 1 investigation; and
• brief explanations as to why any information requested in the merger notice template has not been provided. 

The parties may also include submissions in relation to the application of the de minimis exception to enable the CMA to consider whether the case is a possible de minimis candidate (see 4.1 Substantive Test).

Parties should not underestimate the level of detail required to be provided in a draft merger notice. For example, the CMA will typically expect to receive a significant volume of the parties' internal documents, including:

• most recent business plans; and
• documents that:
1. set out the rationale for the transaction; or
2. assess or analyse the transaction with respect to competitive conditions, competitors, potential for growth or expansion, market conditions, market shares and/or the transaction valuation, including post-merger business plans or strategy (including integration plans and financial forecasts).

Requesting Further Information

The CMA is able to request further information from the parties, including information going beyond what is included within the merger notice template. The CMA will generally make a number of requests for further information during the course of pre-notification discussions.

Satisfactory Merger Notice

For a merger notice to be accepted by the CMA as satisfactory (such that the CMA's Phase 1 investigation may commence), the merger notice must include the prescribed information, and confirm that the transaction has been made public.

Merger notices should be provided in English, and the CMA has issued guidance addressing how documents should be submitted (see "Providing documents to the CMA", November 2017).

The CMA's Own Initiative Investigations

If the parties choose not to notify the transaction to the CMA, and the CMA instead investigates on its own initiative (eg, on the basis of publicly available information, and/or customer complaints), the CMA will generally seek information by issuing notices under Section 109 of the Enterprise Act (each a "Section 109 Notice") to obtain the information it requires to progress its investigation. 

Provision of evidence

Section 109 of the Enterprise Act empowers the CMA to give notice to any persons requiring them to provide documents, information, or witness evidence (including by formal interview) by a set deadline. All documents that are responsive to a Section 109 Notice must be submitted to the CMA. Where a party does not meet the stated deadline to respond, the CMA is able to extend the statutory timetable for its review of the transaction (see 3.8 Review Process).

If the CMA investigates on its own initiative, parties may still make submissions regarding the de minimis exception to enable the CMA to consider whether the case is a possible de minimis candidate (see 4.1 Substantive Test).

Penalties are not imposed where parties submit an incomplete draft merger notice. However, the CMA's Phase 1 investigation will not begin until after the CMA has confirmed that it has received a satisfactory merger notice.

It is a criminal offence for an individual to:

• intentionally alter, suppress or destroy any document required to be produced under a Section 109 Notice (see 3.5 Information Included in a Filing); or
• knowingly or recklessly provide false or misleading information to the CMA (or the Secretary of State, see 1.2 Legislation Relating to Particular Sectors) in connection with any of their merger functions.

Upon conviction on indictment, an individual would be liable for a term of imprisonment of up to two years, or a financial penalty, or both.

Administrative Penalties

The CMA can impose administrative penalties in certain circumstances, including where parties intentionally or without reasonable excuse fail to comply with the requirements of a Section 109 Notice (see 3.5 Information Included in a Filing).

The CMA can impose an administrative penalty of up to:

• GBP30,000 (fixed amount);
• GBP15,000 (daily rate); and
• GBP30,000 (fixed amount) and GBP15,000 (daily rate), where the CMA is able to impose both a fixed penalty and a daily penalty.

There are two formal phases of investigation, Phase 1 and Phase 2.

In addition, prior to the commencement of a Phase 1 investigation, where the parties notify a transaction to the CMA they will typically engage in pre-notification discussions with the CMA (see 3.9 Pre-notification Discussions With Authorities).

Phase 1

In a Phase 1 investigation, the CMA has a statutory time period of 40 working days from the commencement of its investigation within which to decide whether its duty to refer the transaction for a Phase 2 investigation is met (see 4.1 Substantive Test).

During this time, the CMA will actively seek comments from interested third parties to inform its investigation (see 7.1 Third-Party Rights). The CMA is able to extend the statutory time period in certain circumstances, including where the parties fail to respond to a Section 109 Notice by the stated deadline (see 3.5 Information Included in a Filing).

Phase 2

In a Phase 2 investigation, the CMA has a statutory time period of up to 24 weeks to conclude its investigation. This time period can be extended, once, by up to eight weeks if there are special reasons why the investigation cannot be completed within this time period. This time period can also be extended if parties fail to respond to a Section 109 Notice by the stated deadline. 

Pre-notification Discussions

In practice, parties are generally expected to engage in pre-notification discussions where they intend to submit a merger notice to the CMA.

Pre-notification discussions are not time-limited, and can last for a number of months in certain transactions. Pre-COVID-19, the average length of pre-notification discussions was 37 working days during the period from 1 April 2019 to 29 February 2020. 

Pre-notification discussions are confidential. However, where a transaction has already been publicised by the parties, the CMA may wish to begin informal market testing during this stage.

Case Team Allocation

Parties that wish to engage in pre-notification discussions should submit a Case Team Allocation Form to the CMA (available from the CMA’s website), and the CMA will aim to allocate a case team for the transaction within five working days. 

Once allocated, the case team will review a draft of the merger notice, and identify any areas where it considers that additional information is required. In practice, it is not uncommon for the parties to receive two (or more) separate rounds of questions before a merger notice is considered to be satisfactory, enabling the CMA's Phase 1 investigation to commence.

Public Interest Concerns

In addition, where a transaction raises potential public interest concerns, parties are generally encouraged to engage with the relevant government departments as early as possible (see 1.2 Legislation Relating to Particular Sectors).

Before the start of the Phase 1 investigation (ie, the 40-working-day statutory time period), parties are required to provide a substantial volume of information and evidence to the CMA, irrespective of whether transactions are notified by using a merger notice, or investigated by the CMA on its own initiative (see 3.5 Information Included in a Filing).

Despite this, parties may also receive detailed requests for information during a Phase 1 investigation, particularly if third parties raise credible competition concerns in relation to a transaction (see 7.1 Third-Party Rights).

During a Phase 2 investigation, in addition to relying upon relevant information received during its Phase 1 investigation, the CMA will request a significant amount of additional information and evidence from the parties.

Where a transaction is subject to other regulatory processes (eg, the City Code on Takeovers and Mergers, or merger control regimes in other jurisdictions), the parties can inform the CMA of any timing constraints, and request that the CMA exercises its discretion to make its decision in advance of the relevant statutory deadline. The CMA is then able to decide whether to exercise its discretion to consent to this request.

Exceptionally, following a request by the parties to do so, the CMA may decide to "fast-track" the assessment of a transaction from a Phase 1 investigation into (i) the consideration of UILs (see 5.4 Typical Remedies); or (ii) a Phase 2 investigation (see, for example, Cargotec/Konecranes).

CMA – Phase 1

At Phase 1, subject to limited discretionary exceptions outlined below, the CMA is required to refer transactions for a Phase 2 investigation where it forms a reasonable belief, objectively justified by the relevant facts, that it is or may be the case:

• that a relevant merger situation has been, or will be, created; and
• if so, that the creation of that relevant merger situation has resulted, or may be expected to result, in a substantial lessening of competition in a market or markets within the UK for goods or services (SLC).

The CMA does not apply market share or concentration thresholds to determine whether a loss of competition is substantial. Instead, the CMA considers that "substantial" in the context of an SLC has a range of meanings, and will depend on the facts of the case.

On the basis of the "is or may be the case" standard, the CMA must make a Phase 2 reference where it believes that a transaction is likely to result in an SLC (ie, a 50% likelihood or more), and the CMA is required to exercise its judgement to decide whether to make a Phase 2 reference when the likelihood of a transaction resulting in an SLC is below 50%, but greater than fanciful. However, the CMA is able to exercise its discretion not to make a Phase 2 reference where it believes the following:

• In relation to an anticipated transaction, the arrangements are not sufficiently advanced, or are not sufficiently likely to proceed, for a Phase 2 reference to be justified.
• The affected market(s) are of insufficient importance to justify a Phase 2 reference (the de minimis exception). For the purposes of the de minimis exception, where the annual value in the UK (in aggregate) of the market(s) in which there is a realistic prospect of an SLC arising:
1. is less than GBP5 million, the CMA will generally not consider a Phase 2 reference to be justified, unless the parties could in principle offer UILs (see 5.4 Typical Remedies);
2. exceeds GBP15 million, the CMA will generally consider the market(s) concerned to be of sufficient importance to justify a Phase 2 reference; and
3. is between GBP5 million and GBP15 million, and it is not possible for the parties in principle to offer UILs, the CMA will consider whether the anticipated customer harm resulting from the transaction is materially greater than the average public cost of a Phase 2 reference (currently circa GBP400,000). In so doing, the CMA will have regard to aspects including:
1. the size of the market(s) concerned;
2. the likelihood of an SLC occurring;
3. the extent of competition that would be lost as a result of the transaction; and
4. the expected duration of the SLC.
• Relevant customer benefits would outweigh the SLC. This discretion has rarely been exercised. For the CMA to exercise its discretion on this ground, it would need to believe that the transaction would benefit customers overall, despite its belief that there is a realistic prospect that the transaction will result in an SLC.

Further guidance on these discretionary exceptions is available in "Mergers: Exceptions to the duty to refer (CMA64)".

In the event that these discretionary exceptions are not applicable, it may still be possible for the parties to offer UILs to the CMA, whereby the CMA will not make a Phase 2 reference if it ultimately accepts the offered UILs (see 5.4 Typical Remedies).

CMA – Phase 2

At Phase 2, the CMA is required to decide on the balance of probabilities whether it is more likely than not:

• that a relevant merger situation has been, or will be, created; and
• if so, that the creation of that relevant merger situation has resulted, or may be expected to result, in an SLC.

If relevant, the CMA must then decide:

• whether any action should be taken to remedy, mitigate, or prevent the SLC, or any adverse effect(s) resulting from the SLC; and
• if so, what action should be taken, and whether this action should be taken by the CMA, or recommended by the CMA for others to take.

The CMA uses market definition as a framework for assessing the competitive effects of a transaction. For this purpose, a relevant market will typically comprise both a product dimension, and a geographic dimension.

At Phase 1, the CMA may undertake an initial analysis of the boundaries of the relevant market without necessarily reaching a conclusion. At Phase 2, the CMA will usually reach a conclusion upon the boundaries of the relevant market.

However, the boundaries of the relevant market are not determinative of the outcome of the CMA's competitive assessment. In particular, the CMA recognises that it may need to consider constraints imposed from outside the relevant market, or as a result of segmentation within the relevant market, or other ways in which certain constraints may be more important.

Competitive Alternatives

The relevant product market will include the most significant competitive alternatives available to the customers of the parties to the transaction. For the purposes of this assessment, the CMA will generally consider evidence including:

• the parties' internal documents (and potentially customers' and/or competitors' internal documents);
• evidence received from the parties' customers and competitors; and
• third-party reporting (eg, industry reports).

As a starting point, in a horizontal merger (ie, where the parties are competitors), the CMA will focus upon the parties' overlapping products in the narrowest plausible candidate product frame of reference. In a non-horizontal merger (ie, where the parties are either active at different levels of the supply chain ("vertical mergers"), or at the same level of the supply chain but without competing ("conglomerate mergers"), the CMA will take at least one party's product as its starting point.

The CMA will then consider whether this product frame of reference can be widened, generally on the basis of demand-side substitution (eg, how the parties' customers would respond to a small, but significant and permanent, increase in product prices (eg, a 5% increase), although the CMA may also consider aspects including supply-side substitution (eg, how existing competitors would respond to a small, but significant and permanent, increase in product prices) (see, for example, Danspin/Certain assets and goodwill of LY Realisations).

In addition, where competition concerns may arise in relation to non-price aspects (eg, product quality, and levels of innovation), the CMA will assess evidence in relation to non-price considerations (see, for example, Provisional Findings in Illumina/Pacific Biosciences of California).

Ongoing Dynamics

The CMA may also have regard to ongoing dynamics when considering a product frame of reference in which competitive conditions are expected to evolve. In this context, the CMA will seek to ensure that the relevant market captures the most significant competitive constraints that currently exist, as well as those that are expected to exist in the future (see, for example, Sabre/Farelogix).

The relevant geographic market will include the geographic area within which  the parties' customers can obtain the most significant competitive alternatives (see, for example, Iconex/Hansol Denmark and R+S Group). For the purposes of this assessment, the CMA will generally consider evidence relevant to demand-side substitution.

Further guidance on the CMA's approach to market definition is provided in the Merger Assessment Guidelines (see 1.1 Merger Control Legislation).

As the CMA's assessment is case-specific, and dependent upon the particular circumstances of the transaction and affected markets, the CMA's decision will be based upon the available evidence. This means that the CMA is not required to follow its own previous decisions.

A transaction gives rise to an SLC where it has a significant effect on rivalry, reducing competitive pressures upon firms to improve their offerings to customers, or to become more innovative or efficient over time. An SLC will therefore be expected to lead to an adverse outcome for customers.

In broad terms, there are three main types of competition concerns that may result in an SLC.

Unilateral Effects

These may arise in horizontal mergers where the transaction removes or reduces the rivalry between the parties (or will remove or reduce expected future rivalry), thereby enabling the combined entity to profitably increase prices, or worsen non-price aspects of competition.

When assessing unilateral effects, the CMA is increasingly focusing upon how closely the parties compete (or would be expected to compete in the future in the absence of the transaction) (see, for example, Provisional Findings in Illumina/Pacific Biosciences of California).

Significantly, where parties are considered to be close competitors, even small increments in market shares as a result of a transaction can give rise to material competition concerns.

Co-ordinated Effects

These may arise in horizontal mergers, as well as non-horizontal mergers, where the transaction either enables firms, or increases the ability of firms, to profitably align or co-ordinate their behaviour tacitly (see, for example, Breedon Group/Cemex Investments).

Vertical or Conglomerate Effects

These may primarily arise in non-horizontal mergers, where the transaction creates or strengthens the combined entity's ability and incentive to use its market power in at least one relevant market to reduce rivalry (see, for example, Meta/GIPHY in relation to vertical effects theories of harm, and Nvidia/Arm in relation to conglomerate effects theories of harm).

Evidence

As noted in 3.5 Information Included in a Filing, the CMA will obtain a substantial volume of evidence during its investigation.

In addition to economic evidence (including customer survey evidence and economic modelling), the CMA is increasingly focusing its analysis in relation to competition concerns upon:

• evidence contained within the parties' internal documents, as well as the internal documents of third parties;
• evidence of the acquirer's methodology for valuing the target business; and
• evidence addressing the anticipated evolution of dynamic markets, and the parties' expected positions in the absence of the transaction.

Further guidance on the CMA's approach in relation to the assessment of competition concerns is provided in the Merger Assessment Guidelines (see 1.1 Merger Control Legislation).

The CMA is able to consider transaction-specific economic efficiencies in its substantive assessment. Where efficiencies are claimed, the parties will need to provide compelling evidence that these are:

• timely, likely and sufficient to prevent an SLC from arising; and
• specific to the transaction (ie, such that they could not be achieved in the absence of the transaction).

The types of efficiencies the CMA generally expects to consider can broadly be categorised as:

• supply-side efficiencies, whereby the combined entity is able to supply products to customers at a lower cost post-transaction; and
• demand-side efficiencies, whereby the combined entity's products or services are more attractive to customers post-transaction.

Where parties intend to claim efficiencies, they are encouraged to engage with the CMA as early as possible in relation to these aspects.

Under the general merger regime, the assessment of a transaction is undertaken on competition grounds. In this context, when assessing whether relevant customer benefits would outweigh an SLC (see 4.1 Substantive Test), environmental issues may be considered in individual cases (see Merger Assessment Guidelines, paragraph 8.21).

In relation to public interest mergers, a transaction may be assessed on the basis of public interest considerations (potentially in addition to competition grounds). Special public interest mergers are assessed on the basis of public interest considerations only (see 1.2 Legislation Relating to Particular Sectors).

The NSI Act (see 1.2 Legislation Relating to Particular Sectors) introduced an investment screening regime to the UK, which is applicable to certain "domestic" and "foreign" transactions, and exists in addition to the UK merger control regime. The NSI Act enables the UK government to review a wide range of transactions on the basis that these may give rise to risks to national security, with specific transactions affecting 17 sectors requiring mandatory notification and clearance pre-completion (see, for example, "National Security and Investment Act: guidance on notifiable acquisitions"), and other types of transaction capable of being reviewed by the UK government at its election, or being voluntarily notified by the parties. If a transaction falls to be assessed on both competition and national security grounds, the Investment Security Unit (which is responsible for the administration of the NSI Act) will work closely with the CMA to manage the case (see "Guidance - The National Security and Investment Act alongside regulatory requirements").

The CMA does not apply special considerations in the context of the substantive review of joint ventures under the UK merger control regime.

At the end of a Phase 2 investigation, if the CMA considers that it is more likely than not that a transaction results in an SLC (see 4.1 Substantive Test), it will identify remedies which effectively address the SLC and its adverse effects.

In practice, this means that the CMA is able to impose remedies at the end of a Phase 2 investigation, including prohibiting an anticipated transaction, or undoing a completed transaction.

Parties are able to offer remedies to address competition concerns in the context of Phase 1 and Phase 2 investigations, as well as during pre-notification discussions (see 5.4 Typical Remedies).

In practice, parties are unable to negotiate remedies with the CMA, and it is for the CMA to decide whether to accept any remedies offered by the parties.

Where a given transaction is expected to result in competition concerns, parties will typically consider at an early stage the extent of the possible remedies that they would be required to offer (eg, to avoid reference for a Phase 2 investigation), and how these remedies would affect the commercial viability of the transaction.

When determining a remedy, the CMA is required to have regard to the need to achieve as comprehensive a solution as is reasonable and practicable for the purpose of remedying, preventing or mitigating the SLC and any adverse effects resulting from it.

Phase 1

If a transaction satisfies the test for a Phase 2 reference, the CMA is able to exercise its discretion to accept undertakings offered by the parties in lieu of a Phase 2 reference (UILs) where these are appropriate to remedy, mitigate, or prevent the SLC. The CMA cannot impose UILs upon the parties.

To accept offered UILs, the CMA needs to be sufficiently confident that these would resolve the identified competition concerns. This is because once the CMA accepts UILs, it ceases to be able to refer the transaction for a Phase 2 reference.

Offered UILs must therefore be capable of timely implementation, and be "clear-cut", meaning that:

• there must not be material doubts about the overall effectiveness of the UILs to address the identified competition concerns; and
• it must be feasible to implement the UILs within the Phase 1 timetable (see 5.5 Negotiating Remedies With Authorities).

Restoring competition

The CMA's starting point is to seek to ensure that offered UILs would restore competition to the level that would have existed in the absence of the transaction.

On this basis, the CMA's preference is for UILs to take the form of structural remedies (ie, divestment), and the CMA is extremely unlikely at Phase 1 to consider behavioural UILs to be sufficiently clear-cut.

Divestment

Where a divestment is to be made, the CMA will generally expect this to relate to the acquired business. However, the CMA will consider the divestment of aspects of the acquirer's business if this does not present a greater risk in relation to addressing the SLC. In determining the scope of a divestment, the CMA will seek to identify the smallest viable, standalone business which can compete successfully on an ongoing basis. Depending upon the transaction, this could be a single site, or a number of sites, or a business division, or a subsidiary, or the acquired business in its entirety.

At Phase 1, unless the CMA considers there are reasonable grounds for not doing so, the CMA will generally require that a divestment is made to an "upfront buyer" (ie, a purchaser approved by the CMA, who has contractually committed to acquire the divestment business). If an "upfront buyer" cannot be identified, the CMA remains able to refer the transaction for a Phase 2 investigation.

Phase 2

At Phase 2, the CMA's preference is also for structural remedies. Whilst parties may offer remedies, the CMA is ultimately able to impose remedies.

Further guidance in relation to remedies is available in "Merger Remedies (CMA87)".

See 5.2 Parties’ Ability to Negotiate Remedies and 5.4 Typical Remedies.

Phase 1

Before offering UILs, the parties are able to consider the CMA's reasons for identifying an SLC (the "SLC decision").

Offering UILs

The parties have up to five working days after receipt of the SLC decision to offer UILs to address the SLC.

Offered UILs, together with the parties' proposed draft text of the offered UILs, should be formally submitted using the CMA’s Remedies Form for Offers of UILs, and the CMA’s UILs template (available from the CMA's website).

If UILs are offered, the CMA has until the tenth working day after the parties received the SLC decision to decide whether the offer (or a modified version) might be acceptable.

Modified offer

Where the CMA proposes a modified version of the offer, it will ask the parties if they agree to this, and the parties will have a short period of time to confirm whether they wish to offer the modified UILs.

If the CMA decides that the offered UILs might be acceptable, it will inform the parties, and publish a non-confidential version of its decision that the UILs may be acceptable in principle.

The CMA will then undertake a detailed assessment of the offered UILs, and must decide whether to accept these within 50 working days of the SLC decision (with this time period capable of extension by up to 40 working days, if the CMA considers there are special reasons for doing so, including in the context of an upfront buyer) (see 5.4 Typical Remedies).

Public consultation

During this period, the CMA must publicly consult on the offered UILs, and provide third parties with a period of at least 15 calendar days in which to comment. If the offered UILs are modified, a second consultation of at least seven days will be required (unless the modifications are immaterial).

If the offered UILs are considered acceptable following the consultation(s), the CMA will request that the parties sign the UILs, after which they will be accepted by the CMA.

The CMA will announce this acceptance, and publish the UILs upon its website.

Phase 2

If the CMA reaches a provisional finding of an SLC, it will consult on possible remedies, and will consider remedies proposed by the parties and third parties, in addition to its own proposals.

Following this consultation process, the CMA will prepare a remedies working paper, which assesses different options and sets out the CMA’s provisional decision on remedies.

The parties will receive the remedies working paper, and will generally have at least five working days to respond to this. The CMA may also consult third parties in relation to the proposed scope of remedies (and can publicly consult where deemed necessary).

Final report

Following this engagement on the remedies working paper, the CMA will make its final decision on the competition issues, and any remedies, which is published in a final report on its website.

Following publication of the final report, the CMA may choose to implement remedies by accepting undertakings (where offered by the parties), or otherwise by making an order, and the intended form of the remedies will be subject to consultation.

The CMA has a statutory deadline of 12 weeks following its final report to either accept undertakings, or to make an order (with this time period capable of extension by up to six weeks, if the CMA considers there are special reasons for doing so).

See 5.4 Typical Remedies and 5.5 Negotiating Remedies With Authorities.

Where a divestment has an "upfront buyer" requirement (see 5.4 Typical Remedies), the acquisition of the divestment business by the "upfront buyer" will be conditional upon the CMA's acceptance of UILs, or undertakings at Phase 2.

In the context of a "non-upfront buyer" divestment, the parties will be required to:

• obtain the CMA's approval of an appropriate purchaser to acquire the divestment business; and
• conclude a sale agreement with that purchaser.

The parties will generally be required to conclude the sale agreement within a relatively short time period (eg, three months), which will be set out in the context of the remedy.

If the parties cannot identify an appropriate purchaser within this time period, the CMA will generally be able to appoint a monitoring trustee to sell the divestment business at no minimum price.

Interim Measures or Undertakings

Where interim measures or undertakings are in place (or the transaction has been referred for a Phase 2 investigation), provided that the parties are able to obtain the CMA's consent (see 2.12 Requirement for Clearance Before Implementation), it would be possible for a transaction to be completed whilst the divestment process is ongoing.

If a party breaches any remedies, the CMA can commence civil proceedings to enforce the remedies in question (eg, by seeking an injunction). Affected third parties can also commence civil proceedings, including for damages.

A formal, confidential version of the CMA's merger decision (at Phase 1 and/or Phase 2) is provided to the parties, with third parties' commercially sensitive information excised.

In addition, a formal, non-confidential version of the CMA's merger decision (from which commercially sensitive information will be excised) will be published on the CMA's website, and announced via the Regulatory News Service.

The CMA does not distinguish between transactions concerning only UK-based entities, and foreign-to-foreign transactions. Subject to satisfying the applicable legal thresholds, the CMA is able to impose remedies and prohibit foreign-to-foreign transactions.

The CMA will generally not consider whether a transaction-related restriction constitutes an ancillary restraint, on the basis that the parties are able to self-assess this aspect.

The CMA actively seeks comments from third parties when investigating a transaction, including in the context of remedies (see 5.5 Negotiating Remedies With Authorities).

The CMA is also able to use its information gathering powers under Section 109 of the Enterprise Act to obtain evidence from third parties (see 3.5 Information Included in a Filing). 

See 7.1 Third-Party Rights.

Where the parties submit a merger notice, they are required to confirm that the transaction has been publicised before the merger notice can be accepted by the CMA as satisfactory (see 3.5 Information Included in a Filing). This is as the CMA will actively publicise the transaction during the course of its investigation (see 7.1 Third-Party Rights).

The parties are able to request that commercially sensitive information remains confidential, and the CMA will provide the parties with an opportunity to request the excision of such information from a range of documents published by the CMA in the context of its investigation.

Where the CMA is investigating a transaction that is subject to investigation in other jurisdictions, the CMA will generally seek to co-operate with other investigating competition authorities, but will maintain its independence in relation to decision-making (see, for example, Cargotec/Konecranes, which the European Commission cleared, but the CMA did not).

However, the Enterprise Act places certain restrictions upon the CMA's ability to exchange confidential information, and the CMA would therefore be expected to obtain the parties' consent to exchange such information.

Pursuant to Section 120 of the Enterprise Act, a party aggrieved by a decision in relation to the reference or possible reference of a transaction can apply to the Competition Appeal Tribunal (CAT) for a review of that decision.

The CAT's review is limited to applying the same principles as would be applied by a court on an application for judicial review. This means that the CAT's examination is confined to the lawfulness of the decision.

The CAT cannot substitute its own decision on the merits of the case, but can either dismiss the application or quash the decision (in whole or in part). If the CAT quashes the decision, it will refer the matter back to the original decision-maker with a direction to reconsider and make a new decision, as directed by the CAT.

Parties wishing to appeal a point of law arising from the CAT’s judgment can apply to the Court of Appeal of England and Wales (the "Court of Appeal"), with the permission of either the CAT or the Court of Appeal.

Any application for review by the CAT must be made within four weeks of the earlier of the date on which (i) the applicant was notified of the decision; or (ii) the decision was published.

There is no fixed timetable for the CAT's review. The CAT will generally regard applications to review a decision relating to a merger as meriting a high degree of urgency.

Aggrieved third parties can challenge clearance decisions (see, for example, IBA Health v OFT [2003] CAT 27).

The UK government intends to introduce a merger control regime applicable to technology firms with strategic market status (SMS). Amongst other aspects, this regime would require SMS firms to notify the CMA of certain transactions pre-completion, with the CMA then able to decide whether to investigate.

The UK government also intends to introduce various reforms to the general UK merger control regime, including in the context of the CMA's ability to investigate (see 2.5 Jurisdictional Thresholds) by:

• increasing the applicable value for the Turnover Test, so that this is satisfied if the UK turnover of the target exceeds GBP100 million;
• introducing a new jurisdictional threshold, enabling the CMA to investigate transactions with an appropriate link to the UK where at least one of the parties has (i) an existing share of supply of goods or services of 33% in the UK, or in a substantial part of the UK; and (ii) a UK turnover of GBP350 million; and
• introducing a "small merger" safe harbour, with transactions being exempt from review where each party’s UK turnover is less than GBP10 million.

In recent years the CMA has referred a relatively large proportion of transactions for Phase 2 investigations, resulting in a significant number of transactions either being (i) abandoned by the parties; (ii) subject to remedies; and (iii) being prohibited.

The CMA continues to focus upon "non-horizontal" theories of harm (eg, vertical and conglomerate effects), as well as theories of harm arising in the context of dynamic markets (see 4.4 Competition Concerns).