The UK’s Competition and Markets Authority (the CMA), Australia’s Competition & Consumer Commission (the ACCC) and Germany’s Bundeskartellamt, three national authorities with primary responsibility for implementing their respective national merger control laws, recently issued a joint statement expressing their concerns that:
- there are high levels of concentration across various markets in each country;
- there is a marked increase in the number of merger reviews involving dynamic and fast-paced markets; and
- the need for effective merger control remains important where our economies are weakened, in particular in a fast-developing digital world impacted by the Coronavirus (Covid-19) pandemic.
The national authorities are concerned that there have been changes in the nature and complexity of mergers that present them with challenges to preventing further concentration from anti-competitive mergers over the longer term. These ‘challenges’ are described as follows:
- the authorities “face a difficult challenge when taking a view on future market positions and company actions and the forward looking nature of merger control review will always mean competition agencies face some uncertainty when making such decisions”;
- mergers in dynamic and fast paced markets can involve hundreds of products or services in related markets, as well as products and services in earlier research and development stages;
- technology markets can be examples of highly concentrated markets with features such as high barriers to entry due to network effects and the last decade has seen the rise of “acquisitive tech giants”, so that market power in these markets is easily created or entrenched and is likely to be long-lived;
- incumbents may seek to protect their market position by acquiring smaller firms or potential competitors in adjacent markets, where absent the transaction entry or expansion by both of the parties may have resulted in new or increased competition between them;
- a merger may result in long-term structural change and clear loss of rivalry rather than pro-competitive synergies;
- competition agencies must review and test the advocacy put forward by law firms and economists representing the parties;
- competitors may be reluctant to provide agencies with information that may jeopardise their relationship with the merged firm – particularly if that firm will be a key customer or supplier; and
- customers (who are often unrepresented or not heavily engaged in the review) are a disparate and disaggregated group that are often not well placed to coordinate to represent their interests.
Essentially the three agencies appear to be saying that they are sceptical of parties’ claims of efficiency benefits, and in particular sceptical of strongly advocated submissions made by expert advisers, and authorities (and courts) should be testing that advocacy. In addition, they consider that agencies, courts and tribunals should be aware of the risk of accepting the parties’ views over those of competitors, customers and consumers simply because they are more engaged in the merger review process; and protecting competition may require the prevention of problematic mergers rather than the acceptance of submission relating to purportedly procompetitive benefits that are difficult to verify and predict (seeming to say that they prefer to make ‘Type II’ errors than ‘Type I’ errors, i.e. prohibit potentially procompetitive mergers rather than permit anti-competitive mergers). The three agencies also reconfirm that competition authorities strongly prefer structural remedies to behavioural ones.
The joint statement seeks to highlight that there is “a common understanding across competition agencies”, however it represents the view of these three authorities and it was not a joint statement with the European Commission or the US authorities for example. It must be relatively uncontroversial economics that downturns lead to increases in concentrations as businesses and sectors contract, and only the strongest performers survive. Nevertheless, the UK, Australian and German merger control authorities seem to be pushing back against this logic and suggesting that such consolidation may be an issue in itself.
It seems that these three merger control authorities have been somewhat concerned by reviewing mergers in “dynamic and fast-paced markets”, and perhaps they consider, without giving examples, that they may have made mistakes in allowing certain transactions. What is certain is that, for these three jurisdictions at least, merging parties are likely to have a harder time getting deals through, particularly in fast moving sectors, where ‘killer acquisitions’ are a risk, such as tech and pharma.
We have extensive experience advising clients in digital, technology and pharma sectors and obtaining merger control approvals from the CMA. If you have any queries about any of the issues raised in this article please get in touch with Chris Worrall, Noel Beale or your usual Burges Salmon contact.
the need for effective merger control remains important where our economies are weakened, in particular in a fast-developing digital world impacted by the Coronavirus (Covid-19) pandemic