Member Article

The UK government has proposed legislation (Digital Markets, Competition and Consumers Bill - Parliamentary Bills - UK Parliament) that would materially affect merger control for transactions.

This comment addresses the proposed changes that would be of concern to those engaged in mergers affecting local markets. The timetable for when the proposed legislation would be adopted has not been announced but we suggest the government’s ambition is that adoption occurs this calendar year, and preferably prior to the start of Q4.

The proposed legislation introduces an additional new test for mergers, namely, if the purchaser prior to the transaction (i) already holds a ‘share of supply’ for goods or services in the UK of at least 33% and (ii) its UK turnover is at least £350 million, then the proposed transaction will be reviewable by the CMA. It is noteworthy that this is regardless of whether or not there is a market overlap between the activities of the purchaser and the target. What this means is that more local market mergers are likely to be reviewable. This would be the case, for example, for a PE firm wishing to scale-up a business through acquisition, but because the PE may already pass the 33% threshold in relation to market X, any acquisition by this PE firm in relation to any market is reviewable.

By way of tangible example, the vast majority of veterinary practices in the UK have a turnover of less than £10 million (source Veterinary activities: enterprise turnover 2021 Statistic Statista). Under the current regime the acquisition of such a small local market business would not be reviewable because it would not have a turnover in the UK of at least £70 million (the current test) and so also not at least £100 million (the revised threshold under the proposed legislation). Also, under the current legislation, its transactions would not be reviewable unless and until such time as the purchaser had built a share of supply, such that as a result of the transaction it exceeds 25%. That 25% share of supply could be at the national, regional or local level. In the CMA’s investigation of eight separate acquisitions of veterinary practices in the UK by IVC, the CMA claimed jurisdiction in each case because both parties had an overlap locally and the combined market share was more than 25% (Independent Vetcare Limited (IVC) / multiple independent veterinary businesses merger inquiries - GOV.UK (www.gov.uk)). Under the proposed legislation, it is possible that these acquisitions might have been considered earlier given that at least one of the entities that control IVC might already have a share of supply of 33% in the UK unrelated to veterinary services. This would have allowed the CMA far earlier to consider any possible conglomerate aspects of the acquisitions.

The practical outcome of the above for PE firms and the like looking to scale through acquisition of businesses active in local markets is that the regulatory burden is likely to be lower if either (a) scaling-up occurs before the new legislation comes into effect, or (b) the purchaser is more understated about its ambitions in any sector so limiting regulatory curiosity and, preferably, more focused on avoiding local market overlaps when considering its transaction targets.

 

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