Our previous article on the DMCC focused on consumer law, this update highlights the key changes to UK competition law (Pillar 2) introduced by the DMCC:

• Merger Control Thresholds – raising the target turnover threshold for CMA review and bringing transactions with a significant UK nexus within scope of CMA merger review.
• Stronger investigatory powers – including increased evidence-gathering powers and the ability to demand information held outside the UK where a breach impacts competition on UK markets.
• CMA Market Investigations – the CMA can run “trial” remedies before determining a final set of remedies and amend existing remedies that the CMA considers are ineffective at remedying the adverse effect on competition.

A further update, later this month will look at digital markets (Pillar 3).

Merger Control Thresholds

The DMCC raises the turnover threshold for CMA review of the target in a transaction from £70 million to £100 million. This updates the thresholds and provides a certain respite for business hitting the thresholds in markets where competition is already healthy.

It also introduces a new test that allows the CMA to review any transaction where one party has:

• Annual UK turnover of at least £350 million.
• At least a 33% share of supply.
• And has a nexus to the UK.

The UK nexus element of the test is to be broadly interpreted and includes companies which carry out activities in the UK. It is primarily aimed at “killer acquisitions” and mergers between non-competitors with a specific impact on UK markets. It allows for a review of the impacts of such mergers in the UK as corollary to the review in place at EU and nation level across the EU Member States.

The DMCC also provides for a “safe harbour” which exempts smaller mergers from review where both parties’ UK turnover is below £10 million. This safe harbour removes an element of uncertainty that arises from share of supply test and will ultimately save costs on competition self-assessment for these smaller UK businesses.

Certain mergers in the digital sector will be subject to Mandatory notification – discussed further in our upcoming Digital Markets update.

Stronger Investigatory powers and fines

The DMCC provides the CMA with stronger evidence-gathering powers, additional powers of seizure from domestic properties and the ability to interview any individual, including those not connected with the business under investigation. There is also a a new duty to preserve documents – which applies in circumstances where a person knows or suspects that relevant documents may be required.

Maximum fines for failing to cooperate with investigations will increase. Companies can now face penalties of up to 1% of their annual global turnover (up from £30k) and an additional 5% (up from £15k/day) of daily global turnover for ongoing non-compliance. Individuals may now be fined up to £30,000, with daily penalties of £15,000.

The CMA's extraterritorial jurisdiction will be extended to allow it to investigate antitrust breaches and demand information from companies outside the UK. This power applies where it is suspected that the activities affect UK trade or the companies hold information outside of the UK that relates to suspected infringements in the UK.

CMA Market Investigations

The CMA may now accept undertakings from businesses at any stage in the market investigation process. This may ultimately facilitate expedited reviews, and be welcome to business.

The will also be able to run 'trial' remedies with businesses for a period before determining a final set of remedies.

Companies that breach CMA commitments, directions, or orders may incur civil penalties of up to 5% of annual worldwide turnover, plus daily penalties of up to 5% of daily global turnover for continued non-compliance.

The package of remedies applicable to market investigations is welcome. While arguably early remedies may undermine the rigour with which the CMA tests particular theories of harm. It is to be hoped that the ability to run trial remedies will improve the effectiveness of future CMA Orders.

What should businesses do now?

New merger control thresholds, extraterritorial investigative reach, and harsher fines for non-compliance with investigative measures may impact transactions timings. All but the smaller businesses considering M&A activity will need to factor CMA engagement into their transaction strategy in the earliest course.

Businesses should be prepared to deal with CMA's new arsenal of powers when engaging with their competition and market investigations.

Consider whether your in-house team requires updated DMCC-specific training, in particular legal, deal teams and those active in concentrated markets.

DACB's competition team is experienced in advising clients and navigating them through any engagement with the CMA and international regulators. Our expertise leads to proactive commercial advice to clients on compliance, and the design of optimum transaction structures to reduce regulatory friction.