Will the UK CMA’s changes to its merger rules deliver?
The UK Competition and Markets Authority (CMA) is trying to reduce the impact of its work on legitimate economic activity. It is responding to a strategic steer from the Government that it should use its tools “proportionately, with growth and investment in mind.” The regulator has attempted to distill this into “four Ps”: pace, predictability, proportionality, and an improved process (“4Ps”).
The CMA’s goals are generally laudable, and the 4Ps are good news. However, one of the 4Ps, “pace,” might be a double-edged sword. Competition authorities should act with decisiveness and speed in their reviews of proposed mergers to ensure minimal interference with legitimate economic activity. However, rushing interventions into functioning markets using new ex-ante powers could be an enormous risk. Generally speaking, the CMA should aim to act at a pace that minimises the disruption and risk of unintended consequences in the markets it regulates. Introducing regulations before the perceived harms have occurred risks disrupting competition and chilling innovation in otherwise dynamic markets.
The CMA just closed its consultation into how it aims to translate the 4Ps into concrete changes in the merger regime. Changes in this area are welcome. Last year, companies had to contend with multiple CMA investigations into partnerships in the AI sector, in particular, holding up investments that supported challengers in the market (e.g. Amazon’s investment in Anthropic). None of these partnerships particularly concerned the UK, and it was hard to avoid the sense that the CMA was using those deals as an opportunity to kick the tires on the market as a whole, despite the sector’s evident dynamism and an existing market-level programme that was a much better forum to consider these issues.
Those deals were cleared, but particularly in a sector as fast-moving as AI, the extensive delays, demands for documentation, and other costs associated with a review are the punishment. If companies lose months without the resources that the investment was designed to bring to bear, or deals are just more complex and risky for all parties, then there is a cost, even if relatively few deals are ultimately blocked (the AI partnerships were all cleared).
Research in the United States has found that over-enforcement of merger review led to a sharp decline in acquisitions of smaller startups between 2021 and 2024. In turn this led to consequences for the startup ecosystem: reduced exit multiples; increased shutdowns; and constrained venture capital returns (which will mean less investment available for the next wave of startups).
With that context, the intentions in the CMA merger rules consultation are positive. Unfortunately, the actual rules do not yet live up to that promise and risk significantly increasing the practical burden on parties to a merger.
The significant expansion to the scope of requested internal documents related to “relevant overlaps,” coupled with the lowered materiality threshold to 10 per cent, risks creating a disproportionate administrative burden for merging parties. Parties under scrutiny would be required to produce documents across numerous markets, many of which may not raise competitive concerns, at an early stage of the review process. “Forward-looking assessments,” “pipeline products,” and internal strategy documents are all particularly challenging to produce for startups and international companies (that will find it hard to distinguish between UK-specific and more general information). Given the increased administrative burden that a lower materiality threshold will have on merging parties, the CMA should provide a basis for the reduction to 10 per cent before making such a change. A 20 per cent share of supply threshold would be more proportionate.
The CMA should also amend the guidance notes to the Merger Notice template to clarify that it will engage with merging parties before requesting internal documents, and seek only those related to potential overlaps in markets likely to raise competitive issues. Pre-notification should remain an informal process, documentation (particularly the onerous requirements envisaged in the current proposals) should not be a pre-condition for engagement where that might imperil fast-moving international transactions.
Those issues with documentation are not the only area where changes are important. While clearer thresholds are welcome in the jurisdictional assessment, revising the material influence test to align more closely with the European Union Merger Regulation’s concept of “decisive influence” would enhance predictability. As the Digital Markets, Competition and Consumers Act (DMCCA) expands the CMA’s authority to conduct merger investigations by applying a new “hybrid” test, combining both share of supply and nexus tests, an expansive application of the “share of supply” test is no longer appropriate or necessary in such circumstances.
The CMA’s retooled approach to global merger investigations that prioritises mergers with a UK-specific impact, and deprioritises investigations of mergers that concern exclusively global markets is welcome, particularly when other jurisdictions’ remedies can address UK competition concerns. However, there is not enough clarity regarding the CMA’s “wait-and-see” approach and the CMA should provide additional specific guidance explaining – for example – practical application of this approach and the factors used; how the CMA will engage with merging parties; and how the CMA will coordinate with other National Competition Authorities during ongoing investigations. The CMA could address these shortcomings, in part, by creating an informal process whereby firms can notify the CMA of action taken in other jurisdictions that might address any concerns.
Ministers have set out clear expectations for the CMA aimed at easing barriers to investment and innovation in the UK. The CMA has articulated a promising response to that strategic steer. Translating that into practical policy choices starts now. That includes a proportionate and consumer-centric approach to ex ante regulation, as well. But a vital early test is this consultation. Can the regulator deliver a more proportionate merger regime?
