Christmas comes early for the CMA

The Most Significant Reform to UK Competition Law for Over Two Decades: The Digital Markets, Competition and Consumers Act 2024 Finally Becomes Law

Wrapped up in legislative prose, this shiny new statute brings gifts of a broadened merger control scope, enhanced consumer rights enforcement powers and a brand-new digital markets regulatory regime to the Competition and Markets Authority (CMA).  However, like with any gifts to the CMA, they come with a timely warning to businesses to review and carefully consider competition (and now consumer and digital markets) compliance.

The Digital Markets, Competition and Consumers Act (DMCC Act) received royal assent on 24^th  May 2024, marking the most significant reform to UK competition law since the Enterprise Act 2002 was enacted over twenty years ago.  This landmark legislation introduces sweeping changes aimed at preventing “killer acquisitions”, enhancing competition, regulating digital markets, and transforming the current consumer rights regime into one with real teeth by giving the CMA serious enforcement powers. 

In this series of articles, we examine the key aspects of these reforms. This first article focuses on the major changes in merger control, followed by our second article, which discusses changes to the Competition Act enforcement.   Our third article will focus on the new regulatory regime for digital markets. Finally, our fourth article will be an examination of the increased powers granted to the Competition and Markets Authority (CMA) for enforcing consumer protection legislation.

Part 1 of 4: Broadened Scope for Merger Control 

The DMCC Act introduces pivotal changes to merger control in the UK, aimed at addressing the evolving landscape of market dynamics and competition, tackling major tech deals and “killer acquisitions”.

In brief, the changes to CMA Jurisdictional thresholds are a “mixed bag” but lead to an overall expansion of scope in a number of important respects.

1. Targeting “killer acquisitions” – Additional new jurisdictional test

A new threshold test allows scrutiny of deals by the CMA where only one party has a significant market presence in the UK i.e. where one of the parties has:

• An existing 33% (or more) share of supply of goods or services in the UK (or a substantial part of it) and
• UK turnover exceeding £350 million.

In such instance, the other party only needs to have some sales to the UK, and the parties’ activities do not need to overlap for the CMA to have jurisdiction to examine the deal. 

This new threshold is intended to enable scrutiny of so-called “killer-acquisitions” i.e. acquisitions by dominant firms of nascent or potential competitors that could become significant market players, widening the CMA’s ability to intervene in deals and representing a significant expansion of scope to CMA jurisdiction.

2. CMA Jurisdiction: Increased Threshold from £70 million to £100 million for Target’s UK Turnover

The turnover threshold for the CMA to have jurisdiction to examine a transaction has been increased from Target company UK turnover of £70 million to £100 million.  However, this change represents a re-alignment rather than a material change, with the rationale being to simply account for inflation, since the threshold was originally set at £70 million in 2002 and so this change is of limited material impact.

3. 25% share of supply test retained

The existing share of supply test i.e. giving the CMA jurisdiction where a 25% share of supply of goods/services in the UK is acquired or increased through the transaction is retained without change.

4. New Mandatory filing requirement for major tech deals

A new mandatory filing requirement is introduced for large firms designated with Strategic Market Status (SMS) under the new digital markets regime.  This requires any SMS firm’s acquisitions to be notified to the CMA where (a) the deal value is £25 million or more and (b) where shares / voting rights in a target that is active in the UK are increased by the transaction across bandings e.g. from below 15% to 15% or more.

The introduction of a new mandatory filing requirement marks a significant expansion of scope and a significant change to the long-standing otherwise “voluntary” nature of the UK merger control regime.

5. De Minimis

Counterbalancing the above-mentioned expansions to scope, a safe harbour has been introduced to exempt deals of small significance to the UK i.e. where each party’s UK turnover is less than £10 million.  

This provision is designed to reduce the regulatory burden on smaller transactions that are unlikely to have a substantial impact on competition, allowing the CMA to concentrate resources on more significant cases.

6. Changes to Procedure, Enforcement and Penalties. 

Companies will be able to request a “fast-track” to Phase 2 investigations, with this being possible at any stage of pre-notification or Phase 1.  This aims to streamline the review process where an in-depth investigation is anticipated. 

Additionally, merging parties and the CMA can agree to extend the deadline of a Phase 2 review without limit, offering more flexibility to the review timetable.

Significant increases in penalties for non-compliance are introduced.  Maximum fines for failing to respond to information requests or providing misleading information have risen to 1% of a company’s annual worldwide turnover (from a fixed cap of £30,000) and/or daily penalties of up to 5% global daily turnover.

Impact and Implications

These changes are expected to enhance the CMA’s ability to prevent mergers deemed to lead to a reduction of competition in markets in the UK, particularly in dynamic sectors like technology and pharmaceuticals, where innovative startups are often targeted by larger incumbents.  The 33% market share threshold ensures that even smaller but strategically important acquisitions come under scrutiny, preventing the stifling of innovation and competition. Conversely, the de minimis threshold helps streamline the process, making it more efficient and less cumbersome for smaller businesses.