Part One: Increasing regulation and what it means in practice for deal making
Our global analysis of the regulatory landscape for M&A
Few jurisdictions have escaped the impact of a changing regulatory environment, whether it be in the form of new regimes, or the expansion of existing ones. For global dealmakers, this means navigating an increasingly complex environment and ever-shifting ground rules. Some changes across the main regulatory areas have been significant and their impact on M&A far-reaching.
Antitrust
Antitrust regulation of M&A, also known as competition or merger control, involves parties notifying transactions to antitrust authorities for approval where they meet certain thresholds, for example, based on revenue or market shares. Antitrust authorities review those transactions to ensure they do not harm competition by leading to higher prices, reduced quality or less innovation. Antitrust authorities can either clear deals unconditionally, clear them conditionally with remedies, or prohibit them outright. Most jurisdictions have an antitrust regime.
FDI
FDI or national security screening regulation enables a government to scrutinize and intervene in certain acquisitions that could harm national security interests. Governments can impose certain conditions on an acquisition and, in rare cases, can unwind or block an acquisition completely.
EU Foreign Subsidies Regulation (FSR).
The EU introduced the FSR to address distortion of competition caused by foreign subsidies, allowing the European Commission (EC) to review "foreign financial contributions" received by companies from non-EU countries. It started applying in 2023 and notification is mandatory across a broad spectrum of deals.
Outbound Investment Screening
Outbound investment screening is a process where governments review investments made by their domestic companies in overseas companies. The aim is to ensure that these investments do not transfer critical technologies or knowledge that could enhance the national security interests of rival nations. This type of screening is increasingly being considered by countries seeking to protect their national security interests in a globalized economy.
In many cases, the aim of this regulatory expansion is to capture a far broader range of deals. This includes many smaller transactions which would not have been within the regulatory remit just a few years ago. What impact this regulatory expansion has had on M&A has therefore been a key focus for both commentators and dealmakers alike. These are our key findings and analysis.
1 – Regimes are capturing a broader set of deals
“Over the past five years, we’ve seen a real distortion of legislation, and a weaponization of that legislation. It’s gone from protecting consumers and regulating niche, high risk industries, to being used as a way for governments to control who owns what national assets and shore up their supply chains.” Anthony Walsh Partner, M&A, Eversheds Sutherland
The combination of antitrust authorities obtaining greater powers to scrutinize and intervene on transactions, together with more countries introducing or expanding FDI regimes has led to a far wider range of transactions being subject to regulatory review. Unlike antitrust, many FDI regimes operate without revenue or financial thresholds, meaning that regulators can investigate any transaction regardless of its size. For most regimes, the focus is on the types of businesses, the ownership chains and their activities.
For antitrust authorities, a key concern – and major topic of debate – has been transactions which were completed in the past that did not meet the relevant thresholds for review but which the authorities consider ought to have been investigated. With that in mind, some are changing their regulations or reinterpreting guidelines to enable them to capture more deals in future. This includes smaller deals that may fall below the notification thresholds but which could raise antitrust concerns. It means that even where deals do not meet the mandatory filing thresholds, parties may still decide to notify due to uncertainty around the scope of the new rules and the risk of disruption if their deal is subsequently ‘called-in’ for review. Although the volume of deals decreased over the last three years, the total number of antitrust decisions globally has increased steadily over the past five years. In certain jurisdictions however, some have captured more deals, others fewer.
Antitrust decisions increased
China 2019 – 465 decisions 2023 – 786 decisions increase – almost:
South Korea 2019 – 766 decisions 2023 – 927 decisions increase:
Brazil 2019 – 433 decisions 2023 – 612 decisions increase:
Saudi Arabia* 2020* – 137 decisions 2023 – 313 decisions increase:
*Saudi Arabia introduced antitrust filing thresholds in 2019.
Antitrust decisions decreased
EU 2019 – 362 decisions 2023 – 330 decisions decrease:
Germany* 2019 – 1,400 decisions 2023 – 800 decisions decrease:
*Germany changed its antitrust thresholds with effect from January 2021. This led to fewer deals caught under German antitrust rules
“Authorities are trying to reach certain transactions which would previously not have been looked at. They have become quite creative on how to apply existing regulations so they can now look at them.” Marjolein De Backer Partner, Competition, Trade and Foreign Investment, Eversheds Sutherland
“It’s not always clear to us if an acquisition necessarily falls outside the scope of a regime. Transactions get cleared, but it creates delays and uncertainty. That’s always best avoided in the M&A world.” Killian Kiely, Director and M&A Counsel, Corporate Finance, DCC plc
The proliferation of FDI regimes has had considerable impact on M&A, with more transactions subject to review over recent years. In 2023, almost 5,000 deals were subject to FDI scrutiny across 25 countries. Despite this, on a national level, the number of notifications fell in both the EU and the US. In the EU across 2021 and 2022, the number of FDI notifications decreased overall, from 1,563 to 1,444. However, the number of deals (whether notified or not) that were formally screened increased significantly. In 2021 it was 29%. By the following year the number had risen to 55%. Across both years, the majority of deals were cleared unconditionally, with 5% of notifications eventually subject to remedies, and only 1% of deals prohibited overall, in 2021, and again in 2022.
FDI notifications formally screened in EU 2021
of notifications screened. 23% of those cleared with conditions
2022
of notifications screened. 9% of those cleared with conditions.
In the US, the number of transactions reviewed by the Committee on Foreign Investment (CFIUS) decreased by 15% between 2022 and 2023. However, in both years, we found a low number of those actually had conditions imposed. Only 13% each year were cleared with conditions, and none were prohibited.
US CFIUS 2022
transactions reviewed. 13% of those cleared with conditions
2023
transactions reviewed. 13% of those cleared with conditions
2 – The majority of deals are cleared unconditionally without remedies
While there may be an increase in the number of transactions now falling within the ambit of regulatory regimes, our data shows that 95% of those notified for antitrust clearance over the past five years, passed the Phase 1 review (or equivalent) process with no issue and were cleared unconditionally. In certain regions, the proportion was even higher; 98% of all deals notified in the EU and Switzerland over the past five years were cleared unconditionally. The figure over four years in the US was even higher at 99%. Across regions worldwide, the proportion of unconditional decisions either remained the same, or increased. The UK was one of the exceptions to this. In jurisdictions with a well-established antitrust regime, such as the EU and the US, the proportion of unconditional clearance decisions has remained static over the data reporting period. The reality is that the increase in notifications and perceived increased enforcement have not had a marked impact on the eventual outcome of antitrust reviews.
of global antitrust transactions are cleared unconditionally
0.5%
Fewer than 0.5% of the total antitrust regulatory decisions are prohibited.
The data shows us that only a very small proportion of transactions are actually prohibited. Globally, prohibition decisions accounted for fewer than 0.5% of the total across most regions, over the past five years. Therefore, despite the impact of increased regulation, even deals that raise antitrust concerns will still complete successfully. The same is true in relation to FDI. In 2019, 95% of all deals subject to FDI review were cleared unconditionally and 96% in 2023. All the jurisdictions for which we have data show an unconditional clearance rate above 90%, the exceptions being France and the US.
This low number may be partly due to actions taken by parties when it may have become apparent that their deal was likely to be prohibited. Parties may pull and refile their antitrust filing to avoid an in-depth investigation, or to narrow its scope. This is a practice common in the US but now also adopted in Europe. Transactions may also be abandoned completely if a prohibition outcome is looking likely. Since April 2023, for example, the UK’s CMA has reported five deals that were abandoned. In the majority of jurisdictions, no deals were prohibited in either 2022 or 2023 due to antitrust concerns. Globally, only 15 deals were prohibited in 2022 and 14 deals were prohibited in 2023.
antitrust prohibitions globally in 2022
antitrust prohibitions globally in 2023
Our M&A Partners’ Survey corroborates this point with experience demonstrating that parties have indeed abandoned some deals due to regulatory interventions. In the first half of 2024, for example, the US agencies reported six abandonments. This is mainly due to antitrust concerns, followed by FDI clearance concerns and finally the risk of a deal being called-in for antitrust review when a deal has not been notified.
The UK’s Competition and Markets Authority (CMA)
- The CMA is the UK’s principal antitrust regulator. Its remit has increased in recent years, particularly since Brexit.
- In the year to March 2024, the CMA issued 60 formal merger decisions. 28 of these – almost 50% - were cleared conditionally. One was prohibited. However, this is not the complete picture. In reality, the CMA only intervenes in a small proportion of overall transactions.
- The UK has a voluntary notification regime. This means that many other transactions were also reviewed by the CMA, but were not subject to a formal investigation. The CMA’s Mergers Intelligence Committee typically reviews over 700 unnotified transactions a year to determine if any should be investigated. The vast majority of these unnotified transactions are not investigated at all while some are subject to an informal Q&A process.
- Parties to transactions can also submit briefing papers to the CMA, setting out details of their transaction to determine if they need to make a formal filing. The CMA typically receives around 150 briefing papers per year.
3 – More regulatory process means deals are taking longer
“It’s really hard to define things like market share. We can give regulators financial data, but when one took a deep dive into an acquisition, the amount of work just defining the question seemed extraordinary. Then it was very difficult to pull and provide the information. You don’t necessarily see the regime’s end game. So, you don’t know what you’re trying to answer. You’re also obviously attempting not to prejudice yourself or the company, or make things look less competitive than they are.” Ed Lawrence Integration Manager, EMEA, Parker Hannifin
In-depth antitrust investigations are generally taking longer. Although antitrust authorities must complete reviews within a certain timeframe, this is often extended when the regulating authority decides it needs more time to assess a deal or consider remedies. Our data shows durations within key jurisdictions in 2023 from when deals were notified to antitrust authorities, up until they issued either an unconditional or conditional approval decision. In some jurisdictions, the parties will often engage in prenotification discussions with the relevant authority before they can formally submit an antitrust filing. In other jurisdictions, authorities have a certain period of time to determine whether a notification is complete. It is only when the authority accepts the notification as complete that the clock starts to run and the antitrust investigation begins.
The impact of pre-notification approaches has a considerable effect on the length of time deal processes take, particularly since they are generally not limited by specific timeframes. For example, in 2023, the data shows it took 150 days or more for parties in Belgium, the EU and France to notify their deals. The antitrust authorities in countries such as Australia, Argentina and China can ‘stop the clock’ when they request further information from the parties to assess the notification and/or the remedies proposed by the parties. It only re-starts once the authorities are satisfied that they have what they need. Our analysis considers the total average time for antitrust review, including the average time taken when clocks are stopped for this purpose. Differences in regulatory approach across jurisdictions mean we see considerable variances in timescales within each region, which needs to be factored into deal timetables. FDI regimes are also impacting deals. The UK’s National Security and Investment (NSI) Act was introduced in 2021. It allows for the Chancellor of the Duchy of Lancaster to clear straightforward cases within an initial 30 working day review period. When acquisitions are called in for further assessment however, the Investment Security Unit (ISU) can extend that period by an additional 45 working days, which excludes any time when it ‘stops the clock’ whilst parties respond to information notices. The result is timelines that can extend significantly. Our M&A partners who took part in our survey reflect that, in their experience, deals are taking longer to complete than they did three years ago.
All partners agreed that deals are taking longer when regulatory interventions are required, with half saying that times were extended by at least an additional three months. Whilst increased regulation is the main reason cited, there are others. These include caution due to general uncertainty in the market and higher interest rates making financing more difficult. Responding to regulatory queries also needs to be factored into the overall extended timeframe.
“It just takes time. The process is new, the regulations aren’t well known. They haven’t been tested thoroughly by the regulator or by companies who are navigating their way through it.” Richard Franklin, GM, M&A Legal Affairs, STC Group
“Deals are taking longer to get done. They’re more expensive to get done. They’re much more complicated to get done. There are challenges, but these can be mitigated with the right experience and processes in place.” Ted Cominos, Partner, M&A, Eversheds Sutherland
4 – Does deal size matter?
Large deals have long been subject to greater antitrust scrutiny than smaller deals. Today, bigger and more complex transactions are facing even more examination and are taking longer to complete. However, we are also seeing more small to mid-sized deals being subject to regulatory review. With FDI, the focus of the regime is not on deal size. As such, a filing is not triggered due to revenue thresholds. This makes it easier for governments to investigate deals of any size on the basis of national security grounds. We have analyzed data from two key jurisdictions - the US and the UK – to determine whether larger deals are more likely to be subject to an in-depth review. Under US antitrust laws, parties must notify deals to the Federal Trade Commission (FTC), and the Department of Justice (DOJ) when certain thresholds are met through a Hart-Scott-Rodino (HSR) filing. Transactions which do not raise any antitrust law concerns are permitted to close upon the lapse of the initial 30 day waiting period. If the FTC/DOJ considers that additional information is required to review a transaction more thoroughly, they will issue a second request. 2022 data from the US demonstrates the correlations between deal size and the receipt of a second request from the US antitrust authorities to initiate an in-depth investigation. The figures show that larger deals do indeed lead to more antitrust scrutiny and a higher likelihood of extended investigations.
Data source as Annex A of Hart-Scott-Rodino Annual Report Fiscal Year 2022 (ftc.gov)
We have analyzed UK public M&A deals governed by the UK Takeover Code from 2019 to 2023. In 2019, no takeover bids worth up to £250 million were subject to FDI conditions. By 2023, 29% of similarly sized deals included them. The same is true in relation to antitrust. The number of deals worth up to £250 million which included an antitrust condition increased from 21% in 2019 to 37% in 2023. Therefore, we see that over the past five years, more smaller UK public deals are being subject to both FDI and antitrust in-depth reviews.
1 Data compiled using public information provided to the UK Takeover Panel under Rule 2.7 of the UK Takeover Code.
Some countries, such as Austria, have lower antitrust thresholds than others. Whilst in the UK, a filing can be triggered based on the extent of the overlaps between the parties’ activities in the UK – known as the ‘share of supply’ test – regardless of the size of the deal. Some antitrust authorities in jurisdictions with relatively high revenue thresholds have sought to expand their antitrust guidelines so they can investigate deals which do not meet those thresholds which could nevertheless raise antitrust concerns. This has created some uncertainty for companies around whether a transaction will be investigated or not, however small. This is particularly pertinent given that some antitrust authorities can start investigations even after a transaction has closed. The EU is a particular case in point. Article 22 of the EU Merger Regulation allows the EC to review transactions that do not meet the EU antitrust thresholds, if requested to do so by EU Member States. This can happen either before or post-closing and has had a significant impact on deals. Landmark case Illumina/Grail was prohibited by the Commission under just these circumstances. However, the European Court of Justice (ECJ) overturned that decision and confirmed that Article 22 does not permit EU Member States to refer a transaction to the EC where neither its antitrust thresholds, nor the EU’s are met. Following the judgment, the EC stated that it will continue to accept referrals under Article 22, but only from EU Member States where a transaction has met the relevant antitrust thresholds. As of the date of publication of this report, it is clear that some EU Member States – and potentially the EC – notwithstanding the ECJ’s decision, are looking at ways to enable the EC to look at below threshold deals.
Our Eversheds Sutherland M&A Partners' Survey demonstrates that the biggest M&A concern is the risk of deals being called-in if they are not notified, even if they do not meet the mandatory filing thresholds.
“Antitrust regulators are looking at ways to access smaller deals. They are finding new, innovative means to do that. This kind of policy directive is driving uncertainty.” Peter Harper Partner, Head of Competition and Antitrust (International), Eversheds Sutherland.
5 – A broader set of theories of harm
Antitrust authorities are increasingly considering a broader set of harms to competition than we have seen before. This has even led to transactions being abandoned. For example, in 2023, the Commission blocked Booking’s planned acquisition of eTraveli, citing an ‘ecosystem’ theory of harm. The transaction would have facilitated Booking’s expansion within the travel services ecosystem. The Commission was concerned with the potential for Booking's dominant position to be strengthened even further within the hotel online travel agencies market, due to the purchase of a major customer acquisition channel. Adobe’s proposed acquisition of Figma was abandoned after both the Commission and the CMA, considered “competition for innovation” in addition to other areas of antitrust concern. The CMA provisionally concluded that the transaction would eliminate competition between two main competitors in product design software, reducing innovation and the development of competitive products.
In the context of FDI regimes, what constitutes a national security issue is far less transparent. Governments intentionally design their review frameworks to provide them with flexibility to assess and raise concerns about a broad range of issues under the umbrella of ‘national security’. In many countries, FDI regimes traditionally focused on the defense and military sectors. Today, this is no longer the case. Regimes now capture large parts of the economy including, technology, critical infrastructure and the use and control of personal data.
6 - Divergence of approach
For the minority of transactions that raise concerns and may require remedies, our analysis shows that most deals reviewed by antitrust authorities involve transactions between direct competitors. However, deals involving competitors in the same supply chain, or in parallel markets, have been increasingly attracting attention. In the EU, a high proportion of transactions where remedies were required to obtain clearance involved companies that were both direct competitors and had supply chain relationships, or were active in related markets. The key development however is the significant divergence are are seeing in some cases around how these concerns are addressed; both from an antitrust and an FDI perspective. Historically most antitrust authorities preferred structural remedies, such as selling off part or all of a business, over behavioural remedies involving commitments to act in a particular way, for example within an organization’s ongoing supply chain.
Globally, across both 2022 and 2023, structural remedies were still being used more frequently to resolve antitrust concerns than either behavioural remedies alone, or a combination of the two within any individual transaction. Structural remedies were used in all (or the majority of) clearance decisions in the EU, Germany, Italy, the UK and Argentina. Asia meanwhile, used behavioural remedies more frequently, as did Brazil, Belgium, Italy, Spain, and Saudi Arabia.
A key development has been in the US. While in 2021 some transactions were cleared through agreeing remedies with the US antitrust authorities (a combination of structural and behavioural remedies), there has since been a major change in policy. In particular, the DOJ have eschewed the concept of accepting remedies to resolve antitrust concerns completely, and appears to have stopped negotiating remedies altogether. While the FTC has continued to accept some remedies, it is now stating that it has a far higher bar that parties must meet before it will now entertain remedies and has imposed an increasing compliance burden on settling parties. In contrast to antitrust, FDI remedies typically focus on commitments for a buyer to behave in a certain way, such as continuing to supply, or to put in place ringfencing measures to protect confidential information. However, governments base their FDI decisions on national security concerns and their own national interests, which evolve. This means that FDI processes and outcomes are highly country-specific, and naturally less alignment between different FDI regulators across different jurisdictions.
“We're a listed organization. We have to announce our deals to the market. Once you announce a deal, if changes occur, you have to then either qualify it later on, or unwind your statements. You don't want that embarrassment, or for it to negatively impact your brand.” Richard Franklin GM M&A Legal Affairs, STC Group
7 – New forms of regulation on the horizon
Having examined the impact of regulation on transactions over the past five years, we now consider the future. Will the trend of regulatory expansion continue in its current form? Will it be curtailed, as regimes try to balance the requirements of external geopolitical, economic and security pressures with the need to still encourage business and investment into their jurisdictions? EU’s FSR will become a standard part of M&A The EU FSR regime is relatively new. So far the EC has issued one decision after an in-depth investigation and this was a conditional decision i.e. the EC required commitments from the buyer to approve the deals. This reflects that the FSR should now be considered alongside antitrust and FDI in the context of M&A. Newly elected European Commission signal possible change to regulation to support creating 'national champions' Following the 2024 European elections, there have been calls to reform the EU antitrust regime to allow for more consolidation in certain industries (telecoms and defence), or to put more weight on the innovation benefits of a transaction in the Commission’s assessment. It remains to be seen whether these policy discussions, part of a broader attempt to increase the global competitiveness of the EU and its companies, will lead to actual amendments to the EU antitrust rules. New regulations focussed on large tech companies In the UK, the Digital Markets, Competition and Consumers Act 2024 (DMCC) introduces a new merger reporting requirement on large digital platforms relating to certain transactions, and makes significant changes to the UK voluntary merger control regime by increasing the UK target revenue threshold and introducing a new ‘no increment test’ allowing the CMA to review a broader range of deals. These changes are expected to come into force by the end of 2024/start of 2025. Expanding regulations in Asia-Pacific In Asia Pacific, reforms are also being introduced to antitrust regimes. In China, the antitrust powers of the State Administration for Market Regulation have been broadened whilst the notification thresholds have been increased, to enable the regulator to focus on deals that are more likely to have an impact on the relevant markets. Australia is in the process of introducing a single, mandatory suspensory antitrust regime. Malaysia is looking to introduce its first cross-sector antitrust regime, while there are signs that regulators in other jurisdictions, such as Singapore, are becoming more active in antitrust review.
FDI marches on New FDI regimes are constantly being introduced, expanded or changed. In the EU, the EC has announced the proposed revision of the EU FDI screening regulation in order to engage coordination and cooperation within the EU and harmonise the approach taken by EU Member States. In Asia Pacific, (i) Singapore introduced the Significant Investments Review Act which requires any investment in designated entities above the prescribed thresholds to obtain express written approval by Singapore’s Minister of Trade and Industry prior to closing, and (ii) South Korea introduced new regulations allowing the government to review foreign investments involving ‘national strategic technology’, and proposed to expand existing laws to allow the government to review a wider range of transactions involving ‘national core technology’. In July 2024, changes to the Australian FDI regime, which are expected to result in greater scrutiny of sensitive foreign investments, came into effect. Outbounding investment screening Several jurisdictions in Asia Pacific, such as China, India, Japan, South Korea and Taiwan have maintained some form of outbound investment controls. Now, the US, as well as the EU, are also considering introducing an outbound investment screening regime. In January 2024, the EC published a White Paper on outbound investment and it is in the process of monitoring and reviewing outbound investments to determine whether such a regime is needed. The EC is expected to publish its conclusions and set out any concrete proposals by Autumn 2025. The US Government is proposing to introduce an outbound screening regime focusing specifically on key technologies. However, whether this is introduced may depend on the outcome of the US Presidential election in November 2024. Regardless of whether the next President is a Republican or Democrat, there is likely to be even more of a focus on national security, something already reflected in the proposed new HSR rules. CFIUS is also likely to broaden out its approach, with greater alignment between CFIUS and HSR. There is a general hope that there may be an easing of the regulatory burden concerning M&A over the next few years, with the honing of regime rules and greater clarity on requirements. However, this is unlikely to mitigate the general scale of regulatory compliance.
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