Changes to UK merger control raise the stakes for “killer acquisitions"

A “killer acquisition” refers to the acquisition by an established business of an innovative smaller business to eliminate the potential competition. Transactions of this kind are common in the technology sector but may be subject to UK merger control.

This article explains recent changes to the UK merger control regime to increase the scope for the Competition and Markets Authority (CMA) to detect, review and prevent “killer acquisitions”, and outlines what smaller tech companies should be doing to capitalise on this.

The Digital Markets, Competition and Consumers Act 2024 (DMCCA), which came into force on 1 January 2025, introduced a merger reporting duty for large platforms designated under the new digital markets competition regime. In addition, the DMCCA introduced an exemption for transactions where each party has UK turnover of less than £10 million.

The changes represent a shift in focus towards larger transactions, with the potential for reduced scrutiny of deals between smaller tech companies. Overall, the changes should make it easier for smaller tech companies to innovate and grow.

Changes to the existing jurisdictional thresholds

Pre-DMCCA, a transaction could qualify for review by the CMA if two or more enterprises ceased to be distinct (ie, were brought under common ownership or control) and either:

• The annual UK turnover of the target exceeded £70 million (turnover test).
  
  
• The transaction created or enhanced a 25% share of supply or purchases of any goods or services in the UK, or a substantial part of it (share of supply test).

The DMCCA has raised the turnover threshold from £70 million to £100 million, to account for inflation. Smaller tech companies may therefore benefit from the greater opportunity to grow before merger control is likely to be triggered.

Smaller tech companies can also benefit from a new turnover-based safe harbour to the “share of supply” test. The safe harbour will apply where each of the merging parties has a UK turnover of £10 million or less, even if their share of supply may be high.

Introduction of an acquirer-focused test  

Following the DMCCA, even if a transaction does not meet the “turnover” test or the “share of supply” test, it can still qualify for review by the CMA if:

• One party (likely the acquirer) has a “share of supply” of at least 33% of goods or services of any description in the UK (or a substantial part of it) and has a UK turnover exceeding £350 million.
  
  
• The other party (likely the target) has a UK nexus (hybrid test). This test was specifically introduced to fill the perceived enforcement gap regarding “killer acquisitions”. For the “hybrid” test to be met, it is unnecessary for there to be any overlap in the activities of the parties in the UK. The CMA defines “UK nexus” broadly to include enterprises that are carried on by a UK body (corporate or unincorporated), carry out activities in the UK, and/or supply goods or services to a person(s) in the UK. Taking preparatory steps to supply goods or services in the UK can be sufficient to establish a UK nexus.  

As a result, the “hybrid” test enables the CMA to review transactions involving targets with low or no UK turnover, ie, large tech companies cannot avoid merger control scrutiny by acquiring such targets.

Merger notifications under the digital markets competition regime

The DMCCA introduces a new regime to promote competition in digital markets: the “digital markets competition regime”. Under the digital markets competition regime, the CMA has the power to designate firms with “substantial and entrenched market power” and “a position of strategic significance” in relation to digital activities linked to the UK, as having Strategic Market Status (SMS). The obligations of SMS firms include a duty to report certain acquisitions of shares and/or voting rights in targets that have a UK nexus prior to completion. There is a standstill requirement and the risk of penalties for any failure to comply with the reporting or standstill requirements.

This reporting duty, which is not limited to acquisitions related to the digital activity in respect of which a SMS firm is designated, enables the CMA to review mergers that might otherwise not have been subject to review on account of the small size of the target.

CMA plans to streamline merger reviews

As part of a wider effort by the CMA to demonstrate its role in supporting the UK’s growth mission, the CMA has pledged to ensure that it reaches the right merger decisions as quickly as possible, while minimising the burden on business. In a “Mergers Charter”, published on 12 March 2025, the CMA sets out its commitment to operate at pace and with predictability, and to act proportionately and to engage directly and constructively with businesses during the merger review process (the “4Ps” framework). Further CMA guidance on the “4Ps” framework will be published in due course. In the meantime, you can find out more about it in our separate briefing here.

The impact of the Mergers Charter and “4Ps” framework remains to be seen. However, the prospect of a more proportionate and pacier merger control process may be of interest to smaller tech companies who are thinking about how to achieve their growth (or exit) strategy.

The view from the front line (Mills & Reeve’s corporate team)

A move to the more predictable framework promised by the CMA under the Mergers Charter is welcome for targets and acquirers alike and will hopefully make all parties feel more confident about engaging in M&A within the UK.

The aims of the DMCCA to create an environment in which smaller tech businesses have the opportunity to scale-up through mergers with similar sized businesses is a positive step for supporting the UK’s extremely strong tech sector, seemingly with the ultimate intention of encouraging the development of UK national champions.

While this regulatory environment will offer opportunities for the UK technology sector as a whole, it forms part of a broader picture which includes ensuring that growing tech businesses have access to the right kind of investment to fully nurture and realise their potential and are able to readily access support to fully exploit opportunities both within the UK and further afield.  

Key takeaways for smaller tech companies

To benefit from the enhanced opportunities for growth that the changes to the UK merger control rules under the DMCCA present for smaller tech companies, they should:

• Ensure that they understand the changes.
  
  
• Consider the implications of the higher turnover threshold, the safe harbour under the “share of supply” test, the new “hybrid” test and the mandatory reporting requirement for SMS designated firms on their growth strategies.
  
  
• Evaluate whether any deal in their pipeline (whether as acquirer or as part of an exit strategy) might qualify for review by the CMA and if so, proactively consider a strategy for dealing with CMA risk.
  
  
• Stay informed about decisions and updates from the CMA on the operation of the new rules.

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