Competition law regulator responds to government growth edict

Sarah Cardell, CEO of the Competition and Markets Authority (CMA), set out the regulator’s plans to help boost economic growth in a blog post last week. This agenda is being driven by the Labour government, which published an updated strategic steer to the CMA on the same date as Sarah Cardell’s blog post. This sets out the government’s expectation that the CMA’s approach should enhance the attractiveness of the UK as a destination for international investment. With a rhetorical flourish reminiscent of an old advert for a rectangular chocolate biscuit, Cardell argues that the key to a more growth-friendly CMA is the “four Ps”. 

P-P-P-Pick up the pace

Cardell promises the CMA will reach faster decisions on mergers to reduce uncertainty and costs for businesses. By June 2025, she says:

• When companies formally notify the regulator of a merger, the CMA will establish a new KPI to complete pre-notification discussions complete within 40 days (against a current average of 65 days).
• When companies notify the CMA of a merger, it will set a target of completing ‘"straightforward" phase 1 investigations within 25 working days (against a current average of 35 working days). A phase 1 investigation looks at whether there's a realistic prospect that a qualifying merger will cause a substantial lessening of competition.

Predictability

Cardell says that the CMA’s “unusually broad” powers to review prospective mergers under UK law can make it hard for businesses to assess whether their merger will attract regulatory scrutiny. To help fix this, the CMA will be issuing new guidance explaining how it will interpret and apply the "material influence" and "share of supply" tests. A consultation on the updated guidance will launch in June.

"Material influence" is the lowest level of control which would give the CMA power to review an investment and is frequently a point for consideration in minority investments. Further guidance in this area will therefore be of particular interest to minority, or non-controlling, interest investors such as VC and growth equity investors.

Proportionality

The CMA will be launching a review of its approach to remedies in March, examining how the CMA strikes the right balance between different types of remedies (divestment remedies and behavioural remedies). Cardell emphasises that “objective is for as many of the deals as possible which raise competition concerns to be cleared with effective remedies, rather than be prohibited.”

Process

Also in March, the CMA will publish a Merger’s Charter, “laying out what will be needed - from the CMA, businesses and advisors - to ensure the success of this new approach.”

Comment 

While one cynical business leader has said that asking a regulator for growth ideas is “like asking a vegetarian how they like their steak cooked”, the CMA’s proposals are in fact quite constructive. In a speech to an audience of business leaders last week, Business Secretary Jonathan Reynolds has praised the CMA and called on other regulators to “show the same level of ambition… because right now, I don’t think our regulatory environment is doing enough to drive investor confidence and support growth.” 

Regarding the “proportionality” of the CMA’s approach going forward, were the CMA to adopt the recommendation in the government’s strategic steer to “ensure parallel action (with other jurisdictions internationally) … is timely, coherent and avoids duplication”, this would likely be welcome news for international businesses but may be easier said than done considering the hints of divergence between the regulatory approaches of the EU and US.  

Thoughts from Mills & Reeve’s head of competition, Kate Newman:

“The CMA’s proposals are welcome. The CMA’s phase 1 process is longer, more burdensome and more costly than equivalent processes in other jurisdictions, especially for straightforward cases. An expedited process whereby businesses receive a decision more quickly will be a significant improvement. Whilst we expect the CMA to issue more focused information requests (perhaps with earlier and more extensive dialogue with the parties about what information is available and what can be delivered), I also expect that merger parties will still be expected to turn around these requests in tight timeframes. The CMA might default more to using its formal powers to ensure timely production of information.”

“The blog mentions ‘earlier prioritisation of potential concerns’ in merger investigations. Again, this would be a welcome improvement, particularly if the CMA is willing to share its substantive thinking earlier in the phase 1 process with the parties and their advisors. This would enable all concerned to focus on the issues of interest to the CMA, rather than the current situation whereby parties only have visibility of concerns at a relatively late stage of the formal phase 1 process.”

“The consultation on remedies is timely. A greater willingness on the part of the CMA to consider a range of remedies would be an improvement, noting however that the CMA asks businesses and advisors to ‘act in good faith’ and only to put forward ‘robust remedies proposals and well-evidenced claims around benefits’. In other words, whilst the CMA may in principle be more prepared to consider a greater range of possibilities, the parties will still need to provide the CMA with sufficient, well-founded evidence to persuade the CMA that a remedy proposal addresses the identified concerns.”  

“Despite Cardell’s welcome emphasis on proportionality, my personal view is that businesses/investors shouldn’t expect an easier ride for mergers which raise genuine concerns. The CMA is still bound by its statutory duties and mergers which raise substantive issues should still expect to receive rigorous scrutiny.”

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