M&A monitor

Buyers beware: why Brexit could spell trouble for cross-border deals

To antitrust (and co-operation) again, this time in relation to Brexit. With the UK no longer treated as part of the EU following the end of the transition period, the European Commission will no longer have jurisdiction to scrutinise mergers that affect the UK market.

As a result, more transactions will face parallel reviews in both London and Brussels – meaning deal-makers could be in for a rocky ride.

In recent years the Competition and Markets Authority (CMA) has established a reputation as a regulator willing to tread its own path on deal approvals, with CMA decisions contributing to the collapse of a number of global (and often US-centric) deals. Of the nine mergers subject to a Phase II CMA review in 2020, just one was cleared unconditionally, with three blocked, four abandoned by the parties and the other only approved subject to a divestment remedy.

In preparation for Brexit, the CMA has been stepping up co-operation with its international counterparts, including by signing memoranda of understanding with both the US Department of Justice and Federal Trade Commission. The two sides engaged closely on the proposed merger between Sabre, the US travel software company, and its domestic rival Farelogix, a deal that foundered on CMA opposition. It was a similar story on Taboola/Outbrain, where the tie-up between the two US platforms was prohibited in the UK despite Washington giving it the green light.

The reason the CMA process could spell trouble (or at least more headaches) for parties is because it’s much easier for deals to be blocked in the UK than the US for example, given there is no need for the CMA (as both the investigator and decision-maker) to go to court to injunct a deal. Indeed, even where CMA decisions have been challenged by the merging parties, the Competition Appeals Tribunal, which is required to scrutinise CMA decisions under a judicial review standard, has typically sided with the regulator – giving it even more confidence to flex its muscles.