UK and EU divide opens up on dealmaking regulation
Executives now have to pay much more attention to British watchdog on M&A
Executives looking to do multinational deals should brace themselves for more blows from regulators amid intensifying uncertainty over whether transactions will be cleared.
The Brexit vote has been the catalyst for a new world order in merger scrutiny, with the UK now more empowered to influence the fate of global multibillion-dollar transactions.
Before the UK voted to leave the EU, large corporations had to mainly worry about EU antitrust decisions. But, after Brexit, the one-stop-shop principle — where cases referred to Brussels took precedence over reviews in individual EU countries — ceased to apply to the UK. So dealmakers now have to pay more attention to the British antitrust watchdog, the Competition and Markets Authority.
Earlier this year, the CMA caused shockwaves with the announcement that it was blocking Microsoft’s $75bn purchase of gaming giant Activision Blizzard, a deal regulators in Brussels happily cleared with concessions that appeased their competition concerns. The companies threw a tantrum, drawing accusations from Microsoft’s Brad Smith that the country was effectively shooting itself in the foot by “discouraging technology innovation and investment” in the UK.
The deal may end up being cleared after antitrust regulators in the US suffered a setback in the courts. And, unusually, the UK competition watchdog has reopened its consultation on Microsoft-Activision, in a move that could lead to a reversal of its decision to block the deal.
But even if the CMA climbs down from its earlier opposition, the move signalled its willingness to diverge from the views of officials in Brussels. In March last year, the UK also vetoed the $5bn tie-up between Cargotec and Konecranes even though Brussels cleared it. This led to the deal being abandoned altogether.
The British antitrust watchdog is putting an end to deals in other ways too. Decisions by the CMA to review or veto a deal led to the abandonment of three times as many transactions compared with rulings from the EU regulator from 2018 and 2020, according to Linklaters. The trend is accelerating, with the law firm reporting nearly 70 per cent of deals that become subject to in-depth probes either being abandoned or killed in the past three years.
And the issue is not just that the CMA is killing deals to which Brussels is giving its blessing. In addition, dealmakers feel uncertain on which way the British regulators will go. Take Facebook’s acquisition of customer relations management provider Kustomer. The CMA took the view that the deal did not present a threat to competition and quickly cleared it, while Brussels opened it to extra scrutiny although eventually cleared it.
More recently — and following the CMA decision to block Microsoft — investors were concerned that the British regulator would open an in-depth probe into Amazon’s $1.7bn proposed acquisition of iRobot, the company best known for its Roomba robot vacuum cleaner. The CMA cleared it and the EU was the one to open to an in-depth investigation instead.
To add to dealmakers’ nightmares, the CMA is arming itself with new powers to scrutinise tech mergers, even if the target company has very little sales in the UK, via a newly formed digital markets unit.
“Getting deals through has become much messier since Brexit, and recent deals like the Microsoft one illustrate that very clearly,” says a seasoned EU official in Brussels. “I find it regrettable that the British are usually more pragmatic but they have gone off track recently.”
To be sure, London and Brussels are aligned on mergers. Both the EU and the UK see competition concerns in Adobe’s $20bn bid for cloud-based design tools maker Figma — with both regulators eventually heading towards in-depth probes. Both sides cleared S&P Global’s €39bn acquisition of IHS Markit with conditions. And they were also aligned on Broadcom’s $69bn acquisition of VMware: the EU has cleared the deal with conditions, while the CMA has given its provisional approval.
But investors and dealmakers are becoming concerned about their ability to read the tea leaves and worry about immediate dealmaking activity being subdued. “The CMA is now often at odds with the EU and it is becoming more arbitrary in its rulings on mergers,” said an investor at a large hedge fund. “With the UK’s newly found powers to kill deals there are going to be fewer deals, at least in the short term.”