Deal or no deal? Five key trends in merger control in Europe

Competition authorities in Europe have attracted significant attention for their intervention in M&A deals and greater enforcement of their merger control regimes. This has most recently been brought into sharp focus by an opinion of the Advocate General of the EU Court of Justice (“ECJ”), that the European Commission’s (the “Commission") decision to block Illumina’s $8 billion acquisition of GRAIL (a cancer-screening start up) should be overturned.

In this briefing, our Competition, Trade and Foreign Investment teams across the EU and the UK identify the key pan-European trends at Commission and national level that businesses engaging in M&A need to understand and discuss how best to navigate these.

Greater uncertainty – can regulators investigate ‘below threshold’ transactions?

Competition authorities across Europe are expanding their existing merger control rules to allow them to investigate deals even if they fall below the relevant merger control thresholds for mandatory notification. This creates a lack of certainty for companies as to whether a transaction will be investigated or not (and, if so, in which jurisdiction).

The Commission is a high-profile example of this. It has adopted a clear policy (based on Article 22 of the EU Merger Regulation) to allow EEA Member States to request that the Commission investigates a transaction, either before or post-closing, even if the transaction does not trigger any mandatory notifications in the EU (either at Commission or Member State level). However, whether the Commission has the legal basis to do this is being challenged. On 21 March 2024, the Advocate General opined that the Commission’s decision to block Illumina/GRAIL should be annulled. He concluded that Article 22 does not permit EU Member States to refer a transaction to the Commission where neither their merger control thresholds nor the EU’s are met. Whilst the Advocate General’s opinion is not binding on the ECJ, it will be influential and will create more uncertainty until the ECJ issues its judgment.

Alongside the Commission, various jurisdictions have introduced new regulations to allow authorities to call in below threshold deals to assess whether they give rise to any competition law concerns. This includes Iceland, Ireland, Italy, Norway and Sweden, and other European jurisdictions, such as the Netherlands, are expected to follow. Belgium has taken another route for non-reportable transactions and applies recent ECJ case law to investigate a completed merger under the abuse of dominance rules.

In the UK, the nature of the merger control regime means that investigations are regularly undertaken after a transaction has closed. In 2023, c.33% of UK merger investigations took place after the transaction had closed.

More deals subject to in-depth scrutiny and longer investigations

Across Europe most deals are cleared during an initial phase 1 review period. However, the overall trend is that the number of deals that are subject to a further in-depth phase 2 investigation has increased in several jurisdictions in Europe including Estonia, Italy, the Netherlands, Poland, Spain and the UK. In some jurisdictions, this does not always lead to a full Phase 2 investigation. For example, the Commission has referred transactions to Phase 2 which were ultimately cleared with remedies even before the stage of sending its charge sheet to the parties.

Phase 2 investigations are also generally taking longer. Although competition authorities must complete their review within a certain timeframe, this can often be extended when the authority decides it needs more time to assess the deal or consider remedies. For example, in all the Irish phase 2 cases in 2023, the review period was prolonged by the Irish authority sending information requests which had the effect of suspending the review period. In Italy, the phase 2 timeframe has recently been extended from 45 working days to 90 working days.

"Pull and refile” to avoid in-depth scrutiny

That in-depth investigations are taking longer has meant that companies are increasingly using novel procedural mechanisms to avoid a phase 2 investigation. For example, at the Commission level, it has become more common for companies to follow the US approach and “pull and refile” their merger notification after the Commission raised concerns during its initial review instead of proceeding to a phase 2 investigation. This strategy enables the merging parties to withdraw their initial merger notification and subsequently refile it allowing the merging parties to address any potential concerns raised by regulators, with revised terms or additional commitments.

More stringent penalties for gun jumping and failing to notify

Most jurisdictions in Europe operate a mandatory and suspensory merger control regime meaning that the parties cannot close their deal before merger clearance is received and must refrain from integrating their businesses (although some integration planning is permitted). Failure to do so can result in “gun jumping” which can lead to severe penalties being imposed on the merging businesses and, in some jurisdictions (e.g., Germany), even on individuals/board members.

There has been a rise in both the number of cases and the penalty amounts being imposed on parties for gun jumping.

For example:

• in 2023, the Commission fined Illumina EUR 432 million for completing its acquisition of GRAIL whilst the Commission’s merger investigation was still ongoing. For the first time, the Commission also fined the target company imposing a nominal fine of EUR 1,000 on GRAIL;
• in the last three years, the Spanish competition authority conducted nine gun jumping investigations and imposed fines totalling nearly EUR 2 million in 2022;
• in April 2022, the French competition authority fined Compagnie Financière Européenne de Prises de Participation EUR 7 million for breaching both the notification and standstill obligations when it acquired Marie Brizard Wine & Spirits. This was the first time that the authority had fined a company for breaching both obligations; and
• the Portuguese competition authority has stated that enforcing gun jumping is one of its key priorities for 2024 and is actively looking for deals that have not been filed. In the past 5 years, it has imposed fines for gun jumping in 6 cases. For example, in September 2022, it fined Santa Casa da Misericórdia de Lisboa EUR 2.5 million for failing to notify its acquisition of the managing firm of the Portuguese Red Cross Hospital.

Novel theories of harm

Competition authorities are increasingly adopting new theories of harm. Last year, the Commission blocked Booking’s acquisition of eTraveli, citing an “ecosystem” theory of harm. The concern focused on the potential strengthening of Booking’s dominant position in the hotel online travel agencies market through the acquisition of a major customer acquisition channel. This would have facilitated Booking’s expansion within the travel services ecosystem.

When assessing Adobe’s proposed acquisition of Figma, both the Commission and the UK competition authority, the CMA, considered “competition for innovation” as well. 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. The parties subsequently abandoned the transaction.

What does this mean for companies?

Competition authorities are interested in – and are expanding their powers to investigate – a broader range of deals and a broader range of competition issues. In this context, transactions which, on their face, may not have a clear nexus with a particular jurisdiction or may not raise traditional competition concerns are now in scope of European competition authorities.

This expansion in competition scrutiny of M&A, reflects the general trend of an expansion in the ‘regulation’ of M&A, for example, through the expansion in foreign investment / national security screening (see our briefing here) and new forms of regulation such as the Commission’s Foreign Subsidies Regulation (see our briefing here).

In this context, it is key that companies consider merger control (and other types of regulation) from the outset of a transaction to ensure that the impact of these regulatory processes can be factored into deal planning at an early stage.

If you would like to discuss how to navigate merger control, please get in touch with a member of our team below or your usual Eversheds Sutherland contact.

Thank you to Annabel Borg for co-authoring this update.