Since its launch in April 2014, the Competition and Markets Authority (CMA) has played a crucial role in determining the outcome of some of the UK’s headline deals. Last year alone, the CMA scrutinised over 60 deals including Poundland’s takeover of 99p Stores, and ran the rule over bookmaker Ladbrokes’ takeover of rival Coral. Other deals included BT/EE, Betfair/Paddy Power, Tullett Prebon/ ICAP and Celesio/Sainsbury’s.
The CMA has not proved timid in its early years.
For buyers and sellers of companies, such as private equity firms, a CMA investigation is often unwelcome, and sometimes unexpected. Convincing the CMA to give a deal the green light can be an unwanted and time-consuming experience.
Although notifying the CMA about a deal is voluntary, the authority also searches for deals to investigate.
The CMA’s Mergers and Intelligence Committee (MIC) actively looks for takeovers that could restrict competition.
The MIC has been busy. In the last two years along, it has monitored over 1,000 UK deals, investigating 30. Though the number of deals called in is relatively low, 15 of the 30 received a letter of concern from the CMA. Of these, 11 were judged to have had a detrimental impact on competition. The figures show that the MIC is unlikely to miss a deal that raises potential concerns.
Fortunately, private equity firms can benefit from a recent change to the CMA’s approach. Parties involved in an acquisition are now allowed to preemptively provide the CMA with information about a deal, without the CMA automatically calling in the deal for an investigation.
Providing information to the CMA could be enough for the authority to avoid opening an investigation. This is particularly useful for private equity owned companies, for which the CMA has less publicly available data. A short, five-page document, known as a briefing memorandum, is all that is needed. The information sent to the CMA is confidential, and can be sent even before a deal is completed.
Private equity firms must consider the CMA’s approach when buying a new portfolio company.
Competition concerns must also be addressed when thinking about an exit. With hundreds of companies on its watch list each year, the CMA is hard at work in the background.
The CMA will likely continue its increasingly intrusive approach to monitoring UK deals. The CMA is actively recruiting new staff members to assist this exercise. However, being transparent — and briefing the CMAabout your deal plans — should mitigate the risk of a costly and disruptive investigation further down the line.
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