The new rules apply to acquisitions, mergers and joint ventures involving businesses active in the development or production of items for military or military and civilian use, quantum technology and computing hardware.
The changes to the standard UK merger control regime involve a radical lowering of the thresholds which a deal involving such a business must satisfy in order for the CMA to have power to investigate. The standard test is that a transaction is potentially subject to review if either:
- the target business has UK turnover exceeding £70 million (the turnover test), and/or
- both acquirer and target supply the same type of goods or services and together they have a combined share of 25% or more in the UK or a substantial part of the UK (the share of supply test).
For transactions in the national security sectors identified above, the thresholds are considerably lowered. The turnover test will be satisfied if target's turnover is £1 million or more. Even more significantly, the share of supply test will be satisfied if target alone has a 25% plus share of supply – there is no need for the acquirer also to supply similar goods or services.
The aim of the change is to enable review of transactions involving businesses that have little or no turnover or provide unique products with a national security dimension. Such deals have in the past often been below the radar of government and regulators.
Both DBEIS and the CMA have published draft guidance on their approach to the new regime. These will be formally published when the new rules come into force.
The CMA guidance (available here) makes clear that its approach to assessing whether a transaction may result in a substantial lessening of competition will be same under the new regime as under the standard rules. Indeed, neither the CMA nor DBEIS anticipate that there are likely to be many transactions giving rise to competition concerns that would not already be caught under the standard regime due to a high combined share of supply.
More significant is the possibility of more deals being subject to the Secretary of State initiating a public interest investigation on national security grounds, as discussed in DBEIS' guidance (available here). There are likely to be more cases where transactions are blocked or made subject to undertakings aimed at protecting against perceived threats to national security.
Both the CMA and DBEIS guidance emphasise the importance or early consultation with them should a transaction potentially fall within the new regime.
If you would like to discuss how the new rules might affect you, please contact Jonathan Branton or your usual DWF contact.