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CMA updates merger guidance including the new national security and investment regime

28 January 2022

We provide a summary of the updates to the CMA's merger guidance, including clarification that the new national security regime is separate to UK merger control, and therefore transactions may be subject to both regimes.

What guidance has been updated?

The Competition and Markets Authority (CMA) published a guidance document which provides advice on operation of the merger control regime and the CMA's jurisdiction to review mergers under the Act. On 4 January 2022, a revised version of the guidance was published, taking into account the changes brought about by the National Security and Investment (NSI) Act 2021, which came into force on that day. 

What is the NSI Act?

The NSI Act established a new regulatory regime for the UK government's investigation and intervention in mergers, acquisitions and investments for the purposes of protecting UK national security. Changes include the introduction of a mandatory notification system for acquisitions in sensitive areas of the UK economy, and the power for the Secretary of State (SoS) for BEIS to call in for review transactions that pose a risk to national security. To read more, please refer to our comprehensive guide to the NSA Act.

When will these updates apply?

The previous statutory framework (and therefore the previous version of the guidance) will apply to all ongoing cases and any future cases where a trigger event occured prior to 4 January 2022; the revised guidance will apply in relation to all other mergers from 4 January onwards. 

What provisions are set out by the updated guidance?

A notable provision of the guidance is the statement that the national security regime under the NSI Act is separate from the merger control regime under the Enterprise Act 2002. Therefore, a merger may potentially qualify for review under both regimes. In such circumstances, the CMA and the Investment Security Unit (ISU) expect to coordinate as appropriate to manage the interactions between the two regimes. Additionally, the CMA may share confidential information with the ISU where a merger is being investigated in parallel by the CMA on competition grounds and for national security reasons under the NSI Act. 

On the other hand, the SoS no longer has the power under the Enterprise Act to intervene in cases where an issue of national security arises. Previously, the scope of public interest considerations which the Secretary of State could take into account when deciding to intervene in merger situations did include national security - this was removed as a consideration for the purposes of the Enterprise Act by the NSI Act. Instead, national security issues must be addressed in accordance with the NSI Act provisions.

However, the SoS can issue a direction to the CMA to not do anything under Part 3 of the Enterprise Act in some circumstances. This is where a final order or a final notification that no further action is to be taken has been given power under the NSI Act, and where the SoS can reasonably consider that the direction is necessary and proportionate for the purpose of preventing, remedying or mitigating risk to national security.

Another update to the guidance relates to "relevant enterprises". A merger must meet three criteria in order to constitute a relevant merger situation for the purposes of the Enterprise Act. These include: 

  • the turnover associated with the enterprise which is being acquired exceeds £70 million,; or 
  • the enterprises which cease to be distinct, supply or acquire goods or services of any description and, after the merger, jointly supply or acquire at least 25% of all those particular goods or services supplied in the UK or in a substantial part of it. 

Previously, special jurisdictional thresholds applied where the enterprise being taken over constituted a ‘relevant enterprise’, i.e. where it was active in specified areas, including AI and the development or production of items for military use. These provisions of the Enterprise Act relating to ‘relevant enterprises’ were removed by the NSI Act, and therefore these thresholds are no longer applicable.

What does it mean in practice?

Parties to an acquisition should carefully consider whether it falls within the scope of both the merger control and national security regimes. Such confirmation, that the regimes will be operating in parallel, may have a significant impact on the deal. In particular, the fact that mergers may potentially qualify for review under both regimes means that notifications may have to be submitted to both the CMA and ISU. This in turn means that parties should be aware of what needs to be filed for each of the notification processes, consider the impact of dual investigations on timings and deal structures, and the relevant conditions precedent which may need to be incorporated into deal documents. Merger parties are encouraged in the guidance to discuss the process and merger review timing , which falls within the scope of both regimes, with the CMA at an early stage.

How can we help?

We are particularly known for our commitment to applying regulatory rules in a practical and efficient manner to support our clients' commercial strategy. Our regulatory advice is grounded in deep understanding, sector experience and judgment, and communicated in realistic, understandable language. Our approach is to give clear, partner-led guidance, delivered in a characteristically approachable way.

We can advise parties (based in or outside the UK) on the implications and significance of these updates, as well as the possible impact of the NSI Act regime on divestments or acquisitions. We can also assist you in contacting the ISU to discuss potential acquisitions and the new regime's impact on your transactions and timelines.

Further Reading