Path to clearance: navigating European merger control

April 2025  |  COVER STORY | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

April 2025 Issue

An M&A transaction is a complex beast. Through its lifecycle of major phases – planning, evaluation and execution – companies combine their activities and expand their markets, bringing benefits to economies and ultimately resulting in higher-quality goods and services for customers.

Some combinations, however, have the opposite effect and reduce market competition by creating or strengthening dominant players. In turn, this is likely to harm customers through higher prices, a reduction in quality and choice, as well as weaker innovation.

Preventing companies gaining too much market power is within the purview of merger control – a procedure which examines transactions that appear likely to result in a substantial lessening of competition and, if the examination substantiates that concern, modifies or prohibits them.

Worldwide, 130 nations currently maintain a merger control regime. These include national or supernational competition agencies such as the European Commission (EC), the UK Competition and Markets Authority (CMA), as well as the Department of Justice (DOJ) and Federal Trade Commission (FTC), which are entrusted with the role of reviewing mergers in the US.

“Recent years have seen a significant increase in merger control regimes globally, both competition-based regimes and foreign investment and national security regimes,” observes Mark Daniels, knowledge of counsel at Norton Rose Fulbright. “Even relatively small deals regularly trigger multiple filings these days. There have also been some big political shifts over the past year, and the evolving macroeconomic and geopolitical climate may impact the outcome of merger control reviews in 2025.”

The upshot is a new normal where regulatory authorities (particularly across Europe where significant procedural developments have been made in recent years) are increasingly sceptical toward certain M&A deals. Such scepticism means transactions are facing ever longer regulatory reviews and an increasingly uncertain outcome.

EU developments

Across Europe, most jurisdictions operate a mandatory and suspensory merger control regime, with competition authorities attracting significant attention for their intervention in M&A deals and greater enforcement of their merger control regimes.

“Merger control has been expanding to include analyses based on competition law concerns, the distortion of the European Union (EU) internal market and national security issues, rendering the landscape diversified and more unpredictable,” notes Bas Braeken, a partner at Bureau Brandeis. “On EU and national levels, initiatives are pending to expand the scope of foreign direct investment screening mechanisms, thereby shifting toward a more protectionist environment.”

According to analysis by Eversheds Sutherland – ‘Deal or no deal?: Five Key Trends in Merger Control in Europe’ – the following are key pan-European trends at European Commission (EC) and national level that companies engaging in M&A need to understand.

Competition authorities across the EU 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).

A high-profile example of this is the European Commission (EC) policy (based on article 22 of the EU Merger Regulation) to allow European Economic Area member states to request that the EC investigates a transaction, either before or post-closing, even if the transaction does not trigger any mandatory notifications in the EU (either at EC or member state level).

However, whether the EC has the legal basis to do this is being challenged. On 21 March 2024, the European Court of Justice (ECJ) issued a landmark ruling in the Illumina/Grail case, overturning the General Court’s interpretation of article 22 of the EU Merger Regulation 139/2004. The ECJ concluded that article 22 does not permit EU member states to refer a transaction to the EC where neither their merger control thresholds nor the EU’s are met.

Alongside the EC, various other 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. Other European jurisdictions, such as the Netherlands, are expected to follow.

UK developments

The UK merger control regime – one of the few voluntary, non-suspensory filing regimes in the world – has changed significantly in recent months, due in the main to amendments made to the merger activities of the Competition and Markets Authority (CMA).

On 1 January 2025, the UK Digital Markets, Competition and Consumers Act 2024 introduced a new threshold allowing the CMA to review mergers where: (i) one party has a 33 percent or more share of supply in the UK and UK turnover exceeding £350m; and (ii) the other party is either a UK entity, carries on activities in the UK or supplies goods or services in the UK. It has also introduced a new ‘de minimis’ threshold excluding transactions from review where both parties’ UK turnover is £10m or less, which builds on amended guidance from the CMA last year suggesting that markets are unlikely to be of sufficient importance to justify the costs of a detailed review which have a total turnover of less than £30m.

“Dealmakers are facing a number of new drivers for regulation across the UK,” adds Noel Beale, a partner at Michelmores LLP. “These include the prevention of ‘killer acquisitions’, particularly in the tech and digital markets, as well as the desire to promote growth and a desire to demonstrate consumer protection.

“These, arguably more political drivers, now sit alongside the standard economic analysis of mergers that has developed over the last 25 to 30 years,” he continues. “These additional concerns will place further strains on regulators’ independence. Therefore, where transactions come under regulatory scrutiny, not only will parties have to cope with the already resource-intensive demands of regulators, they will also have to factor in addressing these new categories of concerns.”

According to Caroline Thomas, London head of antitrust and competition at Norton Rose Fulbright,  M&A parties also face much more extensive and onerous information requests. Authorities want to scrutinise internal documents to understand deal values and rationales and how parties expect competition to develop.

“This started with ‘killer acquisitions’ but has spilled over into reviews in general and is arguably an aspect of CMA merger control that could be dialled-down to appeal to business without compromising review outcomes and there are signs that the CMA may now take a more focused approach,” says Ms Thomas. “Expansion and strengthening of foreign direct investment (FDI) and national security regimes have increased filing requirements, but these regimes are generally much less burdensome than competition-based reviews and not a ‘blocker’ for most transactions.”

Deals under scrutiny

Across Europe, certain deals are attracting the lion’s share of regulatory scrutiny. Mergers in digital markets face particular examination, and, given their potentially transformative effects, there is increasing focus on transactions in the artificial intelligence (AI) sector.

“From a traditional merger control perspective, all transactions in the tech industry, such as AI and platforms, are likely to be subject to enhanced scrutiny,” asserts Mr Braeken. “Regulators will also try to find ways to monitor below the threshold ‘killer acquisitions’, although this has become more difficult as a result of the landmark Illumina/Grail of the ECJ.”

As a result of this judgment, there is now less scope for national competition authorities to refer cases to the EC. Competition authorities in the EU now feel the need to address this regulatory gap and are seeking new powers from their national governments.

“In relation to foreign investment control, companies possessing critical, technological know-how are like to face enhanced scrutiny, especially if the buyer is not based in the EU,” continues Mr Braeken. “While it is arguable that initially this type of merger control was aimed at avoiding the leakage of critical know-how to countries like China, Russia, the Gulf states and some western non-democratic countries, we will need to see the impact of Trump’s election to assess transactions involving a US buyer.”

In the UK, observes Mr Beale, governmental responses to current economic and political environment developments mean it is possible that some mid-size and smaller deals in more traditional sectors, particularly those where there is no direct consumer interface, will encounter less scrutiny.

“The flipside is that we can expect larger deals involving consumer-facing businesses or a large purchaser of a small or start-up business in digital markets to have the full resources of authorities focused on them,” he vouches. “Although national security and FDI regimes can be hugely significant for some deals – depending on the sector and the nationalities of the parties – for the vast majority of deals the compliance aspects and timetable implications are what parties to most transactions need to manage.”

Compliance strategies

Dealmakers typically view merger control as an obstacle to be overcome – an obstacle that is becoming subject to increasing challenges. However, dealmakers with a proactive approach stand to benefit in terms of the deals they can credibly consider and the strength of their hand at the negotiating table.

“Those involved in a transaction likely to face scrutiny will need, more than ever, to ensure that they have considered in advance its regulatory implications,” says Mr Beale. “They will need to be able to explain the rationale for the transaction to the regulator in a way that the regulator can understand and accept.

“Often business executives’ rationale for transactions requires translating for the regulatory ear,” he continues. “This needs to be done early so that the internal deal-related documentation communicates to the regulator as well as those within the relevant business.”

According to analysis in Skadden’s ‘Deal Uncertainty Increases as Merger Control Authorities Gain Discretionary Powers of Review’ analysis, the considerations outlined below can assist dealmakers to navigate merger control regimes.

First is early analysis. Conducting an early analysis of potential competition issues, alongside the usual assessment of required filings, can identify jurisdictions where regulators may seek to investigate a transaction that falls below the notification thresholds. Proactive, voluntary approaches to those authorities can help determine whether they are likely to review a deal, thereby reducing the period of uncertainty.

Second is in-built flexibility. For certain transactions likely to be of particular interest to regulators, such as those in the digital and pharmaceutical sectors, parties may want to consider including appropriate conditions precedent in deal documents to address the risk of an investigation. Building extra time or flexibility into timetables may be necessary, particularly if the deal may be reviewed in jurisdictions where investigations move slowly.

Last is statutory bar on closing. For jurisdictions that do not have a statutory bar on closing before the review is complete (for example, in the UK), the buyer may choose to go forward and close the transaction, taking on the risk of any future intervention by regulators.

M&A parties also need to be alive to the significant burden of increasingly extensive document requests, suggests Mr Daniels. “Compliance with Europe’s new EU Foreign Subsidies Regulation also requires fairly onerous ongoing data gathering on a group-wide basis to keep track of relevant foreign financial contributions, which are broadly defined,” he adds.

Ms Thomas also highlights the importance of having a plan for remedies where a transaction may raise significant substantive concerns. “If remedies are needed, parties should ideally decide their strategy before any reviews commence. Given tight review timelines – particularly in cases with multiple reviews that need to be aligned in different jurisdictions – it is important to have a clear plan in place before the clock starts ticking.”

European evolution

With a number of major jurisdictions having adopted new review processes and stepped up enforcement activities, the result is a more intensive merger control landscape across Europe, with regulators themselves coming under more scrutiny from governments and the public.

“The landscape is becoming more diversified, with government agencies trying to find a balance between screening and notification burdens for businesses, while ensuring an attractive investment climate,” observes Mr Braeken. “We expect this to have a negative impact on deals, with higher costs, extra legal fees and longer processes, which, in turn, will probably affect the number of deals.”

In the UK, attention is focused on how CMA merger control processes and outcomes may be impacted by the removal of Marcus Bokkerink as chair of the CMA. “The CMA has said it will launch a review of its approach to merger remedies,” notes Ms Thomas. “It will be interesting to see whether the outcome of that signals a greater willingness to accept behavioural remedies, especially in the current political climate.”

Besides the appointment of a new head, there is also expected to be heightened scrutiny of CMA decisions regarding the mergers it is reviewing in parallel with EC and US agencies.

“Divergence may be justified depending on the nature of the markets concerned and UK competitive conditions,” adds Ms Thomas. “But there could potentially be criticism that the CMA is not sufficiently pro-business if it blocks or remedies deals the EC, DOJ or FTC clear unconditionally, as well as suggestions of political interference if the CMA grants unconditional clearance for deals raising concerns in Europe or the US.”

Across Europe, M&A transactions are facing ever longer regulatory reviews and an increasingly uncertain outcome. Less than a decade ago, merger control appeared to be on a clear path to substantial international convergence, but this path is increasingly a fallacy. The order of the day is now uncertainty – an environment where the old rules are largely defunct and the new yet to truly take shape.

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Fraser Tennant