UK – Merger thresholds for mergers in critical sectors revised

By Peter Willis, Patricia Wing

08-2020

The UK government has given the Competition and Markets Authority (CMA) further powers to review mergers in strategically important sectors.  These steps include making changes to the Enterprise Act 2002 (Enterprise Act) to provide the government with extended powers to scrutinise foreign takeovers to ensure they do not impact upon the UK’s ability to tackle COVID-19 or other related public health emergencies. 

Initial amendment to the Enterprise Act in 2018

In 2018, the government amended the turnover test and the share of supply test under the Enterprise Act to allow the CMA to review mergers that would otherwise have fallen outside the previous merger test, in the areas of dual and military-use technology, quantum technology and computer hardware.  Where the target falls within one of these sectors, the relevant thresholds were lowered as follows:

  1. the turnover threshold – for the turnover of the target business – was lowered from £70 million to £1 million for businesses in those sectors; and
  2. the requirement in the share of supply test for an increase in the parties' combined share of supply to a figure of more than 25% was replaced by a requirement that the target business alone should have a share of supply of 25% or more of the relevant goods or services, i.e. there is no need for the parties to overlap.

If either test is met, the "relevant merger situation" is capable of being reviewed by the CMA.

Revised 2020 merger thresholds

The revised thresholds, which came into force on 21 July 2020, amended the Enterprise Act 2002 still further, to add three additional sectors central to national security to the lower-threshold regime:

  1. artificial intelligence - refers to technology enabling the programming, or execution of a computational process capable of undertaking complex tasks commonly associated with human intelligence;
  2. cryptographic authentication technology – applies to businesses that develop products whose primary function is authentication using cryptographic means, where these products are reasonably expected to be used in systems critical for national security; and 
  3. advanced materials - breakthroughs in advanced materials are fundamental enablers across all areas of societal and economic development. They have underpinned and continue to underpin advances in the physical and digital world. These all stem from understanding, manipulating and exploiting the composition, arrangement and properties of matter.

The existing turnover threshold and share of supply test from the 2018 orders will continue to apply and the government will be able to intervene in the transaction if at least one of these tests is met and it believes that the merger may raise national security concerns. The government explains that these revisions were made to protect companies and technologies which are key to national security. 

The BEIS has published guidance to reflect the terms of the 2020 orders. 

Next steps?

The legislation does not require merging parties to notify the CMA of a merger; merging parties should carry out a self-assessment of whether to make a voluntary notification.

For more information please contact Peter Willis or Patricia Wing