How merger control is changing and what it may mean for an M&A transaction
Merger control has ceased to be an almost mechanical exercise in comparing market shares and has become a far more sophisticated analysis of how a transaction may alter future competition. Competition law still starts from turnover and market-share thresholds, but the authorities have widened their focus to matters such as potential competition, innovation, access to strategic assets, effects on related markets and the capacity of an acquisition to modify the competitive structure in the medium and long term. For buyers and sellers, identifying competition risk at an early stage is no longer a formality: it may determine the timetable, the contractual documentation, the allocation of risk and, ultimately, the very viability of the transaction.
1.Merger control: from a control of structures to a dynamic analysis
Merger control is, in essence, a control of structures. It focuses on transactions that bring about a lasting change of control over the whole or part of one or more undertakings, whether by merger, acquisition of sole or joint control, or the creation of joint ventures performing on a permanent basis the functions of an autonomous economic entity. The aim is not to penalise conduct, but to prevent an M&A transaction from significantly impeding effective competition in the markets concerned, in particular through the creation or strengthening of a dominant position.
Traditionally, the analysis was structured around the definition of the relevant market and the comparison of market shares. The logic was that high shares, especially in concentrated markets, could be an indication of market power and of risk to competition. The guidelines on horizontal mergers still attach relevance to shares and to the degree of concentration, but they insist that these are not a sole or automatic criterion: the authority must assess the foreseeable effects of the transaction on prices, output, quality, variety and innovation, taking into account factors such as buyer power, barriers to entry and efficiencies.
In parallel, the guidelines on non-horizontal mergers have developed a detailed analysis of the effects of vertical and conglomerate transactions, in particular through the notion of market foreclosure, both input foreclosure and customer foreclosure, and of coordinated effects. The focus is no longer solely on the loss of direct competition between the parties, but on how the integration may alter the ability and the incentives of the merged entity and of its rivals to compete.
2.Potential competition, innovation and “killer” acquisitions
One of the most significant developments is the growing attention paid to potential competition and to innovation. Certain transactions do not eliminate a significant current competitor, but they do eliminate a potential competitor with a high degree of innovation and the capacity to challenge incumbents. Academic commentary has coined the expression “killer acquisitions” to describe acquisitions in which a large company buys a start-up or an emerging operator not in order to enhance its innovation, but in order to eliminate a future competitive threat, destroying the innovation process already achieved.
In digital and high-technology markets, where competitive value lies in data, algorithms, platforms or intangible assets, the turnover of the target company may be small, yet its competitive potential very high. This has led to questioning whether thresholds based exclusively on turnover are sufficient, because many of these transactions are not notified and escape ex ante control. Some legal systems have introduced additional criteria based on transaction value in order to capture acquisitions of companies with low turnover but a high purchase price, which is indicative of high competitive potential.
For buyers and sellers, this means that the competition analysis can no longer be confined to current markets and present shares. It is necessary to assess whether the target company, small though it may be, has an innovation pipeline, a user base, a technology or access to data that make it a significant potential competitor, and whether the transaction may be perceived by the authority as a way of eliminating that future competitive pressure. In such cases, the risk of intervention may be high even where current shares are modest.
3.Access to strategic assets and foreclosure of related markets
Another line of development is the attention paid to access to strategic assets and to effects on related markets. The rules on non-horizontal mergers describe in detail how vertical integration may give rise to anticompetitive foreclosure of the market, whether by input foreclosure or by customer foreclosure. The analysis turns on three questions: whether the merged entity will have the ability to restrict its rivals' access to inputs or customers, whether it will have the incentive to do so, and whether that strategy will have a significant detrimental effect on competition and, ultimately, on consumers.
In sectors where certain assets are strategic, such as essential infrastructure, data, intellectual property rights, key content or technology platforms, a transaction that concentrates control of those assets may give rise to concerns even where shares in the downstream market are not extreme. Foreclosure may take various forms: refusal to supply, worsening of terms, degradation of quality, technological incompatibilities, exclusivity agreements or practices that hinder rivals' entry or expansion. The authority also assesses whether the integration generates efficiencies, for example the internalisation of double margins, a reduction in transaction costs or better coordination of production and distribution, which may counteract the anticompetitive effects.
For an M&A transaction, this means that the analysis must go beyond the market in which the parties compete directly. It is necessary to identify upstream and downstream markets and key assets that may become bottlenecks, and to assess whether the integration may enable foreclosure strategies. In vertical or conglomerate transactions, competition risk may not be apparent at first sight, but the authority may focus its analysis on these non-horizontal effects.
4.Dynamic effects and comparison with the counterfactual scenario
The competition authorities have also strengthened the dynamic analysis of transactions. The assessment is based on a comparison between the competitive conditions that would result from the notified concentration and those that would prevail if the concentration did not take place, taking into account reasonably foreseeable future changes, such as the entry or exit of companies, regulatory changes or technological developments.
Within this framework, the key question is not only whether the transaction increases market shares, but whether it significantly increases the market power of the merged entity, market power being understood as the ability to raise prices, to reduce output, quality or innovation, or to influence other parameters of competition. The analysis of potential competition, of innovation and of access to strategic assets forms part of this counterfactual logic: how the market would evolve without the transaction and how it would evolve with it.
For buyers and sellers, this calls for a forward-looking approach in preparing the notification and in assessing the risk. It is not enough to describe the current situation; a reasoned account must be built of the evolution of the market, the role of the target company, the competitive pressure exerted by other operators, barriers to entry and possible efficiencies. In complex transactions, the contribution of economic studies and scenario analysis may be decisive.
5.Competition risk, timetable and contractual documentation
From an M&A perspective, the early identification of competition risk has direct consequences for the timetable and for the contractual documentation. In terms of timing, a transaction that exceeds the notification thresholds, whether at national or EU level, must take account of the authority's review periods. Two-phase procedures, with possible extensions if a second phase is opened or if commitments are negotiated, may significantly affect the completion timetable.
In transactions carrying appreciable competition risk, it is prudent to include in the contract conditions precedent relating to obtaining competition clearances, clauses on cooperation in the notification, on the sharing of costs and, where appropriate, of sacrifices in the form of divestments or behavioural commitments. The allocation of antitrust risk, that is to say, who bears the obligation to offer remedies, to what extent, and what happens if the authority requires conditions that substantially alter the transaction, has become a central clause in sale and purchase agreements for businesses of significant size.
The absence of contractual provision for competition risk may give rise to disputes between buyer and seller if the authority imposes onerous conditions or if the transaction is prohibited. Clauses such as those requiring the buyer to do everything necessary to obtain clearance, including significant divestments, quantitative limits on the sacrifices that are acceptable, or termination clauses triggered by the imposition of disproportionate remedies are tools for managing this risk.
6.Remedies, commitments and the design of the transaction
The evolution of merger control has been accompanied by a growing sophistication in the remedies accepted to resolve competition problems. The authorities show a preference for structural remedies, such as divestments of businesses, assets or shareholdings, over purely behavioural remedies, since they consider structural remedies more effective and less costly to supervise. Nonetheless, in certain cases complex behavioural commitments are accepted, particularly in regulated markets or in markets undergoing rapid technological change.
For the parties, this means that the design of the transaction must contemplate possible remedy scenarios from the outset. In transactions with significant overlaps, it may be necessary to identify businesses or assets capable of being divested, to assess their impact on the economic rationale of the transaction and, where appropriate, to prepare asset packages that are attractive to third-party purchasers. In vertical transactions, the commitments may consist of obligations to grant access to inputs or infrastructure on non-discriminatory terms, the functional separation of certain activities, or the waiver of exclusivity clauses.
The quality and credibility of the commitments offered may make the difference between a conditional clearance and a prohibition. The preparation of remedies should not be improvised at the end of the procedure, but integrated into the M&A strategy from an early stage.
7.Conclusion: integrating merger control into M&A strategy
Merger control is changing profoundly. Without abandoning the reference to market shares and to turnover thresholds, the authorities have widened their focus to potential competition, innovation, access to strategic assets, effects on related markets and the capacity of an acquisition to alter future competition. For buyers and sellers, this means that the competition analysis must be integrated into the M&A strategy from the outset, not as a subsequent formality.
Identifying competition risk at an early stage makes it possible to adjust the perimeter of the transaction, to design less problematic structures, to plan the timetable, to negotiate contractual clauses allocating antitrust risk and to prepare, where appropriate, credible remedies. Ignoring this dimension may lead to delays, to forced renegotiations, to onerous conditions or even to the prohibition of the transaction. In an environment in which competition policy has become more demanding and more attentive to dynamic effects, the capacity to anticipate and manage merger control has become an essential competence for any significant M&A transaction.
