Antitrust authorities continue intense scrutiny in M&A markets

Antitrust authorities continued to have a big impact on M&A in 2023, frustrating more deals and intensifying scrutiny of digital and private equity transactions, reveals A&O’s latest Global Trends in Merger Control Enforcement report.

The findings show that prohibited transactions rose by over 50%. Many antitrust authorities remained unwilling to accept remedies to address their concerns, instead choosing to block deals.

The report analyses data on merger control activity in 2023 from across 26 jurisdictions, focusing in particular on the U.S., EU, UK and APAC.

In the U.S., intense scrutiny of M&A deals is predicted to continue, at least pending the outcome of the November 2024 Presidential elections. Revised U.S. merger guidelines and planned reforms to the Hart-Scott-Rodino (HSR) merger filing form signal that even tougher merger control enforcement is to come.

“PE-funded acquisitions are facing progressively more rigorous scrutiny by antitrust authorities” commented Elaine Johnston, New York partner and Global Antitrust Co-head.

She added: “PE faces particular headwinds in the U.S., as well as the UK and EU, with “roll-ups” increasingly under the microscope and authorities seeking more information on investments.”

Digital/tech M&A also faced antitrust stumbling blocks with 20% of deals blocked in 2023 as authorities ramped up merger control enforcement in the sector.

As in the previous year, our data suggests that the level of antitrust intervention in the tech sector (11%) was comparatively lower than the proportion of global M&A accounted for by tech deals (25%). However, this is up from just 8% in 2022. And the number of tech sector deals frustrated by antitrust authorities tripled in 2023. Authorities are starting to make good on their promises to closely scrutinise tech transactions and intervene more frequently.

Dominic Long, Brussels/London partner and Global Antitrust Co-head, commented: “Companies with strong positions in dynamic and rapidly evolving markets should prepare for intense antitrust scrutiny when planning acquisitions, even where the target is not (or not yet) an obvious rival.”

Overall, antitrust intervention in 2023 focused on consumer, life sciences, transport and energy deals.

Antitrust authorities continue to push for stronger merger control powers. “The landscape is constantly evolving”, commented Lisa Emanuel, Sydney partner. “For example, major reforms to the Australian merger control regime are planned. We are also seeing authorities increasingly seeking and using powers to review M&A that falls below merger control filing thresholds. This creates complexity and uncertainty for merging parties.”

New foreign investment (FI) screening regimes continue to appear and existing mechanisms are expanding in scope. While in some jurisdictions intervention rates are high, overall most deals subject to FI review are cleared without remedies. Dealmakers are becoming increasingly attuned to the risks and challenges that FI reviews pose to their deals around the world.

Other notable insights:

  • Consumer and retail deals represented 36% of total deals subject to antitrust intervention compared to only 21% of global M&A.
  • Last year, we commented that total remedy cases in the U.S. had dropped to eight, a decrease of nearly 60%. In 2023 we saw a further 50% reduction to four.
  • The number of remedy cases in the UK increased for a second year in a row. Phase 1 conditional clearances more than doubled from 13 to 28 (of which 20 involved acquisitions in the veterinary sector by one of two PE funds), many requiring the acquirer to sell off the entire target business.
  • Sanctions for procedural merger control infringements quadrupled in 2023. A total of EUR487.7 million fines were imposed in 28 decisions across the jurisdictions surveyed. This serves as a clear warning to merging parties that gun-jumping, submitting incorrect information and breaching remedies can come at a very high price.
  • The new EU Foreign Subsidies Regulation has increased the regulatory burden for deals with an EU nexus. The number of notifications required looks set to far exceed initial EC estimates.

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This content was originally published by Allen & Overy before the A&O Shearman merger