2022 saw the rhetoric about “killer acquisitions” made concrete. Both the European Commission (EC) and German Federal Cartel Office (FCO) fought to defend their ability to review acquisitions of entities with limited EU presence, revenue and customers, with the EC’s jurisdiction confirmed by the EU’s General Court (GC), and the FCO losing at first instance.
The fallout from the EC’s new approach to referred jurisdiction under the EU Merger Regulation (EUMR) continued to unfold in 2022. In July, the GC confirmed the EC’s jurisdiction over Illumina’s proposed acquisition of Grail, thereby confirming that the EC can review concentrations that are “referred” to it under Article 22 of the EUMR by a member state authority in circumstances where the referring member state does not have jurisdiction and the EUMR’s turnover-based thresholds are not met. The EC went on to block the acquisition in September. While Illumina has appealed the GC jurisdictional ruling, the EC continues to accept referrals under this new approach to Article 22. On 7 December, for example, it accepted a referral request from Spain (joined by 12 other member states) to review Cochlear’s proposed acquisition of Oticon Medical.
In a similar vein, the FCO’s decision requiring Meta to notify its acquisition of Kustomer is working its way through the courts. The FCO concluded that Kustomer’s German business was “substantial” enough for it to be notifiable under the “deal value” threshold. However, in November 2022, the Higher Regional Court of Düsseldorf agreed with Meta that the absence of Kustomer entities, assets and employees in Germany, with only three German business customers (in 2020) who were supplied with English language software by a US-based sales organization (without a German website), meant that Kustomer’s German activity represented too small a proportion of its business to be “substantial”. The FCO has appealed this decision. The ultimate result here may also have implications for Article 22 referrals to the EC. To date, the FCO has not embraced the EC’s new approach. However, if the FCO’s “deal value” threshold is read narrowly by the courts, the FCO may become a late convert.
Despite the lengths to which competition authorities have gone to ensure they are able to review “killer acquisitions”, the highest profile cases this year turned on more conventionally framed theories of harm. For example, Ms Wilpshaar (the EC’s digital mergers head of unit) noted that, in the context of mergers in the digital sector, the EC focuses on assessing whether acquisitions could protect the acquirer’s existing position (“defense” of a core market) or enable leveraging of market power from a core market into a new market.
In the “defensive” context, the EC assesses the extent to which there is a risk to entry or expansion by innovative rivals. This was reflected in Vice President Vestager’s framing of the EC’s Meta/ Kustomer review: “[w]e must carefully review transactions that could further strengthen large players that increasingly dominate the digital economy, irrespective of the target company's size. Our decision today will ensure that innovative rivals and new entrants … can effectively compete...” Interestingly, however, the commitments that enabled clearance of that merger related to enabling new entrant CRM software providers to access Meta’s messaging services (bearing in mind that Meta is not a CRM player) - a straightforward “vertical” or “input” concern. The EC and UK Competition and Markets Authority (CMA) also focused on input foreclosure in NVIDIA’s abandoned acquisition of Arm, specifically the potential restriction of access to Arm’s intellectual property. While concerns were raised about the impact on Arm’s IP development process and prioritisation, the EC’s focus was on access to Arm’s technology, rather than its development.
The EC’s prohibition of Illumina’s acquisition of Grail, illustrates the second “leveraging” type of theory of harm. The EC focused on Illumina’s position as “the only credible supplier” of Next Generation Sequencer systems, and found that Illumina would have the incentive (and ability) to cut off Grail’s rivals’ access to Illumina’s technology. In other words, the EC’s theory of harm focused on denying access to (or “leveraging”) a core market, impacting on entry in a related new market.
It is also important to note that, alongside these “non-horizontal” concerns, UK and EU competition authorities continue to broaden their review of horizontal “overlaps” between merging parties. The UK Competition Appeal Tribunal’s June 2022 judgment in Facebook/Giphy agreed with the CMA that the acquisition would lead to a loss of dynamic competition in the supply of display advertising.
In short, 2022 has seen UK and EU competition authorities become increasingly focused on so-called non-price effects of transactions, expressing concerns about losses of potential and dynamic competition (not just actual competition) and of innovation and entry/expansion in both acquirers’ existing markets and related markets into which market power could be leveraged. Recent statements from key players at these authorities, and the concerns being investigated in ongoing cases, make clear that we should expect more of the same in 2023.
Get in touch
If you are interested in discussing any of the topics in M&A Outlook 2023 in more detail, or have any questions, get in touch to find out how we can work together.
Key legal and regulatory developments driving and shaping M&A
A New Approach to Referrals under the EU Merger Regulation
M&A trends in the life sciences and healthcare sector
Due to the multiple ongoing crises we are currently dealing with, stakeholders and key decision makers operate in an environment characterised by volatility, uncertainty, complexity, and ambiguity. If met with resilience these quite difficult times still provide chances and opportunities though.
Navigating distressed M&A
Investors and advisers have been poised for a flood of distressed M&A transactions since the early days of the pandemic.
Bridging the valuation gap in times of uncertainty
Rising interest rates, long-lasting inflation, supply chain uncertainty, regulatory changes, pressure for business transformation, geopolitical instability, economists predicting a global recession – dealmakers are increasingly confronted with extremely challenging conditions that affect their M&A-roadmaps.
M&A trends in Asia: The outlook for 2023
Asia has not been immune from the global macroeconomic headwinds that have built steadily over the course of 2022, and is now also experiencing rising inflation and interest rates and tightening monetary policy, albeit perhaps not to the level seen in the West.
Tech M&A: A return to pre-pandemic levels?
Following a surge in M&A activity in 2021 and the first quarter of 2022, deal making in the Tech sector slowed significantly through the remainder of 2022.
The outlook for banking sector M&A in 2023
There continues to be longstanding speculation in the market about when a next big round of consolidation in the banking sector might occur.
ESG in Canadian M&A and Shareholder Activism: Perspectives for 2023
Despite somewhat shaky economic conditions and geopolitical upheaval on the world stage, M&A activity in Canada was relatively steady in 2022.
European Private Equity: A broadly positive outlook despite economic headwinds
After a record-breaking year in 2021, 2022 demonstrated that the years of predictable growth in the private equity industry have, at least temporarily, come to an end.
M&A in the Middle East builds on active 2022
Proving its resilience and ability to weather political headwinds, the Middle East region saw a particularly active year for M&A during 2022, with several deal-makers citing pre-pandemic levels of activity.