How effective merger control drives economic growth and innovation
A speech by Joel Bamford, the CMA's Executive Director for Mergers, delivered at the City & Financial Global M&A Summit 2024.
Introduction
I’ll begin by saying a bit about my career up until this point.
I started out as a consultant, had a varied career in government both in the UK and overseas, went back to consultancy, and then I came back to the public sector in my current role – to oversee the UK’s merger control regime, and as a member of the CMA board. I’ve advised some of the largest companies on the globe through some of the biggest mergers and acquisitions (M&A) deals, with both positive and negative outcomes for those clients.
I’d like to start with the CMA’s purpose. We help people, businesses and the UK economy by promoting competitive markets and tackling unfair behaviour.
Supporting growth is absolutely central to this purpose: creating a competitive environment which drives forward the innovation, investment and productivity our economy needs to grow. We’ve made that even more explicit over the last few years, as you’ll see from our overarching strategy, as well as our recent annual plans and annual reports.
Where does merger control fit into this?
Merger control is one of our tools to deliver the CMA’s purpose, and this is what I will focus on in this speech.
I am old enough to have worked for the last Labour government while in the Civil Service, and it was that government which gave the CMA (then the Office for Fair Trading and the Competition Commission) its current legislative basis for the UK merger control regime – the Enterprise Act in 2002.
The intent behind the legislation was and is very much about the real-world impact of economic activity, and that for a vibrant growing economy you need markets to remain competitive.
I’ll read out a quote from the policy document accompanying the 2002 legislation: “Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organisation of production. As such, competition is a central driver for productivity growth in the economy, and hence the UK’s international competitiveness”.
I’ll unpack 2 key points from this. This is largely well-established stuff, but it is worth revisiting.
The contribution of competition to economic growth
Economic theory and history show that where competition is stronger, productivity and wage growth are likely to be higher. That link between competition and productivity has been empirically established again and again at country and sector level. The CMA’s own review of the relationship between competition and productivity also identified competitive pressure as a key driver behind firm-level efficiency and innovation.
Effective competition protects consumers from higher prices and lower quality goods and services. It facilitates a level playing field – so that businesses large and small can thrive. Competition from other players in the market is a motivating force, incentivising others to be more productive, innovate, and grow.
So, with innovation and productivity at the heart of economic growth, enabling a competitive environment (for sectors, industries, products and services) supports that growth effort.
The impact of open and competitive markets on investment incentives
Access to competitive markets – where companies can compete to win market share – is also appealing for investors. As Sarah Cardell, CMA CEO, said in a speech earlier this year in the US: “in promoting competitive markets, we advance the interests of fair-dealing companies serving UK markets, and advance the interests of investors seeking to make a fair return on their capital by doing business in the UK.”
And even more recently our Chair, Marcus Bokkerink reflected on last week’s government investment summit and how the UK can drive growth that lasts. He set out that it relies upon 3 fundamental ingredients working together:
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ensuring that people have choice, an alternative, when they buy/use a product/service
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competition – that in any market all innovating businesses get a fair shot at competing
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open markets – maintaining a level playing field for all investors
Focusing on that last point about keeping markets open to investors: across the economy, whenever the CMA has stepped in to keep markets open by preventing attempts to lock out competing investors through anti-competitive mergers, cartels or abuses of dominance, we have seen new investment flow in – from healthcare and pharmaceuticals to construction and railway equipment. This is because investors deserve to have confidence that there’s a level playing field for the businesses they back to succeed on the merits.
Amazingly for me, I’ve gotten this far through my speech without quoting numbers at you – after all, I am an economist and mathematician who used to provide several ministers, and businesses large and small, with evidence and numbers!
In all seriousness, the CMA does very consciously consider, analyse, and report on the direct financial impact of our work for the UK, across all our tools including mergers. We know this value for money matters. We estimate that our decisions on mergers have put £685 million per year over the last 3 years back into consumers’ pockets. And this is just the direct effect of merger control – so not including the indirect impact on productivity, growth and innovation in the economy as a whole.
And given my role on the CMA board, I do not have a myopic focus on mergers. Beyond mergers, across the whole of the CMA’s work, the CMA has delivered at least £20.3bn of direct financial benefits back to UK consumers over the last 10 years. Over the last 3 years, for every £1 the CMA spent on operation costs, the average benefit to consumers was £23.
Let me take you through an example of where competition contributes to growth and positive outcomes for consumers and businesses: the CMA’s investigation into the Experian/Clearscore merger, which actually inspired the co-founder and current CEO of the business to join the CMA’s board.
In 2019, the proposed merger of Experian and Clearscore was abandoned following the CMA’s phase 2 provisional findings, where we found that the merger could stifle product development and negatively impact consumers. Clearscore returned to plan A of their business model – to grow as an independent UK based business – and now Clearscore serves over 21 million users on 4 continents. They have continued to innovate for users, launching new products and integrating open banking data into their product, among other changes.
If the proposed takeover had gone ahead, the combined entity would not have faced the same competitive incentives as both Experian and Clearscore do today. This may have meant customers never benefited from the range of innovative and high-quality products that were subsequently developed.
And it isn’t just consumer-facing markets that matter. Ensuring that competition remains vigorous in the production of important inputs – which businesses then use in a variety of settings – is vital. This helps their business customers themselves increase productivity and grow.
A notable example on the CMA side is the global remedy agreed in relation to a merger which involved chemical additives for concrete. In respect of this important construction input, innovation (while not as glamorous as tech markets), is fundamental to improvements in building techniques and the construction of large infrastructure projects.
That is why the remedy the CMA agreed to not only included UK production and warehousing facilities, but also had research and development (R&D) capabilities at its heart. I worked on that one for the companies themselves, and saw first-hand the openness and flexibility of process from the CMA, as well as the rigour with which they approached the task of ensuring innovation was protected; leading to greater productivity and growth, for not just the companies themselves but also for their important infrastructure customers.
Merger control in 2024
Now, our key mergers legislation came into force in 2002 and the CMA was formed in 2014 – so where are we in 2024 and what has changed?
I will focus on 2 areas:
- how we assess the substance of a deal – an approach rooted in the real-world dynamics of a market
- the process we use, and how we interact with companies – utilising predictability, openness and an organisation which learns and adapts
Assessing the substance of a deal
First, the assessment of the substance of a deal – and it is important to note this assessment follows the legal test as set out in the Act.
The focus of the substantive assessment of any deal is whether it is more likely than not to lead to a substantial lessening of competition in a market in the UK. Let’s pick that apart a little:
First, the CMA needs to be of the view that competition concerns arising from the deal are more likely than not to occur – that is a high bar, not something you decide without significant evidence (which I will turn to later).
Second, any likely reduction in competition needs to be ‘substantial’, that means not small and trivial but real and impactful, another high bar.
Third, the test is focused on competition, not competitors – a subtle difference, but one that means the legal test is designed not to result in picking individual winners but making sure the market stays open to competition wherever it comes from.
And finally, the focus of the assessment is on the market in the UK. This is to ensure people in the UK benefit from the positive outcomes of competition; and investors have the confidence in UK markets remaining open. And, of course, in a world of global markets that means not just focusing on UK companies but all companies who operate in the UK. This is why Parliament entrusted the CMA ‘to promote competition, both within and outside the United Kingdom, for the benefit of consumers’ (Enterprise and Regulatory Reform Act 2013, s25(3)).
In terms of how we consider evidence and come to conclusions, it is worth noting that the CMA conducts a forward-looking assessment – where evidence of past practice is clearly relevant, but so is evidence of what is likely to happen in the coming years.
We focus on how markets work in practice and what form competition takes on a day-to-day basis. This can be direct sales or bidding competition but can also mean looking at how companies compete to innovate in a dynamic market and where potential future developments from one company drive the business strategy of other companies.
When it comes to investigating cases – no matter what form competition takes – the CMA’s approach is to engage, listen, and gather a range of evidence, use tested and principled frameworks and approaches, and arrive at well-reasoned, well-evidenced conclusions. This is what gives the UK regime the certainty and transparency it has been recognised for around the world, which we know matters to businesses and investors alike.
Evidence from the business themselves is absolutely key to our assessment. The number of company strategy documents I have read in my time reviewing mergers is mind-boggling. But if you truly want to know what drives a company to produce better products at cheaper prices, it is vital you look at what they are talking about internally and, of course, hear from the businesspeople themselves.
Evidence from a range of others with knowledge of the dynamics of the market is also vital, such as customers, competitors, industry bodies. We gather this evidence proactively through face-to-face discussions (or via Teams nowadays!), information requests, and of course we welcome incoming information. In fact, we have several points in our process where we publish invitations to comment and the current thinking on our investigations. This information from others in the market is vital to ensure we get a rounded picture of how competition works and the impact a deal might have. Often we get highly informative responses from customers who have heard about the deal.
Having brought in this wide range of perspectives and evidence, and engaged with multiple parties, we test it thoroughly. We look at the type of evidence, its relevance, and also consider the incentives of the people supplying the information. When advising clients, I was always very clear that the only way to land an argument before the CMA was to back it up with evidence they could rely upon. There’s often considerable pressure on the parties to make the strongest case possible but that’s ultimately counter-productive if the evidence doesn’t stack up, which we do sometimes see down the line.
On the conclusions that we come to after assessing the substance of the deal – it is worth reflecting on the real-world outcomes – what does the CMA actually do in practice?
I need to be very clear that just because the CMA finds concerns with a deal, that doesn’t mean it can’t go ahead in some form. The basic point is we are only finding a concern with that proposed deal structure, not with the concept of a general sale of the business. Beyond that, of course we are always open to discussing solutions which can remedy our concerns (more on the process later).
Remedies in the past have looked at various different types of arrangements, for example spinning off part of a business or making sure access to vital inputs is open to all. This ensures vigorous competition continues and innovation continues to thrive. And in certain circumstances we are prepared to preserve benefits where they meet the relevant standard, for example in NHS Trust mergers where the benefits to patient care outweigh any harm caused by a loss of competition between the merging trusts.
We know investor confidence and business confidence are critical to the growth we all want to see. We talk to these stakeholders all the time, listen to their concerns and reflections outside the heat of individual deals, where the consensus around the benefits of competition is strong. But we often find there are a few myths and misunderstandings out there about our interventions and processes. I’ll just share with you, by way of example, a few facts which can help to inspire confidence that the UK is very much a place where deals get done:
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over 50,000 M&A deals have taken place each year since 2019 (PwC: Global M&A industry trends: 2024 mid-year outlook) – in any given year, the CMA reviews only the handful of transactions with the potential to be truly problematic from a competition law perspective
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for example, in 2023 to 2024 the CMA considered 913 transactions, around 95% of which did not proceed to an investigation
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we carried out 54 phase 1 reviews (cases called in via our Merger Intelligence Committee and also cases notified directly to us by merging parties) – one-third resulted in unconditional clearance, and almost half were resolved through remedies to address the substantial lessening of competition instead of being referred to a phase 2 investigation
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that means we conducted in-depth phase 2 investigations in respect of just 9 cases where we considered the merger to have the potential to substantially reduce competition in the UK, including where we were unable to agree satisfactory remedies at phase 1 to address our concerns. All phase 2 inquiries are led by a group appointed from the CMA’s Panel of independent experts, which is responsible for making the final decision on the case. The majority of these (5) were cleared unconditionally, and a further 2 with remedies
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one merger in 2023 to 24 was subject to a prohibition decision at the end of the phase 2 process. Worth repeating that for those at the back – that’s one prohibition, out of over 900 mergers reviewed
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in total, 3 mergers were abandoned by the parties (2 at phase 2 and one at phase 1)
Process and interaction with companies
Turning now from substance to process. Again, something we know really matters to the companies in terms of efficiency, openness, and transparency. We think hard about this stuff, because we know it matters to confidence and thus to growth.
Jurisdiction
We need to first remember that the UK merger control regime (unlike many others) operates on a voluntary filing basis, in which companies can self-assess (often with the help of their legal advisors) whether the deal has potential competition issues and then opt not to alert the CMA if it doesn’t.
The CMA’s jurisdiction then relates to deals with the target having certain turnover or share of supply of goods and services in the UK.
The great benefit of the voluntary system is that it filters out the need to submit filings or the CMA to carry out a formal investigation in nearly all transactions. You can see this from the fact that the CMA only looked at roughly 50 transactions last year through the formal route as opposed to over 250 investigations opened in France (Autorité de la Concurrence: Rapport Annuel 2023, in French), and around 800 in Germany (Bundeskartellamt: Jahresbericht 2023/24) – as well as high numbers in many other countries.
Early engagement
Beyond the formal filings route the CMA also has an informal briefing paper route for companies to put their deal on the CMA’s radar and say why there is nothing to look at from a competition perspective. This route has been very popular post-Brexit with over a tripling of the number of briefing papers the CMA receives and the feedback we receive from businesses and advisors is that it is a simple way to get some certainty over a CMA review.
In 2023 to 2024, 156 informal briefing papers were sent to our mergers monitoring function, of which 15 were called in for a more formal review.
Further filtering
The voluntary nature of the regime and the briefing paper process mean the CMA only looks at the very small proportion of deals that have the potential to raise competition concerns through a formal investigation.
Then, there is a further filtering step whereby a deal only proceeds to an in-depth 6-month investigation if it raises initial competition concerns in a legally timetabled 40 working day phase 1 investigation. The CMA only begins its phase 1 investigation once it receives all the necessary information from the merging companies, this goes back to my earlier point about being evidence led in our decision making – and that’s the reason it’s the same process in nearly every country around the world.
At the end of the phase 1 process there is an opportunity for companies to offer solutions to any competition concerns raised to avoid the more in-depth investigation and this is a route frequently taken when only part of a transaction causes a concern – for example in local markets or one product line.
The CMA can also decide not to go to an investigation based on the market size being de minimis. We recently consulted and updated our process on this route making the qualifying market size larger and simplifying the way we carry out our analysis. We are already seeing deals come through our system on this basis and the evolution of our process appears to be working well and garnering positive feedback.
Openness and transparency
Finally, turning to the way the CMA engages with companies and the market more generally. We know clarity matters to the investment and business community, and the CMA process is one of the most transparent in the world. There are multiple opportunities for market participants to proactively engage with the CMA and the CMA publishes documents throughout the process to clearly set out its thinking on the deal. These are fully reasoned and evidenced explanations of the concerns the CMA is finding and why. And we go further than many authorities by publishing clearance decisions and extra commentary – feel free to follow me on LinkedIn for this.
The CMA is also constantly listening to feedback on its process. Even if the outcome didn’t go the way the parties hoped, they should feel they got a fair hearing along the way. It is fair to say the CMA has been criticised in the past for not hearing as much as it could, and not being as open as it could on its developing thinking (notwithstanding the fulsome published documents).
To this end, the CMA proposed a major overhaul of its in-depth phase 2 investigation process following a wide-ranging consultation, including with businesses, legal and economic advisors on UK and international merger cases, consumer and industry groups, and other competition authorities.
I was on the outside of the CMA at this time and working with several companies going through a phase 2 process. The proposed (and now adopted) reforms were very well received by all and look to be a step change in the experience of the CMA process for businesses.
The CMA trialled some of the updated processes on a case I worked on for the businesses, and they worked very well. Now we are doing our first full case under the new process and so far it has been smooth sailing from our side (with lots of hard work from the team), and we can see the real benefits of the earlier engagement with the businesspeople.
These are new reforms, they need time to bed in and have the benefits be really felt but we think they represent a genuine step change based on really listening and responding to what stakeholders have asked of us.
Conclusion
In summary:
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the CMA’s approach is independent, evidence-led, proportionate, expeditious, transparent and constructive – we listen to our stakeholders and always seek to improve our processes where we can
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effective merger control, protects fair, open, and effective competition on behalf of people, businesses and the economy
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as a driver of growth, merger control acts as an engine (not a handbrake) of innovation and productivity
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as a safeguard for consumer interests, merger control impacts the prices people pay, the quality of goods and services they receive, and how they benefit from innovation – in pure financial terms, merger control saved people in the UK £685.2 million per year on average in the last 3 financial years
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as a bulwark against shocks and disruption, merger control fosters a resilient economy less vulnerable to single points of failure
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and last, but by no means least, as an attraction and reassurance for investors, the UK merger control regime provides certainty to businesses and their backers that they can enter and compete in UK markets on a level playing field