UK Vs EU In Dealmaking Approvals: Who Has The Right Approach?

  • Industry expert discusses the potential consequences of CMA decisions on dealmaking activity in the UK.
  • Claire Trachet, tech industry expert and CEO of business advisory, Trachet, assesses the balance between stimulating competition and making the UK an attractive dealmaking destination.  

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Executives seeking to engage in multinational deals must prepare themselves for the additional challenges from regulators due to the increasing uncertainty surrounding the clearance of these transactions. This comes following the blocking of various high-profile deals, such as the $69bn Microsoft-Activision deal, and Adobe’s $20bn acquisition of Figma. In light of this, Claire Trachet, M&A expert and CEO of business advisory, Trachet, highlights how recent action from the Competition and Markets Authority (CMA) has affected the dealmaking landscape in the UK.

The UK’s decision to leave the EU created a shift in merger scrutiny, giving the UK more influence over global multibillion-dollar transactions. Prior to Brexit, large corporations focused on EU antitrust decisions through Brussels, but now dealmakers must consider the UK’s Competition and Markets Authority (CMA). Alongside massive deals like Microsoft-Activision and Adobe-Figma, the CMA has been blocking deals in other forms. Linklaters found that decisions from the CMA to either veto or review a deal resulted in the abandonment of three times as many transactions in comparison with rulings from EU regulators between 2018 and 2020. Further data found the trend is growing, with almost 70% of deals that become subject to an in-depth review become either rejected or scrapped in the past three years.

Whilst Brussels took a different approach regarding the Microsoft-Activision deal, approving the merger with concessions that satisfied their competition concerns, the regulator appears to be more open to approving deals. For instance, Facebook’s acquisition of Kustomer, a customer relations management provider, was opened for review, but eventually cleared, despite the CMA’s decision to quickly clear the merger as it was viewed as not presenting any competition threats. For dealmakers, this poses an uncertainty of how the CMA will react to potential mergers in the future.

Amidst a critical time where the UK has faced criticism for significantly lesser investments into its prominent tech sector, the CMA’s decisions to block deals that could’ve benefitted the economy are widely criticised. According to DealRoom, increased support into the sector could quadruple its value to $4 trillion, as a result, the decision to block these deals potentially stifles this progress and the creation of jobs across the sector. Despite this, the CMA remains firm on creating a competitive landscape throughout the UK’s tech ecosystem is critical for attracting investment in nascent markets such as AI, which according to recent research from Earlybird, houses the largest number of AI startups in Europe at around 334. Investor confidence in the sector is heavily reliant on ensuring balanced competition on every level of the UK’s business pyramid is maintained.

Claire Trachet, CEO/founder of Trachet, comments on how maintaining competition within the tech and AI startup community is essential for the UK’s growth:

In the complex realm of investor confidence, the CMA’s impact on blocking deals is a double-edged sword. While it may face criticism for hindering potential economic benefits, it plays a vital role in fostering a competitive space for innovative technologies like Artificial Intelligence to thrive.

“It is a delicate balance that requires strategic decision-making to ensure consumer interests are served and the UK remains an attractive hub for innovation. As these verdicts are presented on the global M&A stage, it has a direct impact on the attractiveness of the UK as an M&A destination. The decision to continue blocking massive deals means that other companies looking to venture out in such a way may refrain from doing so.”

“Whilst the M&A sector has had to navigate a challenging period as a result of various macroeconomic challenges, generative AI remains a form of optimism for the sector. This comes as companies and investors are increasingly recognising the transformative power of AI across a wide range of industries and are eager to seize this opportunity.

“With the UK holding the highest number of AI startups in all of Europe, this suggests that it could also experience the most activity compared to other countries on the continent. In line with this, there is now a growing number of investors who are sat on a dry powder pile having deterred investments in H1. This means there are significant opportunities on the horizon, and now is the moment to prepare and get deal ready as optionality will increase throughout the following months.

“However, the UK must remain careful in in terms of these decisions on such high-profile deals, as these verdicts are presented on the global M&A stage and have a direct impact on the attractiveness of the UK as an M&A destination. The decision to continue blocking massive deals means that other companies looking to venture out in such a way may refrain from doing so.”