As the world emerges from the COVID-19 pandemic, increased M&A activity is likely until at least the end of 2020. The pandemic has changed the landscape of M&A, antitrust and foreign direct investment (FDI) reviews globally in the following key areas.(1)
Many competition authorities across the world have expressed an enhanced interest in so-called 'killer acquisitions' – namely, acquisitions of smaller nascent competitors. While jurisdictions such as the United Kingdom and Canada have merger regulations that provide discretion to review such mergers, EU merger regulation triggers are not as flexible and tend not to capture transactions in which the target is relatively small. Jurisdictions such as Australia have recommended that large platforms voluntary report transactions, regardless of whether notification thresholds have been met, to better alert the competition authority to transactions such as these. Other jurisdictions, such as Japan and Korea, are also considering updating their merger guidance to capture such transactions.
Failing firm and counterfactual defence
With companies facing financial challenges in light of the pandemic, merging parties will likely increasingly raise these types of argument in merger control reviews. Some global competition authorities remain wary of such arguments. Similar to what transpired in the 2008-2009 financial crisis, the US Federal Trade Commission and the UK Competition and Markets Authority issued statements to merging parties advising that, even in light of the pandemic, the criteria for these defences have not been relaxed or changed. However, merger control assessment remains grounded in actual economic circumstances and the competition authorities have accepted failing firm arguments to allow mergers to proceed where strict criteria were met.
Deal parties will likely take increasingly creative approaches to transactions, potentially in acquisitions of distressed assets. These approaches could inadvertently result in acquisitions of control under some countries' merger control regimes, triggering filing obligations.
Companies should take precautions not to 'jump the gun' in the interim period between signing and closing. While these issues arise frequently in US investigations, in reality, enforcement of gun jumping violations are rare. In other jurisdictions such China, questions of gun jumping issues are investigated with increased frequency, with numerous parties being penalised for implementing their transaction ahead of receipt of merger clearance. Using third-party 'block box' functions and informational firewalls can be useful in ensuring that merging parties do not engage in gun jumping.
There will likely be increased FDI reviews. While significant changes in global FDI regimes were implemented pre-pandemic, COVID-19 has been an accelerator for increased FDI scrutiny. For example, the European Union has encouraged its member states to implement FDI frameworks (if they do not exist already) and enforce stricter FDI regimes. Moreover, in April 2020 Canada announced that foreign investors may be subject to enhanced screening under the Investment Canada Act and, in the United States, the review scope of the Committee on Foreign Investment in the United States has also been increased and strengthened.
Endnotes
(1) This article is based on a recent webinar, available here.
