The UK Digital Markets, Competition and Consumers Act 2024 (UK DMCC), which received Royal Assent in May 2024, makes several significant changes to the UK Competition and Markets Authority (UK CMA) and the country’s competition laws relevant to merger review. Among those changes, the UK DMCC introduced a new threshold for UK CMA jurisdiction over potential mergers.

The UK CMA now has jurisdiction over a merger where:

• only one party to the merger supplies at least 33% of relevant goods or services in the UK (or a substantial part of it); and
• has an annual turnover of £350m ($451m) or more in the UK, provided that the other party has a UK nexus (i.e., supplies goods or services or has a presence in the UK).

This new jurisdictional test is in addition to the tests already in force, which provide for UK CMA jurisdiction where:

1. both parties, after the merger, would have a share of supply of goods or services of 25%; or
2. the target has an annual turnover of £70m ($90m) (increased to £100m ($129m) with the UK DMCC).

Under the previous thresholds, unless there was an increment to the parties’ pre-merger shares of supply that either brought the parties over the 25% threshold, or reinforced a share above 25%, the UK CMA would not have had jurisdiction to review the merger.

As such, purely vertical deals (e.g., combinations between a supplier and a distributor) or deals where the target company was still an early-stage company with no established presence could escape UK CMA scrutiny.

This led the UK CMA in recent years to apply an increasingly flexible interpretation of the rules, and its jurisdiction has been challenged in the courts, even if the UK CMA ultimately prevailed. Nevertheless, the authority’s willingness to stretch its jurisdiction had its limits, as evidenced by situations in which it has conceded a lack of jurisdiction over transactions involving targets with only a minimal nexus to the UK.

Focus on ‘killer acquisitions’ and nonhorizontal concerns

This new test, which can be triggered by one party’s share of supply alone, is designed to address this lacuna and introduce greater legal certainty. The new threshold is intended to capture situations where a party with potential market power acquires an entity that could develop into a competitor down the road, even if the acquisition target lacks any meaningful current market position, such as an innovative startup or a pharmaceutical company with a portfolio of pipeline (but no marketed) products.

Antitrust agencies around the world have referred to such acquisitions, if harmful to competition, as “killer acquisitions,” which they view as a potential means for established companies to eliminate future competitive threats. The new threshold also gives the UK CMA the power to review more vertical deals as well as conglomerate mergers, where two parties operate in different (but related, typically “neighbouring”) markets.

UK remains a voluntary merger control regime, with one key exception

Importantly, the UK merger control regime remains voluntary, meaning there is no positive obligation to notify the UK CMA of a transaction or seek approval in advance, except for specific firms active in the digital space (discussed below). The UK CMA’s merger intelligence unit, however, proactively monitors M&A activity and is expected to continue to focus its attention on killer acquisitions and deals taking place involving nascent, innovative startups. Where the UK CMA has jurisdiction over completed deals it can call-in, investigate, order the parties to hold the businesses separate during its investigation, and eventually prohibit and order parties to unwind the transaction.

Given the expanded jurisdiction of the UK CMA, it is therefore important that parties considering a merger work with UK antitrust counsel to determine an appropriate strategy for engagement and risk allocation provisions in contracts to avoid unintended consequences.

New merger notification obligations for digital firms with ‘Strategic Market Status’

As an exception to the voluntary nature of the UK merger control regime, the UK DMCC creates a positive notification requirement for a select number of firms designated as having Strategic Market Status (SMS) by the UK CMA’s new Digital Markets Unit (DMU). The DMU will designate firms as having SMS for a digital activity if they meet specific revenue thresholds (>£25 billion ($32 billion) revenue globally or >£1 billion ($1.3 billion) revenue in the UK) and if they are deemed to have substantial and entrenched market power.

Such entities will be subject to a duty to report prospective mergers in situations where (1) they cross a 15%, 25%, or 50% share ownership/voting threshold (regardless of whether the SMS firm will exercise control or material influence over the target) and (2) the total deal value exceeds £25m ($32.2m).

Crucially, SMS firms will not be able to close any acquisition that meets the thresholds until they have notified the UK CMA and the agency has had the opportunity to review the deal. While this review is, in effect, only an initial screening (timing is limited: five days to confirm the notification is complete and a further five days to review the substance), it will give the UK CMA time to reach a view as to whether to initiate a more fulsome investigation and, if necessary, potentially impose a binding order preventing closing.

DMCC timing

The new thresholds came into full force on January 1, 2025. On January 14, 2025, the CMA launched its first SMS designation investigation, followed by a second one on January 23. Initial designations are expected later in 2025.

Global trend focusing on mergers with nascent competitors and nonhorizontal merger concerns

The UK DMCC is just the latest in a global trend of merger control regimes focusing on “killer acquisitions” and vertical or conglomerate mergers. In December 2023, the FTC and DOJ jointly released the 2023 merger guidelines. While these merger guidelines are not binding law, they provide valuable insight into how US agencies view merger enforcement. The 2023 merger guidelines raised concerns about acquisitions of nascent competitors and suggested increased focus from the US FTC and US DOJ on “killer acquisitions” and vertical and conglomerate mergers.

The United States’ increased focus on mergers affecting nascent competitors is reflected in recent cases such as the Matter of Sanofi/Maze Therapeutics, Inc. On December 11, 2023, the FTC brought an action seeking to block Sanofi’s proposed acquisition of an exclusive license to Maze Therapeutics’ therapy in development for treatment of Pompe disease. The FTC alleged that Sanofi was a monopoly supplier of approved drugs to treat Pompe disease.

Though Maze Therapeutics’ therapy had not yet hit the market or completed the clinical trials necessary to seek FDA approval at the time of the action, and thus did not possess any market share, the FTC claimed it threatened Sanofi’s market position in the future and alleged that the acquisition would eliminate this competition. The parties abandoned the transaction following the FTC’s action.

In the EU, this global trend is reflected in the European Commission (EC) Illumina/GRAIL case and the European Court of Justice (ECJ) Towercast judgment. The Illumina/GRAIL case involved Illumina’s acquisition of GRAIL, a startup with no existing EU revenue at the time of the deal. The deal raised alleged vertical competition concerns based on Illumina’s role as an anticipated supplier to GRAIL as well as GRAIL’s anticipated rivals.

While the deal did not meet the EU’s mandatory notification thresholds because GRAIL did not have any turnover within the EU—and critically nor did it meet notification thresholds in the referring EU Member States—the EC asserted jurisdiction on the basis of Member State referrals under Article 22 of the EU Merger Regulation. The parties completed the acquisition notwithstanding the EC’s investigation. The EC blocked the acquisition in September 2022 due to vertical competition concerns and in October 2023 ordered the parties to unwind the merger.

However, the ECJ determined in September 2024 that the EC had acted unlawfully in accepting the referral request under the Article 22 procedure where the transaction would otherwise have escaped merger control review by the EC and individual Member States because it did not meet the relevant jurisdictional thresholds.

While the Illumina/GRAIL ECJ judgment undoubtedly represents a blow to the EC’s attempt to enforce against below-threshold acquisitions, a number of Member States have jurisdictional thresholds that are more flexible than those of the EC and may allow those states to assert jurisdiction over deals below the EC thresholds and provide a basis for Article 22 referral for some “killer acquisitions.” Some competition authorities are already experimenting with that.

In 2022, Italy implemented a law that confers on the Italian Competition Authority (AGCM) the power to call in below-threshold concentrations when: (i) the concentration has not closed more than six months before; (ii) one of the two national turnover thresholds is met or the global turnover of the undertakings involved is > EUR 5 billion ($5.4 billion); and (iii) the AGCM identifies competitive risks for the national market and the development of small enterprizes, should the transaction go through. Using this power, in November 2024, the AGCM called in for review the acquisition of an AI startup company by a leading semi-conductor manufacturer, despite the target’s activities in Italy being minimal to non-existent.

The AGCM then referred the case to the EC, which reviewed the case despite the merger not meeting its jurisdictional thresholds. The EC cleared the merger in Phase I, however, the acquirer has now brought an action in the General Court  against the EC for accepting the Italian referral request, claiming that in doing so the EC had violated the Illumina/Grail court ruling, which curbed the EC’s power to review smaller mergers.

It is also likely the EC will recommend other EU Member States implement similar changes to their laws, and the EC may also consider amending its own jurisdictional thresholds in time.

Another avenue for below-threshold merger enforcement in the EU is to apply EU competition law to mergers after they have closed. The ability for the EC to do so was recently confirmed in the ECJ’s March 2023 Towercast judgment. In that ruling, the ECJ ruled that the EU Member State authorities and national courts may scrutinize mergers as an unlawful abuse of a dominant position. This is likely to be a last resort as it would require complex and lengthy investigations, but certain EU Member State authorities—Belgium and France in particular—have indicated that they intend to use the Towercast caselaw to investigate consummated deals.

For more background on the implications of the ECJ’s judgment in Illumina/GRAIL.

Implications for AI, technology and pharmaceutical industries

The UK CMA has gained a reputation in recent years as an aggressive and impactful antitrust enforcer. The UK DMCC only bolsters its powers, and as such it is more relevant than ever to consider the role of and approach to the UK CMA as part of the global merger review process. The new mandatory merger reporting requirements for parties in digital industries with an SMS designation compels these parties to develop their advocacy positions at an earlier stage in the merger process and may impact timing considerations across multiple reviewing jurisdictions.

Meanwhile, the increased investigative focus by competition watchdogs in the United Kingdom, United States, and the European Union on smaller and nonhorizontal deals is relevant for navigating merger reviews in the artificial intelligence, technology, and pharmaceutical industries in particular. These industries have been the focus of much investigative attention to date, and they feature active startup ecosystems from which some startups will seek potential exit opportunities through mergers and acquisitions with existing firms.

Navigating those transactions requires an appreciation of current antitrust thinking, including about nonhorizontal concerns, and an understanding of the impacts of the evolving regulatory regimes and anticipated timelines across jurisdictions.