Pro-growth merger control, or how the CMA learned to stop worrying and love mergers

Yesterday, Sarah Cardell, the Chief Executive of the CMA, delivered a speech on how the CMA is rising to the challenge of delivering growth for the UK economy, shortly before the CMA published its response to the Government’s Industrial Strategy Green Paper. The speech announced a review of the CMA’s approach to behavioural remedies, a new CMA outreach series for investors and startups, and emphasised the steps the CMA was taking to address feedback it had already received on proportionality, predictability, process, and pace. 

More crucially, however, it represented the clearest public signal so far of a change in the tone from the CMA when it speaks about mergers. This new tone, summarised clearly in the speech itself is that: 

The goal for merger control is simple – and this has always been the case: every deal that is capable of being cleared either unconditionally or with effective remedies should be. Only a truly problematic merger, where the harm to businesses and consumers cannot be effectively addressed through remedies, should not proceed.

Yesterday’s speech is the latest in a series of addresses by CMA executives since Prime Minister Keir Starmer’s speech of 14 October 2024 at the International Investment Summit, where he pledged to "rip out" bureaucracy and make the deregulatory agenda a "cross-government priority" (as we discussed here). The CMA’s leadership jumped quickly to communicate the ways in which the CMA’s work promotes growth across all its tools, including merger control, most explicitly in Joel Bamford’s recent speech titled "how effective merger control drives economic growth and innovation". We noted after the speech that it "could be interpreted by close CMA followers as a change in tone." 

It is safe to say the tone has now well and truly changed. A cynic might ask if this is all hot air, warm words to placate Westminster without a change in approach? We do not think so. In this Platypus post, we examine the two concrete actions set out in the speech – on remedies and stakeholder engagement. We then step back to consider the broader context and what impact this change in tone is likely to have on outcomes. While Platypus has no expectation of the CMA "going soft," we do consider that we are likely to see more (conditional) clearances in edge cases, though only time will tell how many, and how rough the ride to get there will be. 

Making mergers work: the CMA announces a major review of remedies

The most significant element of the speech, which was briefed to the FT in advance, was the explicit commitment to consider the proportionality of remedies against the objective of optimising growth and innovation. Sarah Cardell announced that in early 2025 the CMA will commence a review of the approach to remedies, which will consider:

• when behavioural remedies may be appropriate (including any distinction for regulated sectors);
• the scope of remedies that lock in genuine rivalry-enhancing efficiencies;
• the role for remedies to preserve relevant customer benefits which may offset anti-competitive effects; and
• how to move effectively to remedy discussions, informed by a clear understanding of potential competition concerns.

The CMA is responding to significant criticism regarding its long-standing approach, which appears out of kilter with its nearest cousin, the EC (see our most recent annual review of parallel EU / CMA reviews here). Historically, CMA orthodoxy has been to strongly favour structural remedies, as outlined in its guidance on merger remedies (CMA87), and publicly reject calls for behavioural remedies, referring to concerns around monitoring or compliance. The benefits of structural remedies were recently reiterated by Sarah Cardell herself in a speech delivered in February 2023 to the UK Competition Law Conference 2023. This approach has militated towards binary outcomes – either unconditional clearance or prohibition, including in cases where the EC has accepted remedies, especially in vertical and conglomerate cases.

However, in 2024, the CMA’s stance has appeared to change with the provisional acceptance of behavioural remedies in the Phase 2 investigation into Vodafone/Three. The CMA has been at pains to focus on the fact that this case falls within a regulated industry, with Ofcom agreeing in principle to an oversight role, and a case could be made that this particular merger is sui generis, but even so, such an outcome would have seemed unthinkable a few years ago. 

The CMA’s review can be expected to be empirical and evidence-based, and it is likely that while the evidence (as well as political winds) is likely to point in a more permissive direction for certain deals, especially those involving significant investment/efficiencies that could have a multiplicator effect across the economy, this will clearly not always be the case. As hinted at in the list of questions that the CMA will ask itself, it seems highly likely the CMA will conclude such remedies are more likely to be appropriate in regulated sectors. This in many ways is not new: the CMA has long accepted pricing commitments in rail franchise mergers and other types of behavioural remedies including changes to price caps, performance commitment and licence conditions requiring the separate provision of information in water mergers.

The big question is therefore not whether the CMA will conclude behavioural remedies are appropriate in some cases, but how positive a signal it is willing to give that they might be acceptable outside regulated sectors (and of course – a topic for another day – whether large tech companies can be considered "regulated" once designated as having Strategic Market Status under the new digital regime). 

Stakeholder engagement: we hear you - listening and learning

The speech notes the CMA’s willingness to receive, and take on board feedback, and also refers to its ongoing engagement with the business investment and start-up communities, a welcome and relatively new development. 

Sarah Cardell also highlights changes the CMA has already made, in particular the major overhaul of the Phase 2 investigation process, currently coming into effect, which is aimed at putting in place a "more transparent, collaborative, less adversarial approach, with better opportunities for constructive engagement between the independent CMA Inquiry Group and the parties." The first cases formally run under the new Phase 2 procedure are only in their early stages now, but undoubtedly the commitment to openness and earlier engagement on substance and remedies is very welcome. As we have written previously, even without a change in approach to substance, or remedies, this may result in lower deal mortality through reducing the risk of parties simply "timing out" in Phase 2. 

However, the speech also pushes back against some of the criticism levelled at the CMA, noting how few cases are investigated by the CMA and that the "number of digital mergers subject to remedies, prohibition or abandonment" indicate that they "have been no more likely to face intervention than any other type of case." The CMA remains an independent body and Cardell also states that, while "the merger regime must not live in an ivory tower," "neither should companies believe the way to success is through backroom lobbying." 

The CMA does not operate in a bubble: context is the key

The Starmer Government has officially and publicly set out growth and innovation as a policy imperative. This is crystalised in the Government’s Industrial Strategy Green Paper which was released with some veiled (and some not-so veiled) jabs at the CMA standing in the way of these objectives. Undoubtedly, the advent of generative AI (and its potential to unlock productivity growth and innovation across all sectors of the economy) and broader geopolitical trends post-Brexit, have added to the sense of urgency in the growth mission. The Government’s strategy is unequivocal about the need for investment to support technology adoption and diffusion, an expression used repeatedly in the Green Paper (reflecting recent academic research suggesting that a country’s success depends less on where innovation originates but more so on how well the innovation is "diffused" (i.e., embraced at scale)). In this respect, it is important to note that the CMA is not the only regulator coming under this pressure. In the EU, for instance, the Draghi Report recommended the use of behavioural remedies to lock in innovation funding.

The concerted public effort by the CMA to demonstrate its role in supporting the UK’s growth mission is not surprising. The CMA has long recognised the importance of not only fulfilling its statutory objectives, but of demonstrating that it is delivering for the UK economy and UK citizens to politicians and the wider public. By any measure, the CMA has been hugely successful in doing so and has been duly rewarded. The Digital Markets, Competition and Consumers Act 2024 (DMCCA), which was passed by Parliament in the final hours of wash-up before the election, handed the CMA significant new powers which will begin to take effect from January (see our recent blogs here and here). 

Despite the CMA’s significant coup in expanding its powers, its comparative reputation on merger control has threatened to be a thorn in its side. Indeed, many stakeholders have complained about the unpredictability and resource-intensive nature of the UK merger process from across the business and investment community. It is noteworthy in this respect that while the CMA got almost everything on its Christmas wish-list in the DMCCA, the one major gap was a lowering of the substantive threshold at Phase 2 for big tech firms; while challenger tech supported tougher conduct rules, it did not support rules that made exits harder. 

Where do we stand: is peak intervention behind us?

In the last year, many commentators, including Platypus, have begun asking if we might have passed "peak intervention" in UK merger control. While statistics only tell part of the story, those cited in yesterday’s speech are striking: the CMA has only prohibited one merger in the last year (though just today the CMA announced a decision tantamount to prohibition in Spreadex/Sporting Index). Platypus’ own statistics show that the Phase 2 "deal mortality rate" (which includes not only formal prohibitions, but also "conditional clearances" that amount to prohibition, and abandonments), measured from the beginning of 2022, is down to 43% after many years where it hovered around 60-70%. On top of this, as noted above, the CMA is lined up to accept novel behavioural remedies in its review of Vodafone/Three. Last but not least, as we wrote about recently, the last year has seen several (normally rare) failing firm clearances and de minimis approvals, as well as a much higher than usual proportion of deals reviewed at Phase 1 but found not to qualify for CMA jurisdiction (mainly AI partnership cases).

On one view, the speech might be seen as confirmation of this "softer" CMA. On another, as the CMA has pointed out itself many times, outcome statistics are heavily influenced by the small number of cases that come before the CMA: one swallow does not make a summer (or more accurately, one year with only one prohibition does not make a softer CMA). In addition, as highlighted in the speech, the CMA remains under a statutory duty to remedy, mitigate or prevent concerns it identifies and the evidential bar remains high. With the best will (and political winds) in the world, the CMA’s position remains constrained by statute.

However, the combination of the availability of earlier engagement on remedies, and a move away from anti-behavioural remedy orthodoxy will undoubtedly lead to more clearances in edge cases. And it is these cases on the margin that tend to generate the most controversy, especially those where the CMA is out of line with other major global regulators (often because of its remedy policy). While much remains to be seen, one thing is certain: the restatement that "[t]he goal for merger control is simple – every deal that is capable of being cleared either unconditionally or with effective remedies should be" is balm to a weary Platypus’ soul.