Transactions
The value of everything
15 Jan 2025
Insight
Global
3m read
It is key for all parties to have a clear understanding of the risks right from the start, and to be prepared to engage with relevant regulators at an early stage, particularly given the rise in call-in powers across the board.
Increased regulatory scrutiny – Merger control, foreign direct investment regulations and EU foreign subsidies regime
Regulators in key jurisdictions are becoming increasingly interventionist, particularly in the tech sector, where concerns have been raised about perceived historic under-enforcement. In the UK, the Competition and Markets Authority's expansive approach to the share of supply test and a new acquirer-focused jurisdictional threshold means that it can assert jurisdiction over deals with only a tangential link to the UK. The EU Commission is actively exploring ways to assert jurisdiction over transactions falling below the EU Merger Regulation (EUMR) thresholds, following the CJEU ruling in Illumina/Grail, which rejected the Commission's policy of encouraging EU Member States to refer transactions even where national jurisdictional thresholds were not met. The Commission has interpreted that ruling as still permitting it to accept a referral where the national competition authority of the referring EU Member State has powers to call in a below-threshold merger, and has encouraged more EU Member States to introduce such powers.
With regulators across the globe sharing more information with each other than ever before, consistency of regulatory tactics and approach globally is imperative."
Veronica Roberts
London
Foreign direct investment (FDI) scrutiny is on the increase, with many existing FDI regimes being expanded and new ones being adopted. This presents additional hurdles and uncertainties to be navigated in the context of cross-border M&A. Lack of transparency in FDI regimes can make it more difficult for those without experience to understand how the review process will play out in practice and to gauge potential execution risk. We are seeing an increase in mandatory notification obligations and continued expansion of the definitions of sensitive sectors, which can vary considerably between jurisdictions. As with merger control, the risk of non-notified transactions being called in for review is increasing, with regulators proactively monitoring and initiating investigations in non-notified transactions.
The still relatively new EU Foreign Subsidies Regulation (FSR) regime, designed to address the distortive effects of subsidies granted by non-EU countries, introduced mandatory notifications for certain large transactions. In the regime's first year, the Commission received over 100 notifications, the large majority of which were also notifiable under the EUMR. Remedies were imposed in one acquisition, which involved a company in receipt of subsidies from a Middle Eastern government. Although the Commission's early practice indicates a preparedness to take a pragmatic approach, notifications can be burdensome, requiring information to be provided for all foreign financial contributions exceeding €1 million that may have distortive potential.
The triple impact of merger control, FSR and FDI needs to be taken into account from the very beginning to ensure deal deliverability within the corporate timetable."
Adelaide Luke
Hong Kong
Preparation is key
The use of call-in powers brings uncertainty into the regulatory process which can complicate strategic planning and decision-making. The risk of call-in can be mitigated by early engagement with the regulators and in some instances by opting for a voluntary notification in the interests of legal certainty and greater control over the deal timetable.
Gathering relevant information as early as possible will facilitate complex filings. Details of foreign financial contributions required under the FSR regime are not typically the kind of information companies collect as part of their ordinary accounting and financial procedures, which means that staged information gathering exercises may need to be undertaken in advance, in order to avoid any unnecessary delays to the deal timetable.
Pre-notification discussions can contribute to streamlining the notification process: early discussions with the regulator will help to clarify the type and level of detail required for complex notifications. They can also avoid requests for additional information which typically 'stop the clock' of the review period and risk delaying the closing date.
The European Commission remains one of the toughest regulators worldwide: it will not hesitate to assert jurisdiction, demand hefty remedies and block deals. This is expected to continue under the new Commission in the next five years."
Kyriakos Fountoukakos
Brussels
Impact on deal documentation
Regulatory challenges should not be seen as the buyer's problem only, and 'hell-or-high-water' conditions imposed on the buyer are not necessarily in the best interests of the seller or the target business. Overcoming these challenges increasingly requires a joined-up approach involving all parties, who will have to adapt their deal strategies and consider acceptable remedies early in the process.
While acquisitions by private equity firms do not usually raise competition concerns, with scrutiny increasingly turning to roll-up strategies (under which they acquire a significant share of a sector through a series of small portfolio company transactions), regulatory conditions should still be considered.
Deal documentation should also reflect the risk of liability for antitrust fines being imposed on private equity firms for infringements of competition law by their portfolio companies, even if they had no knowledge or involvement in the infringing conduct, with appropriately drafted warranties and indemnities.
It's important to remember that FDI regimes are triggered by very low shareholding thresholds, sometimes as low as 10%, which means that more cross-border M&A than ever before is subject to a standstill period before completion."
Melissa Swain-Tonkin
Brisbane
Key contacts
Kyriakos Fountoukakos
Managing Partner, Competition Regulation and Trade, Brussels
Veronica Roberts
Partner, UK Regional Head of Practice, Competition, Regulation and Trade, London
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Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2025
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