Transactions
The value of everything
19 Mar 2025
Insight
Regulators in many key jurisdictions – including the EU, UK, US and Australia – are becoming increasingly concerned about so-called "killer acquisitions" ie, acquisitions by large companies of smaller targets in highly innovative sectors, aimed at preventing a competing product from reaching the market or eliminating a nascent competitor. This is a particular issue in sectors such as pharmaceuticals, technology (including in particular in relation to AI startups) and energy.
The fear is that such acquisitions risk stifling innovation and increasing market concentration, to the detriment of consumers. However, most merger control regimes currently include jurisdictional thresholds based on target turnover, which can limit the regulators' powers to intervene to address any competition concerns. Many regulators have therefore recently reviewed – or are in the course of reviewing – their existing powers, seeking to increase scrutiny of such transactions. This includes amendments to jurisdictional thresholds (eg, in the UK) as well as more readily using call-in powers for below threshold transactions (eg, in Europe and China).
This is however a hotly-debated issue in the context of the global trend towards pro-innovation competition policy, as regulators are also under pressure to avoid chilling M&A activity in innovative sectors and to improve legal certainty and predictability for dealmakers.
Potential for major reforms at EU-level
At an EU-level, the European Commission has historically relied on a mechanism under Article 22 of the EU Merger Regulation (EUMR) that enables national competition authorities to refer mergers to the Commission to allow it to review mergers falling below the current EUMR turnover thresholds. However, in a landmark judgment in Illumina/Grail, last year the EU Court of Justice rejected the Commission's wide interpretation of its powers under this mechanism (see our detailed briefing here for more information). The court ruled that the Commission could not accept a referral of a merger that did not meet the national merger control thresholds of the referring Member State, significantly restricting the Commission's use of this mechanism to review below-threshold mergers.
The new Competition Commissioner, Teresa Ribera, has been tasked with exploring ways to increase the European Commission's powers to review below-threshold transactions in light of this judgment. Potential changes under consideration include introducing deal value-based thresholds and/or call-in powers for below-threshold mergers under the EUMR.
This is however a hotly-debated issue in the context of the global trend towards pro-innovation competition policy, as regulators are also under pressure to avoid chilling M&A activity in innovative sectors and to improve legal certainty and predictability for dealmakers.
In the meantime, we expect that national competition authorities in the EU with express powers to "call in" transactions which do not meet national merger control thresholds will make increased use of such powers, with a view to then referring cases to the Commission under Article 22 (and additional Member States are also expected to introduce similar call-in powers). This possibility was left open by the Illumina/Grail judgment, and in October 2024 this was exactly what happened in respect of NVIDIA's acquisition of Israeli AI workload management start-up Run:ai – the Italian competition authority requested notification of the transaction using its powers to call in below-threshold transactions, and subsequently referred it to the Commission. The transaction was ultimately cleared unconditionally under the EUMR, but the Commission's acceptance of the referral request has nonetheless been challenged by NVIDIA before the EU General Court. That appeal is still pending and this will be an interesting area to watch in the year ahead.
In the tech sector, it is also important to note that any company designated as a "gatekeeper" under the EU Digital Markets Act is also subject to an obligation to inform the Commission of any proposed transaction that amounts to a "concentration" under the EUMR prior to its implementation – irrespective of whether the concentration would be notifiable to the Commission under the EUMR or to a national competition authority under national merger control rules. This obligation will only apply to a relatively small number of companies, but it is nonetheless an important additional development to be aware of.
New acquirer-focused merger control threshold in the UK
The UK Digital Markets Competition and Consumers Act 2024 has attracted a lot of attention for introducing a new digital markets regime in the UK with effect from 1 January 2025. However, it also introduced a new acquirer-focused jurisdictional threshold for UK merger control that applies in all sectors and is designed, at least in part, to enhance the ability of the Competition and Markets Authority (CMA) to review killer acquisitions (both in the tech sector and beyond).
Acquisitions of promising start-ups in sectors such as pharma, tech and energy are increasingly likely to attract the attention of competition authorities, even where the start-up's turnover is very small or non-existent, with many regulators seeking to increase their powers to review such transactions."
Veronica Roberts
Partner
The additional threshold empowers the CMA, in addition to the existing rules, to review deals where one party – which could be the acquirer – has a share of supply of 33% or more and UK turnover of £350 million or more, provided the other party has a "UK nexus" (which is a very low threshold).
Merger reform in Australia
The new regime in Australia will introduce specific thresholds targeting killer acquisitions or roll-up strategies.
To assess the monetary thresholds, all acquisitions by the acquirer group within the prior 3 years in the same product or service market/s would be aggregated. The thresholds are expected to be low, and will give the Australian Competition and Consumer Commission significant oversight over a wide range of transactions.
For example, under current proposals, if an acquirer group has Australian turnover of $200 million, a transaction will be notifiable if the cumulative Australian turnover from all acquisitions in the same product or service market/s over the prior 3 years exceeds $50 million.
For more information on managing the regulatory burden on transactions, see our piece "Regulatory risk, some give some take".
Key contacts
Veronica Roberts
Partner, UK Regional Head of Practice, Competition, Regulation and Trade, London
Kyriakos Fountoukakos
Managing Partner, Competition Regulation and Trade, Brussels
Linda Evans
Regional Head of Practice – Competition, Regulation and Trade, Australia, Sydney
Chapters
- Global M&A Outlook 2025 – Sector and broader perspectives
- AI and M&A – What you need to know
- Automotive – Challenges remain
- Competition, regulation and trade – Regulatory focus on ‘killer acquisitions’
- Consumer – Still cautious
- Cybersecurity – Deal resurgence
- Energy – What you need to know from around the world
- Infrastructure— How to bridge the gap?
- Mining – The energy transition and demand for critical minerals continue to drive activity
- Pharma – Will 2025 be the year?
- Real Estate — Encouraging signs
- Tax – Change ahead?
- Tech Innovation – To buy or to collaborate?
- TMT and digital infrastructure — AI drives activity
- Venture and growth capital — Brightening horizons
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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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