What Are Competition Law Concerns When Buying Another Business?

If your business has decided on a merger or an acquisition, you must consider competition law. The United Kingdom has its own regulatory framework that deals with merger control and competition concerns.

This article will explain competition law concerns when buying another business. 

What is Competition Law?

Competition law is the area of the law that deals with potentially anti-competitive practices. Usually, if a proposed merger means that a company has an outsized market share, competition concerns may arise, and the competition authorities may want to get involved. 

This can give you some idea about how the competition authorities view competition law.

What Are the Rules in the UK?

A merger or acquisition will raise competition law concerns if there is a ‘relevant merger situation’. By way of explanation, this is where two or more enterprises join together to become one, and:

• the turnover of the company is more than £70 million, or
• the merger results in a new business supplying 25% or more of the products or services in the UK market.

Thus, if your merger or acquisition is likely to do this, you should think about competition law issues. 

You are not obliged to tell the CMA of your proposed merger or acquisition. Instead, the merger control regime allows the CMA to investigate an anticipated merger if it wishes to do so. However, if they later investigate your merger and discover that it breaches competition law, they can shut your deal down. This can be very costly both in terms of money and time. 

As a result, you should usually inform the CMA of any proposed merger which you think may cause concerns. In addition, it benefits the merging parties to have a merger review before proceeding with the details of your transaction.

What if My Merger is Being Investigated by the CMA?

The CMA may decide to investigate your merger. If they do so, they will begin with a Phase 1 investigation. 

However, suppose the market where the merger is happening is not sufficiently important, or consumers would benefit from it. In that case, the CMA may let the merger happen even if there is a substantial lessening of competition. 

If they decide there will be a substantial lessening of competition that cannot be justified, they proceed to Phase 2. Phase 2 will be a more thorough investigation where the CMA will observe your case more closely. This will involve looking at:

• market definition;
• information on competitors;
• minority interests; and 
• more specific details about the product or service of the business you are buying. 

At this stage, the CMA can prevent you from buying the other business if they decide it is a severe threat to effective competition.

Key Takeaways

When buying another business, you will want to be familiar with any potential competition law concerns. Typically, competition law regulation applies to large companies that could potentially have an outsized market share within a large and established market. 

The relevant authority is the Competition Markets Authority. They will launch a Phase 1 and Phase 2 investigation if they believe that the merger will result in a substantial lessening of competition within a market in the UK. If you believe this may affect your business, it is wise to seek professional legal advice from an early stage.

If you need help with buying a business, our experienced business purchase lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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