In October 2017, we reviewed a UK government consultation on proposals to give the Secretary of State greater powers to intervene in mergers and acquisitions affecting the tech and defence sectors.
On 15 March 2018, the Department for Business, Energy and Industrial Strategy (BEIS) published the UK government’s decision to amend the UK merger control jurisdictional thresholds, as proposed in the October 2017 consultation. This will extend the powers of the Secretary of State to intervene in mergers that might raise national security concerns in specific areas of the economy.
The government confirmed its decision to relax the jurisdictional thresholds for M&A activity in three specific sectors:
- the development or production of items for military or dual military/civilian use;
- quantum technology; and
- computing hardware.
The government proposed a set of definitions for the dual-use and military and advanced technology sectors as follows:
|Area of advanced technology||Definitions|
|Military and dual-use||Enterprises that design or manufacture items or hold related
software and technology specified on the UK Military List, UK
Dual-Use List, UK Radioactive Source List and EU Dual-Use
|Multi-purpose computing hardware||Enterprises that:
(i) own or create intellectual property rights in the functional capability of multi-purpose computing hardware; or
(ii) design, maintain or support the secure provisioning or
management of the roots of trust of multi-purpose
|Enterprises that research, develop, design or manufacture goods for use in, or supply services based on, quantum computing or quantum communications technologies. This would include the creation of relevant intellectual property or components.|
In these sectors, the turnover threshold applicable to such transactions will be reduced from £70 million to £1 million. Accordingly, whenever a target company with annual UK turnover above £1 in one of these sectors is acquired, it may be investigated on public interest and competition grounds. In addition, even if the £1 million turnover test is not fulfilled, the transaction may also qualify for investigation if the transaction involves a target business with a 25% or more share of supply in any relevant market, even if the buyer does not compete with the target at the time of the acquisition (and so there is no increase in the share of supply as a result of the merger). This contrasts with the standard way in which the share of supply test is applied.
The government is clear that it intends the change “to protect all of the public interests that can potentially lead to a merger being prohibited”. Accordingly, it is clear that, in appropriate cases, the Secretary of State will be taking a much wider view of the public interest in approving a particular transaction, as opposed to being guided solely by whether the transaction would substantially lessen competition in the market(s) concerned.
In a previous article we commented on some of the drivers for these increased regulatory powers. Essentially the new measures can help to protect the UK supply chain’s intellectual property and also go some way to protecting against the risk of Brexit-related “brain drain”. However, the sectors affected by these new powers are already global, so it will be important that the new powers are exercised in a way which does not stifle current beneficial cross-border trade and investment.
The government intends to make the necessary secondary legislation needed to put this decision into effect at the earliest opportunity. Separately, the government’s proposals for connected “long-term” reforms to how it scrutinises the implications of foreign investment remain under consideration.