The top 5 enforcement trends and their impact on cross-border transactions

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In 2021, antitrust and competition law enforcement continues to be a key risk for companies to consider when evaluating M&A and strategic plans. Whilst in many regions across the globe there are some common themes, such as a focus on Big Tech and the digital economy, the continued impact of the COVID-19 pandemic on cooperation between competitors, increased growth of foreign investment and subsidies controls and greater scrutiny of vertical issues, others are jurisdiction-specific and range across a number of topics and sectors. We believe that globally active businesses must prepare for increased enforcement and greater scrutiny in the following areas:

1. More aggressive merger control enforcement, in particular in pursuit of ‘killer acquisitions’
We anticipate that authorities globally will make greater use of their merger control powers of review and intervention. Enforcers around the world are adapting their practice to effectively address the “handful of mergers each year that could seriously affect competition” but evade the Commission’s scrutiny due to low company turnover. Special focus will be on high-profile acquisitions of nascent competitors in strategic sectors such as technology and healthcare (so-called ‘killer acquisitions’). But also deals involving innovation-led, data-heavy or consumer-facing businesses will have to face much closer scrutiny of authorities as well as stricter information and remedy requirements. In addition, regulators are developing new theories of harm aiming at acquisitions of minority- and cross-shareholdings that could lower incentives to compete and facilitate information-sharing. Furthermore, the global pandemic and the resulting economic downturn in many sectors did not cause the authorities to more generously accept “failing firm defences” for companies in financial difficulties while on the other hand fewer suitable buyers of divestment assets exist. Finally, following the end of the Brexit transition period, many cross-border deals will become subject to parallel EU and UK merger control which may impact the transaction timetable significantly. Developing from the outset an effective merger control and remedies strategy will therefore be the main challenge for dealmakers and businesses, and crucial to the success of transactions.

2. Increased scrutiny of FDI and foreign subsidies
The COVID-19 crisis has accelerated the already growing worldwide trend toward foreign-direct-investment (“FDI”) screening across the EU, prompting many jurisdictions to introduce new rules to protect critical assets and technologies. Their impact on deal timetables and the substantive assessment of FDI at a national level should become clear in the course of 2021. Since FDI rules can have a significant impact on cross-border transactions, businesses must remain up to date about reforms and new rules in a fast-changing regulatory environment. Dealmakers need to closely assess applicable foreign investment controls and the specific sensitivities of the target’s industry sector as early as possible in the transaction.
In keeping with the global trend toward greater protectionism, it is likely that 2021 will host fresh debates over the impact of foreign subsidies on the single market. The European Commission is expected to follow up on its White Paper on foreign subsidies (a consultation concluded in September 2020), which included proposals for measures to detect and address the distortive effects of companies benefitting from foreign subsidies on the single market, and measures requiring beneficiaries of foreign subsidies to submit suspensive pre-closure notifications prior to acquiring EU companies, and to notify these contributions when submitting public tenders.

3. Greener and more sustainable competition law
Sustainability remains firmly on the agenda in 2021, as consensus has built around the role of competition policy in addressing climate change and environmental harm.
Guidance on acceptable forms of cooperation in pursuit of sustainability policy objectives is currently limited and competition authorities in Europe have taken different views on the scope of lawful coordination between companies to achieve their sustainability goals. However, the European Commission is considering amendments to its Guidelines on Horizontal Cooperation in this respect. Also, the Commission’s comfort letter to Medicines for Europe in the context of the COVID-19 crisis suggests that it may also be willing to use comfort letters to provide guidance more broadly.
As ESG is increasingly becoming a core driver of M&A strategy, merger control is playing an important role in the development of green investments. Comments from Chief Competition Economist Pierre Régibeau indicate that the European Commission may seek to introduce new tools to analyse “out of market green efficiencies”. Hence, the success of many transactions will depend on clearly evidenced green drivers and thorough efficiency analyses.
The Commission is also expected to revise certain state aid instruments, including the Regional Aid Guidelines, Environmental and Energy Guidelines and the General Block Exemption Regulation, to better support the objectives of the European Green Deal.

4. Continued scrutiny of Big Tech via new and traditional tools
Around the world, an increased antitrust enforcement in digital markets and a greater scrutiny of large tech companies can be observed. The European Commission will continue its enforcement activities in the digital sector, including testing some novel theories of harm, through its formal investigations into Amazon (Amazon Marketplace, in which a statement of objections has been issued, and Amazon Buy Box) and Apple (App Store Practices and Apple Pay). It is also investigating how Google and Facebook collect data and use it to generate advertising revenue. The Commission is developing new tools designed to deal with digital platforms. In particular, it has proposed a Digital Markets Act, which will impose unprecedented and far-reaching ex ante obligations on digital “gatekeepers”, and will provide the Commission with extensive investigatory powers and the ability to impose fines and structural measures on these gatekeepers. At a national level, Germany is spearheading this development. The 10th Amendment to the German Act against Restraints of Competition (ARC) gave the German Federal Cartel Office (FCO) far-reaching powers to intervene against potentially abusive conduct of “companies with overwhelming importance for competition across multiple markets” (so-called “superdominant companies”). Section 19a ARC enables the FCO to prohibit the following conduct of digital gatekeepers: granting preference to a company’s own offerings over its competitors (“self-preferencing”); hindering third parties in their business activities on procurement or sales markets if the company’s activities are important for access to these markets; using competitively sensitive data collected by the company to create or appreciably raise barriers to market entry; and impeding the interoperability of products or services or the portability of data. These tools are underpinned by a new, shortened judicial review procedure. The FCO immediately made use of the new tools by opening proceedings against Facebook and most recently Amazon and Google. 2021 is also expected to see the first results of the Commission’s sector inquiry into the Internet of Things. As with the e-commerce sector inquiry, its findings could lead to further investigations in this area.

5. Review of vertical transactions, amendments of the Vertical Block Exemption Regulations and Vertical Guidelines
It is not only in the US that a shift of the regulators’ scrutiny can be detected in deals that combine firms in different parts of the supply chain. Such ‘vertical transactions’ have become less likely to be assessed as procompetitive if one of the parties to the transaction operates in a more concentrated industry. Following a public consultation into the impact of possible amendments to the Vertical Block Exemption Regulations and the Vertical Guidelines, the European Commission is considering proposals to include clarifications to the rules applicable to restrictions on the use of price comparison websites and online advertising restrictions, as well as the treatment of online platforms. The Commission is also considering possible amendments to the rules on dual distribution, active sales restrictions, indirect measures restricting online sales and parity obligations.

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