2015/16: A Record Year For UK Merger Control

This post looks at the pattern of merger control decisions during the Competition and Markets Authority’s (CMA’s) second full year, which ended on March 31st. The decisions covered are those for which final decisions were published during the year.

In summary:

2015/16 turns out to have been a record-breaking year in many different respects

  1. A record low number of Phase 1 merger decisions

The 62 published CMA Phase 1 decisions was the lowest number of any year since the Enterprise Act came into force and well down on 2015/16.

A third successive sharp drop in the number of non-notified mergers that the CMA ‘called in’ for investigation contributed to the fall. Only 10 cases were called in, the lowest number I can recall for any year. Another record.

Phase 1 Merger Decisions – 2015/16 compared to previous years

160406-phase 1 figures 15-16

2. A record low number of decisions was found not to meet the jurisdiction criteria

The number and proportion of published cases found not to meet the qualifying tests for jurisdiction was in 2015/16 a fraction of its historic average – and by far the lowest in any year so far under the Enterprise Act.

3. Phase 1 competition problems at a record high

The proportion of Phase 1 cases meeting the jurisdiction tests (so-called ‘qualified cases’) that was found to threaten a ‘substantial lessening of competition’ (SLC) doubled compared to the CMA’s first year and reached a record high of 38%.

There are two elements to this that are worth noting:

  • Cases that are candidates for a Phase 1 SLC decision are examined in detail at a so-called ‘Case Review Meeting’, late in the Phase 1 process. The proportion of cases taken to a Case Review Meeting was well above average in 2015/16.
  • And of those cases, over 80% resulted in an SLC finding – again well above average.
  1. The lowest ever proportion of cases decided at Phase 1

The proportion of qualified cases decided at Phase 1 was the lowest to date under the Enterprise Act.

This result stems from the fact that, even though the proportion of problematic cases referred to Phase 2 for further investigation was well below average, the percentage of problematic cases in the overall caseload was at a record high, as described above.

  1. The proportion of problematic Phase 1 cases deemed too small to merit a Phase 2 investigation was at a record low

This statistic relates to so-called ‘de minimis’ cases. It is a great example of how one needs to look at individual cases (both notified and un-notified) in order to interpret the result.

Might it indicate that the CMA is taking a harder line on arguments put to it that a case is too small to warrant further investigation? Or does it show that the CMA is calling in fewer potential ‘de minimis’ cases? Cases strongly favour the latter.

6. A record high for Phase 1 remedies

The proportion of problematic cases dealt with by remedies at Phase 1 rose to a record high of nearly 40% in 2015/16.

It is striking that, at one point during the year, seven out of ten consecutive SLC decisions (excluding de minimis cases and automatic references) were dealt with through Phase 1 remedy rather than reference to Phase 2, another record under the Enterprise Act as far as I recall.

It is interesting that this is in the context of there being….

7. No Phase 2 prohibitions for the second consecutive year.

This means that the CMA Phase 2 decision-makers have yet to prohibit a merger.

There have, however, been two previous occasions in which there have been no prohibited mergers for two consecutive years. So this one isn’t a record !

2015/16 – CMA Final Phase 2 Merger Decisions

160406-phase 2 decisions 15-16

Looking ahead

Where does this cascade of new merger records leave the CMA, merging firms, competitors and customers?

There is little doubt that the CMA has become increasingly selective in the cases it has chosen to call in for investigation, to a degree that requires highly reliable information being available from merging parties in order to enable the CMA to avoid missing too many problematic deals of reasonable size.

The particular challenge here for the CMA is to make these ‘call in’ decisions accurately and quickly outside of the formal review process, without the range and quality of cross-checks that comes from interaction with competitors and customers when a case is called in for review.

As some have already recognised, for merging parties greater CMA selectivity is clearly relevant to decisions regarding notification. A key question, therefore, is whether the CMA will decide to be as selective in the year ahead. It is worth remembering here that there has already been more than one occasion under the Enterprise Act when tighter case selection has been followed by a move back to a more expansive approach to calling in cases for review.

For customers and competitors greater CMA case selectivity clearly puts a premium on making representations more quickly, rather than waiting for a formal investigation to begin. The much-expanded role for pre-notification also points in this direction, as does the earlier involvement of the Phase 1 decision-maker than used to be the case.

Turning to substantive decisions made during 2015/16 , as the National Audit Office recently put it, “the CMA is expanding the practice of clearing cases with remedies in phase 1 without the need to go for a more detailed and resource-intensive phase 2 review.”

It would be easy, however, to overstate the extent to which the 2015/16 remedies record is due to the CMA’s expanded Phase 1 remedy ambitions. In particular, the increasing level of challenge in many deal valuations (a factor in the low number of deals) seems to me to have had a notable effect on the appetite for regulatory risk and therefore the pattern of deals being brought to fruition (including their suitability for Phase 1 remedies).

Two other questions are also relevant here:

  • To what extent has the way in which CMA plans and manages its casework (now that Phase 1 and Phase 2 are under one roof) affected the pattern of Phase 1 decisions being made?
  • And what has been the impact of certain ‘bold’ Phase 2 clearance decisions on the attitude to remedies at Phase 1, both by parties and by the CMA?

On the whole, my own 2015/16 casework leads me strongly to suspect that the CMA’s record-breaking year for mergers hides patterns that are more complicated than they first appear from the aggregate statistics.

As always, many of the main lessons for interested parties to future mergers come from understanding what has worked well or badly in individual cases during 2015/16, as well as from understanding what the aggregate figures do and do not show.

In both respects 2015/16 should leave plenty of pause for thought for all concerned.


© Adrian Payne, 2016

The Most Interesting CMA Merger Decisions of 2015

Last updated: February 29th 2016

Which were the most interesting UK merger decisions of 2015, in terms of the competition analysis undertaken?

160229-Phase 1 case summary slide

Here are my nominations, chosen from those cases that have completed their passage through CMA scrutiny (whether that was a Phase 1 assessment only or a Phase 2 inquiry as well) and for which a full final decision has been published.

To link straight to the CMA’s published decision for a case, please click on the blue highlighted titles.

Regus Group/Avanta Serviced Offices Group – Phase 1 undertakings in lieu of reference to Phase 2

The CMA found competition concerns in five areas of Central London and accepted divestments and a behavioural remedy to deal with these problems.

Points of interest included:

  • Comments by the CMA on the importance of the timely provision of evidence:
    • “At phase 1 the CMA has limited time to assess whether its duty to refer applies. The earlier that merging parties submit economic analysis supporting their case, the better-placed the CMA will be to assess that evidence and attribute appropriate weight to it. Accordingly, where possible, the CMA encourages merging parties to engage with it prior to commencement of the 40-working-day review period where they are considering submitting economic analysis.” – (Decision – paragraph 40)
  • Statistical analysis by the parties of a previous merger in the sector: The CMA reworked the analysis and produced more concerning results
  • The extremely detailed assessment of rival office capacities at a very local level, including the cross-checking of the parties’ figures with third parties
  • The disregarding of two office closures that took place before the merger and that would have created overlaps between the parties
  • The weight put on evidence of specific examples of local entry by rivals rather than on general ‘low barriers to entry’ arguments

Muller/Dairy Crest dairy operations – Phase 1 undertakings in lieu of reference to Phase 2

The CMA found competition concerns only in the supply of fresh liquid milk to national multiple retailers in the catchment area of Dairy Crest’s Severnside dairy, especially in the South West and Wales. Undertakings in lieu of a Phase 2 investigation were offered and accepted.

Particular points of interest are:

  • This is the first time that the new agency has accepted at Phase 1 arguments to the effect that assets would inevitably exit the market in the absence of the merger. (This was important because it enabled the CMA to conclude that, in certain products and geographic areas, the merger itself would not decrease competition compared to what it would otherwise be). In this case the CMA accepted the parties’ arguments that Dairy Crest would ‘downsize’ to a single dairy (Severnside) if the merger did not go ahead.
  • The CMA did not, however, accept the parties’ arguments that Dairy Crest would inevitably exit the supply of fresh milk to national multiple retailers if the deal did not proceed. This was largely because there was no mention of this in internal documents and because spare capacity at the plant would give both the ability and incentive to bid for contracts.
  • The CMA also rejected the parties’ arguments that milk supply is an ‘ideal bidding market’ in which strong competition can be achieved with few companies. The CMA concluded that none of the conditions required for such an outcome would be fulfilled. Neither did it accept that tenders follow an ascending (second price) auction model, as the parties claimed.
  • The nature and complexity of the remedies package (which is based around a toll agreement for processing at Severnside, lasting for up to 8 years) brings out how different the Phase 1 remedy  process can be under the CMA compared to Phase 1 under the OFT. The published decision on remedies itself runs to 45 pages. (One factor here is that the CMA has a greater ability as a single agency to decide on how to allocate resources as between the two phases of merger investigation than was the case when the two phases were undertaken by separate organisations. This gives greater scope for deciding that remedies are sufficiently clear-cut to avoid a Phase 2 investigation).

Poundland/99p Stores – Phase 2 clearance

At Phase 1 the CMA found potential concerns about the effect of the merger on competition in 92 local areas on the basis of a fairly standard retail merger assessment.

The CMA was highly critical of aspects of the parties’ online survey (as well as other aspects of their evidence such as their price-concentration and entry analysis) and therefore used cautious criteria to identify the local areas of concern in its Phase 1 assessment.

At Phase 2 the CMA commissioned its own survey covering a sample of 15 local areas. The results were used to construct a method that could be used to calculate so-called ‘Indicative Price Rises’ across all the overlap areas based on features such as the number and type of competitors and their proximity to one another.

An appendix to the Phase 2 report compares the results of the Phase 2 face-to-face survey with the Phase 1 online survey. It is a useful reminder of how much survey design can affect results.

Notwithstanding the price rise analysis, the CMA’s Phase 2 panel concluded, however, that the parties would not be likely to flex terms and conditions locally to take advantage of their stronger position in certain locations. This was based on evaluating the practicalities involved and the costs and benefits of changing certain aspects of its local offering.

The survey and profitability margin figures suggest that there could be strong incentives for the parties to close outlets in some areas where they both operate. The CMA concluded, however, that consumers would be unlikely to be harmed by any such closures because the parties have similar offerings and are located close to one another in the potential areas of concern. On this analysis customers would not therefore need to travel much further where they have to switch to the other outlet.

Despite a high level of interest in the case there were no third party submissions challenging the CMA to develop the reasoning published in its provisional Phase 2 findings. Similarly the provisional clearance decision meant that the parties themselves did not need to challenge further certain parts of the analysis. As a result the final report leaves open interesting questions that may need exploring in future retail cases.

160229-Phase 2 case summ slide

Reckitt/K-Y brand – Phase 2 licensing remedy

The CMA found harm to competition in the supply of personal lubricants to grocery retailers and to pharmacy chains.

There are many points of interest from both the Phase 1 and Phase 2 analysis, including:

  • The importance of ‘indicative price rise’ (IPR) analysis to the Phase 2 assessment, drawing on the results of a large consumer survey.
  • Also on this: many debates between the parties and the CMA on methodology and interpretation, including about the link between wholesale and retail prices
  • The CMA set out an approach to identifying so-called ‘marginal’ customers – those most likely to switch as a result of a price rise
  • Phase 2 analyses of competition by examining the effects of previous price changes and of price promotions
  • Many comments in Phase 1 on the parties’ own survey work and on other elements of their evidence
  • Close analysis of the future of the K-Y brand in the UK in the absence of the merger (the so-called ‘counterfactual’)
  • An eight year licensing remedy to position new entry, judged to be preferable to other remedies, including brand divestment. The idea is that the licensee will take over the K-Y product in the UK and rebrand it during the eight year period.

Surrey hospitals merger – Phase 2 clearance

Royal Surrey County Hospital NHS Foundation Trust (RSC) and Ashford and St Peter’s Hospitals NHS Foundation Trust (ASP)  provide clinical services from their sites in Guildford, Ashford and Chertsey.

The clearance decision is significant because it is the first Phase 2 clearance of an NHS merger.

The case contains many developments of interest at Phase 2, including:

  • recognition of the importance of accurate treatment coding and the significant effect that it can have on the assessment for some treatments
  • taking into account the competition impact of developments at rival hospitals that are not captured in analysis of historic figures such as GP referral patterns
  • caution in the use of the results of a large patient survey in the light of the high proportion of patients who did not have a clear view on which alternative hospital they would choose if they had to switch
  • use of ‘closest hospital’ analysis to examine the proportion of a hospital’s patients for which other alternative hospitals would be closest.

At Phase 1, Monitor accepted the case that three treatment areas would give rise to so-called ‘Relevant Customer Benefits’ (though those were not sufficient to avoid a Phase 2 reference).

Tattersalls/Brightwells Phase 1 – No competition conclusions made. Deemed too small to merit a Phase 2 investigation

This case involved the merger of two bloodstock auctioneers. The CMA said that it could not rule out the possibility of competition concerns (set out below) but did not find it necessary to conclude on these because the concerns would be too small to justify a Phase 2 investigation

To qualify for consideration as a so-called ‘de minimis’ case the competition problems identified must be of a type that cannot in principle be remedied (otherwise the possibility of reference to Phase 2 would not arise anyway). As the CMA noted in this instance:

“The CMA’s concerns regarding the supply of bloodstock auctioneering services for low-value flat racing horses in training in the UK and Ireland may in principle have been addressed by the divestment of the Ascot lease. However, the CMA found that the competition concerns that the Merger raises in terms of elimination of Brightwells as a potential competitor in the supply of auctioneering services for store horses do not led (sic) themselves, in principle, to being addressed through UiLs in the specific circumstances of this case”.

Clearly the range of such problems left open can differ from the range of problems judged to raise competition concerns if the analysis is completed and conclusions are drawn – for example where the former include competition problems that cannot in principle be remedied and the latter include only problems that can.

Could leaving open the competition conclusions in a case therefore itself affect whether a case qualifies as too small to justify a Phase 2 investigation? In this case, for example, if the CMA had completed its Phase 1 assessment and decided that the only competition concerns related to the Ascot lease it would presumably have sought a divestment in lieu of a reference to Phase 2 and would not have permitted a de minimis outcome.

Other interesting aspects of this particular case include:

  • Internal documents said to show a valuation premium being paid for the elimination of competition, high barriers to entry for new competitors and plans to compete in new areas (so-called ‘potential competition’)
  • A different product/service categorisation to that used in a previous decision in the same sector ( a good example of how parties should not place too much weight on previous decisions)
  • Analysis showing how comparisons of average prices charged can give a misleading picture of how closely two companies compete.

Sonoco/Weidenhammer – Phase 2 clearance

Sonoco and Weidenhammer both produce ‘composite cans’ for packaging both food and non-food products, with a very high UK share of supply.

Points of interest include the importance to the clearance decision of:

  • the ability of customers to switch to alternative forms of packaging or to move to self-supply
  • new suppliers being likely to enter the market if prices increased (or quality decreased), potentially sponsored by larger customers looking for alternative suppliers
  • the resulting additional volumes being sufficient to protect the interests of customers not willing or able to sponsor entry.

None of these seemed particularly promising arguments on the basis of the Phase 1 assessment.

InterCity Railways/InterCity East Coast Rail Franchise – Behavioural undertakings in lieu of reference to Phase 2

The CMA found no significant competition concerns on most routes where East Coast services overlap with existing Stagecoach or Virgin Trains rail or coach services. They found, however, that the franchise award could mean higher fares or reduced service quality for rail passengers travelling between Peterborough, Grantham and Lincoln and for coach and rail passengers travelling between Edinburgh, Dundee and Aberdeen.

Points of interest include:

  • Analysis of the way that government support increases the parties’ incentives to increase price or reduce quality
  • The framework used to assess incentives affected by the balance between dedicated fares and inter-available fares
  • Rejection of the argument that the small increment on a flow is sufficient reason to conclude that competition concerns cannot arise
  • The range of remedies accepted: including price cap, separation of decision-making and price monitoring.

Greene King/Spirit  – 16 divestments in lieu of reference to Phase 2

In its first review of a merger between major pub operators, the CMA has adopted a long overdue fresh approach to the way transactions in this sector are assessed.

The many points of interest include:

  • The use of an internet survey of  certain customers of 40 of the parties’  pubs to help inform how to assess the catchment area for identifying overlaps. (In previous cases administrative areas for licensing had been used)
  • A distinction between food-oriented pubs and so-called wet-led pubs
  • A 35% combined share of pubs in a catchment area was deemed to raise possible competition concerns (56 areas in all)
  • Further criteria applied included:
    • A ‘discount’ factor to give some weight to the constraint of wet-led pubs on so-called ‘dry-led’ pubs (30 areas)
    • Location and proximity of pubs (2 areas)
    • Flexing drive time-assumptions (4 areas)
    • Price pressure analysis (2 areas)
    • Comparison of menus and Trip Adviser ratings ! (2 areas)

The big question is how soundly-based this new approach is as there is very little commentary in the published decision on the internet survey that underlies it and no significant reference to the sensitivity of results to changes in the main variables, including the ‘discount’ factor.

These factors also make it difficult to tell how cautious (or not) the assessment was for a Phase 1 decision.

The Original Bowling Company/Bowlplex – 6 divestments in lieu of reference to Phase 2

The decision packs a lot in to its 29 pages. Analytical points of note include:

  • CMA concerns with both the sample and questionnaire design for the parties’ telephone survey results
  • Statistical analysis to examine the impact of entry and exit by rival bowling operators and by cinemas
  • Much of interest on so-called ‘catchment areas, including the differences between the analysis produced using the CMA’s software and that used by the parties
  • The use of price pressure analysis (so called ‘GUPPI’ analysis) to help identify areas of most concern and the rejection of the parties’ arguments against the validity of this approach
  • No mention of any potential for the merger to reduce competition by removing the opportunity for the parties to enter new areas to compete with the other (so-called ‘potential competition’).


My training seminar ‘The 17 UK Merger Cases Most Worth Knowing About’ looks at that select band of cases that have most influenced how UK mergers are assessed. Details available on request.

To receive advance notification of the most interesting cases before I consolidate and publish them in future blogs please email me at adrianpayneconsulting@gmail.com and I will add you to the circulation list.


The CMA’s first year – Mergers

On March 31st Competition and Markets Authority (CMA) completed its first year. In those 12 months the new agency took 84 Phase 1 and 3 Phase 2 merger decisions.

This article summarises some of the main points of interest. These focus on the pattern of decisions and the analysis underlying them (as opposed to how the changes to the merger control process have worked – which merits an article in its own right).

  1. Case numbers recover

As the graph below shows, Phase 1 case numbers were nearly back up to the annual average under the Enterprise Act, the highest number of cases since 2007/08.

This was despite a sharp reduction in the number of non-notified mergers that the CMA ‘called in’ for investigation –  one reason why the proportion of cases found not to meet the qualifying tests for jurisdiction was well below average (as also shown in the graph).

Is the CMA being more selective than its predecessor, particularly when it comes to smaller transactions (see also point 4)? Or were there simply fewer problematic non-notified deals among the 600-or-so transactions screened by the agency’s Mergers Intelligence team during the year?

Phase 1 Merger Control: 2014/2015

(Please click on the graph to enlarge it)

 150331-Phase 1 stats

There were only three Phase 2 decisions made during the year, the second lowest number in any year under the Enterprise Act and well below the average. This reflects in part the dearth of references to Phase 2 in the CMA’s first six months –  described in my earlier article – together with only two references being made in the OFT’s final six months.

  1. The 80/20 rule rides again

Around 80% of Phase 1 cases were cleared. Nearly 20% were found to give a reasonable prospect of in a substantial lessening of competition. This proportion is very much in line with the average level under the CMA’s predecessor Phase 1 body, the Office of Fair Trading.

  1. No take-off in remedy numbers

As can be seen from the graph there is little sign so far that the CMA’s new arrangements for remedying competition problems at Phase 1 have resulted in significantly more remedies being proposed and accepted, the main objective of the change.

Of this year’s three Phase 2 decisions, one (Breedon Aggregates/Aggregate Industries) involved a divestment remedy and a price cap remedy where divestment was not possible.

  1. Small is beautiful

By contrast more SLC decisions than usual were deemed too small (so called ‘de minimis’ cases) to justify the costs of a Phase 2 enquiry, including one (WGSN/Stylesight) involving a market of over £6m – the largest so far since the de minimis policy was introduced.

In addition to these, four cases were cleared on de minimis grounds without a final decision being taken on their competition merits (Eden/Riders, Vitec/Autocue, Phonak Comfort/Audio and Key Publishing/Kelsey). This is not entirely new but has not happened on this scale before. Is it an approach that will be expanded further?

De minimis arguments were rejected in only two cases: Reckitt/K-Y and InterCity Railways/Intercity East Coast Rail Franchise. In the former, the CMA worried about the fact that similar deals might happen (so-called ‘replicability’) – a contrast to the ‘wait and see’ approach in some other cases.

Overall, the CMA seems to be taking a more expansive approach to de minimis policy. As the new agency has to demonstrate benefits to consumers that are at least ten times its costs (previously it was five times costs) it would not be surprising if the balance of its case portfolio (within mergers and beyond) was to shift.

  1. Horizontally-challenged

Horizontal ‘theories of harm’ remained the overwhelming focus for the CMA’s analysis as usual. However 23 cases also involved so-called ‘vertical theories’. Once again coordinated effects were out of fashion, featuring in only one Phase 1 case (Ballyclare/LHD).

  1. Exit closed. Please try an alternative route.

As usual, exiting asset/failing firm arguments cut little ice with the CMA at Phase 1 – rejected in all 11 cases in which they were put forward (one of the most interesting being Roanza/Enza).

At Phase 2, however, these arguments played a key part in the clearance of the Alliance Medical/IBA deal , despite representations by one of the party’s competitors that they would have bought or supported the target business in the absence of the merger.

  1. Feeling the pressure

‘Upward price pressure’ measures combining ‘diversion’ and financial margin data turned up in only one Phase 1 case (Asda/Coop) this year. This somewhat understates the importance of the price pressure approach, however, as measures of diversion carried weight in numerous cases (see number 12 below) and financial margins continued to be examined, even though (somewhat puzzlingly) that analysis is not always evident in the CMA’s published decisions.

  1. Signs of entry

While entry arguments were often made by parties and (as usual) were mostly rejected or superfluous, there were nevertheless three Phase 1 examples where the CMA gave weight to timely, likely and sufficient entry by rivals (Ballyclare/LHD, Care Monitoring and Management/Pantzel and Coopervision/Sauflon Pharmaceuticals).

In addition the potential for innovation to enhance competition was given a lot of weight in Cirrus Logic/Wolfson.

Rival entry was also said to meet the ‘timely, likely and sufficient’ criteria in the Phase 2 Omnicell/Surgichem clearance decision.

  1. A rare sighting

Countervailing buyer power arguments appear to have played a part in just one Phase 1 case (Herstal/Manroy), though the summary of the decision gives more weight to this than the main text of the decision.

  1. No smoke without smoking guns

Third party views, internal documents and bidding/tendering data (in that order) were particularly important sources of evidence, with problematic internal documents cited especially frequently in the Phase 1 SLC decisions (a notable example being Pure Gym/The Gym).

However…as every year, seemingly hottish documents do not always mean SLC – witness the Multipackaging Solutions/Presentation products case.

On evidence more generally it is worth noting that the CMA used its new information-gathering powers on 23 occasions at Phase 1, applied to third parties as well as to merging parties themselves.

  1. Competitor concerns do matter

Interestingly the Phase 1 SLC decisions strongly tended to feature complaints from both customers and competitors (as compared to the clearance decisions).

Once more the simple and often-heard ‘conventional wisdom’  that competitor complaints tend to encourage agencies to clear mergers turns out to be pretty wide of the mark.

  1. Best bids

One quarter of all Phase 1 cases involved the use of data on the bids and tenders that the parties had been involved in, primarily to examine the degree of diversion of business between the parties and others.

Particularly interesting cases include: Sonoco/Weidenhammer, Ballyclare/LHD, Multipackaging Solutions/Presentation Products, and Xchanging/Agencyport.

Two points stand out:

  • One – bidding analysis is not as straightforward as it may seem.
  • Two – the results (and the reading of past cases involving this type of analysis) need careful interpretation.

To sum up

In summary, while case numbers recovered, there were few if any that offered great potential for a major policy change. Forthcoming decisions look much more interesting in that regard!

Arguably the main questions raised are:

  • whether there will be a  greater use of Phase 1 remedies in future
  • where de minimis policy is heading and
  • whether the CMA is becoming more selective about the non-notified deals it calls in for investigation.

As usual, however, there have been many interesting lessons for parties about to merge in terms of how to assess their merger and the approach the CMA will adopt.


Links to cases referred to above can be found on the CMA’s web pages .


Banking: More to do for the CMA


Today the Treasury Select Committee has published its report on conduct and competition in SME lending.150311-Banking

Here are the key points it makes on competition and regulation, many of which have a bearing on the Competition and Market Authority’s current market investigation into retail banking


1. Many of the problems identified by earlier inquiries continue. Four major banking groups have a share of supply of 85% of SME business in England and Wales and the largest firms have the lowest customer satisfaction scores.

2. Challenger banks and the growth in alternative lending have the potential to increase competition but are currently too small to challenge incumbents. There is little evidence  that these forces will bring about the transformation in competition that the industry needs.

3. The presence of multiple credit searches in a business’s credit history can damage their credit score and discourage shopping around. The CMA market investigation should examine how this disincentive can be addressed.

4. Price comparison tools are less prevalent in business banking than in retail banking and insurance markets. The CMA should examine why this is the case and how the situation might be improved.

5. The Current Account Switch Service has been geared primarily towards retail customers, not businesses. The CMA should examine how the scheme could further benefit SMEs and how SME can become more aware of it.

6. Previous inquiries have considered break-up of banks but decided not to take action. The CMA’s market investigation should include a detailed examination of whether structural reforms are now needed.


7. In the recent past regulation has impeded new entry. The FCA now has a statutory objective to promote competition and must continue to transform its regulatory approach in order to meet this new objective. Its pursuit of this objective must permeate the FCA’s entire culture and approach.

8. The FCA and CMA both have competition responsibilities.The danger is that the CMA retreats and the FCA does not vigorously fill the space left.

9. The FCA should produce an annual report on the implementation of its pro-competition activities, with oversight from the CMA who should be invited to judge the effectiveness of the FCA’s competition regime.  The CMA should report publicly if it believes the FCA is not fulfilling its competition duties.

The full Select Committee report can be found here.

CMA merger decisions : another bunch of fives

150119-bunch of fivesJust when some companies thought it was becoming safer to merge the Competition and Markets Authority has found competition problems with five mergers …..

..  in just six weeks

(These relate to Phase 1 merger cases requiring further Phase 2 investigation, or undertakings to resolve the problems, for which decisions were announced between December 1st 2014 and January 15th 2015)

This after the CMA identified just four problematic deals at Phase 1 during the whole of 2014 up to the beginning of December (excluding cases deemed too small to justify a Phase 2 investigation).

What should companies currently contemplating difficult deals make of this recent bunch of five?

As always with short sequences of merger decisions it is vital to take a long view and to avoid the temptation to read too much into too few decisions.

So what does the long view look like?

The history of Phase 1 decisions under the 10+ years of the Enterprise Act helps put things in perspective.

In actual fact the UK merger authorities have delivered several speedy bunches of five over the years….2006, 2011 and 2012 each contained six-week periods in which five mergers were found to raise competition concerns at Phase 1.

And those episodes are by no means the record.

In early 2005 there was a similar period when seven deals fell foul of the then-OFT’s decision-makers. And later that same year eight deals were found to be problems in just over a month.

What is more, this number of five-plus/six-week bunches over the years is more or less exactly what one would expect given the average number of cases each year and the average probability of a case giving rise to an adverse competition finding.

And, not to forget that the latest Christmas/New Year decision-making flurry followed an influx of new cases in October that numbered well above average. Perfect timing for a bumper seasonal delivery of merger decisions.

So while it is true that a bunch of fives from the UK’s merger authorities hasn’t happened that often, it is also the case that it has not been that unusual either.

No need for companies to worry unduly yet about the latest bunch of fives.


© Adrian Payne 2015




2014 in Numbers : An Overview of UK Merger Control

150101-Number picture0  – The number of new merger prohibition decisions

1  – The number of appeals to the Competition Appeals Tribunal

3  – The number of Phase 2 decisions – all clearances

4  – The number of Phase 1 cases that investigated coordination between firms

5   –  The number of rail franchise cases examined

  –  The percentage of cases in which merger efficiencies or customer benefits were examined in some detail

13  –  The number of cases opened in August, the peak month of the year for new cases

16  –  The percentage of cases found not to qualify for investigation under the tests for jurisdiction

18  – The percentage of qualifying cases found to result in a substantial lessening of competition at Phase 1

19  – The percentage of cases in which parties argued that one of the businesses involved would exit if the merger did not proceed

20  – The percentage of cases qualifying for investigation under the turnover test

21  – The number of Phase 1 cases involving ‘vertical’ theories of harm

33 – The number of opened Phase 1 cases being investigated at the peak month-end of the year – October

45  – The percentage of cases involving completed deals

50  – The percentage of cases found to harm competition that were referred for Phase 2 investigation

53  – The percentage of cases in which one or more competitors to the merging parties expressed concerns about the deal

54  – The percentage of cases that investigated more than one theory of harm to competition

59 – The percentage of cases in which one or more customers of the parties expressed concerns about the deal

60  – The smallest share of supply for the parties to those deals found to harm competition

78  – The number of pages in the longest Phase 1 decision

82  –  The number of Phase 1 decisions announced

90  – The highest percentage share of supply of one of the parties to a merger that was cleared at Phase 1

6,500,000  – The size (in pounds) of the largest market deemed too small to justify a Phase 2 investigation (under the de minimis criteria)


Note: Numbers refer to those OFT, CC and CMA cases for which the decisions were announced during 2014 and for which relevant details were published as at 31/12/14.

© Adrian Payne 2015



Mergers at the CMA: What’s Up?

The Competition and Markets Authority completed its first six months of cases at the end of September.

Since mid-August it has been in the unusual position (as compared with its predecessor, the Competition Commission) of having no Phase 2 merger cases to consider.

As one FD put it to me last week: “What’s up at the CMA? –  I thought there has been a merger boom going on”

Well, actually, in the UK there hasn’t !…………. (as the latest official statistics show).

There are in fact several different elements to the answer, as the following picture shows.

Figure 1: UK Mergers: April 1st to September 30th 2014


On the face of it some of these figures appear very striking.

No wonder some competition practitioners are already talking of a significant change of approach by the CMA, compared to its predecessor agencies.

Indeed change would not be at all surprising because:

  1. New timetables and procedures are revising what is possible at Phase 1 (including pre-notification) in some cases.
  2. Putting Phase 1 and Phase 2 into a single organisation gives incentives to optimise resources across the two phases that did not exist when the OFT and Competition Commission were separate agencies.

But, not so fast….

….whatever changes do eventually emerge, there is a real danger of drawing premature conclusions.

Six months of case data is far too short a period from which to infer changes in underlying trends. And bear in mind that the number of cases involved at the lower end of the funnel is small.

Looking at the individual cases involved and comparing them with previous years, it is just as likely that the six month figures reflect the mix of cases in terms of sector, size and the pattern of competition issues raised.

With this in mind it is worth remembering that many of the parameters in the ‘funnel’ shown above can and do vary widely from year to year.

To take just one example: the following chart shows how the proportion of qualified cases (i.e. those that have met the jurisdictional criteria) found to raise competition problems at Phase 1 has varied since the Enterprise Act came into force. The latest year’s figure is in fact not much lower than for six of the previous ten years.

Figure 2: Phase 1 ‘Substantial Lessening of Competition’ findings as a proportion of qualified merger cases

141003-SLC per cent

I’ll be returning to this subject in a future article so do drop me a line if you have thoughts.

In the meantime, with eleven Phase 1 decisions due for announcement over the next six weeks, the picture could change rapidly.

Then again…..



Click here for the latest UK merger control statistics.

My article on the one CMA merger reference so far is here.

My ‘A-Z of 2014 UK Merger Analysis’ presentations are taking place in January. Please get in touch if you are interested in arranging one for your firm.