The UK’s Competition and Markets Authority (CMA) has just celebrated its third anniversary since taking over from the Office of Fair Trading and Competition Commission.
It has now made competition decisions in nearly 200 Phase 1 merger cases, enough to be able to discern some of the key factors that have informed its decision-making.
One factor that some (though far from all) companies and investors think about in assessing the chances of merger clearance is how the CMA may view the share of supply that the merged company would have in the products and services in which they overlap.
The following share of supply heatmap shows the pattern of decisions to date:
Share of supply in CMA Phase 1 decisions*
(April 1st 2014 to March 31st 2017)
The colours indicate the proportion of cases that the CMA has found to represent a ‘substantial lessening of competition’ (SLC) at Phase 1 – ranging from:
- brightest green at 0%
- up through the shades of green to middle yellow (circa 50%)
- and on through orange to the deepest red (100%).
The figures underlying the heatmap are taken from the large number of Phase 1 CMA decisions that report the merging parties’ shares of supply in the markets on which those cases focus.
Three features of the map stand out:
- The very high proportion of SLC findings in cases where the party with the smaller share of supply has a share of 20% or more
- No SLC finding where the parties’ combined share of supply is below 40%
- The significant proportion of cases that are found not to threaten an SLC even where the parties have a high combined share of supply. This is where many of the cases with the most interesting lessons for companies and investors reside.
In general, as one might expect, the proportion of SLC findings increases the higher the combined share of supply and the higher the percentage increment to the larger share.
Further detail is covered in my merger briefings, including:
- How (and how not) to interpret the heatmap
- The most insightful parts of the map
- Disaggregation of results, for example
- by decision-maker
- sector patterns
- time period
- remedies versus reference versus ‘de minimis’
- Other notable patterns in the CMA’s decisions to date.
There are not yet enough Phase 2 cases to give a meaningful picture for Phase2.
* The share of supply heatmap is copyright Adrian Payne, 2017. The heatmap can be quoted and reproduced with the appropriate attribution.