Abstract
Looking back on merger enforcement in 2020, the impact of COVID-19 on significant merger investigations was not as great as many expected. Although the number of deals notified to competition authorities in 2020 decreased in all European jurisdictions tracked by the Dechert Antitrust Merger Investigation Timing Tracker (DAMITT), the number of significant investigations remained broadly stable. And while average durations of significant investigations trended upwards, setting new records in Germany and France, statistics do not show a sharp increase compared to previous years.
2020 was on any basis an unprecedented year, witnessing a worldwide pandemic, the exit of a member state from the European Union (EU), and the election of a new president in the United States (U.S.). Looking back on 2020, the impact of COVID-19 on significant merger investigations was not as great as many expected. Although worldwide events impacted the number of deals notified to various competition authorities, the number of significant investigations did not drop markedly, and even increased in some jurisdictions. While average durations of significant investigations trended upwards, statistics do not show a sharp increase compared to previous years.
The Dechert Antitrust Merger Investigation Timing Tracker (DAMITT) is a quarterly release from Dechert LLP’s Antitrust/Competition lawyers reporting on trends in significant merger control investigations in the U.S. and EU. DAMITT was extended for the first time this year to cover France and Germany.
DAMITT defines “significant” merger investigations to encompass all investigations that are subject to significant scrutiny by the merger control authorities. In the EU and in France, it includes transactions subject to the EU or French merger review and resulting in either a clearance with remedies in Phase I or the initiation of a Phase II investigation. German significant merger investigations include only deals subject to a Phase II investigation as there are no clearances with remedies in Phase I. In the U.S., “significant” merger investigations include Hart-Scott-Rodino (HSR) Act reportable transactions for which the result of the investigation by the Federal Trade Commission (FTC) or the Antitrust Division of the Department of Justice (DOJ) is a consent order, a complaint challenging the transaction, an official closing statement by the reviewing antitrust agency, or the abandonment of the transaction with the antitrust agency issuing a press release.
DAMITT calculates the durations of significant investigations from the deal announcement date until the completion of the investigation, and therefore includes the time attributable to pre-notification consultation efforts. Germany is an exception: since pre-notification is not standard in Germany as it is in other jurisdictions, DAMITT calculates duration of significant merger investigations there from notification to decision.
1. COVID-19 impacted notifications levels, but the number of significant investigations remained broadly stable
1.1 Number of significant investigations in European jurisdictions remained broadly in line with 2019 levels
Figure 1: Significant EU antitrust merger investigations outcomes (2011-2020).
Source: DAMITT data.
The EU Commission concluded 19 significant merger investigations in 2020, the same number as the prior year. This confirms the slowdown in activity relative to previous years which was observed in 2019. The decrease in significant merger investigations may not be due to any slackening of enforcement intent but rather a function of the quantity and complexity of deals notified. Sixteen significant merger investigations resolved in 2020 were cleared with remedies: three in Phase II and 13 in Phase I. Of the remaining Phase II resolutions, one was cleared unconditionally and two deals were abandoned.
The German Federal Cartel Office (FCO) concluded nine significant merger investigations in 2020, two fewer than in the previous year but in line with the number of significant investigations observed since 2016. Four of those cases were unconditionally cleared, three were cleared with remedies, and in two cases the deals were abandoned. Although there were no outright prohibitions, by comparison to the four deals prohibited in 2019, companies often abandon deals in advance of an official decision if the FCO indicates to them that it is preparing to block their transaction.
The French Competition Authority (FCA) concluded 11 significant merger investigations, 22 percent more than in 2019. 2020 saw the FCA adopting its first prohibition decision ever, blocking an acquisition by a large French supermarket chain in the retail sector (Decision No. 20-DCC-116). The other significant investigations were cleared with remedies, nine in Phase I and one in Phase II.
On the other side of the Atlantic, the U.S. had a slightly busier year, with DOJ and FTC concluding 33 significant U.S. merger investigations during 2020, nearly 20 percent above the average number of significant investigations in the past ten years. The U.S. agencies’ significant investigations also resulted in more complaints seeking to block mergers than in any year over the past decade.
Figure 2: Significant U.S. antitrust merger investigation outcomes (2011-2020).
Source: DAMITT data.
The overall number of deals notified to competitions authorities in 2020 decreased in all European jurisdictions tracked by DAMITT.
In the EU, 361 transactions were notified in 2020, down five percent from 2019 and continuing the downward trend observed in 2019. This followed five years of continuous year-on-year increases in the number of notifications until the 2018 all-time high of 414 deals. It is, however, too early to tell if this decrease is due to cyclical fluctuations of M&A activity or related to the COVID-19 pandemic.
In Germany and in France, the numbers of deals notified were starkly down in the first half of the year; for instance, only 15 deals were notified to the FCA in June (just after the first lockdown period in France), compared to an average of 23 notifications per month in 2019. The second half of the year however showed a strong recovery, and the figures were back closer to normal by the end of the year, with 23 deals notified to the FCA in November, and Germany finished the year with a decrease of only 14 percent in the number of deals notified.
1.2 Looking ahead to 2021: changes in EU notification patterns expected
The EU Commission’s caseload is expected to decrease slightly in 2021 following the expiry of the Brexit transition period. UK revenues no longer count towards the EU jurisdictional thresholds which, according to the EU Commission’s estimates, may lead to a reduction of up to 15 percent in the number of cases that qualify for review under the EU Merger Regulation. In contrast, the caseload of the UK Competition & Markets Authority (CMA), now a fully standalone jurisdiction, is expected to increase by more than 50 percent.
In parallel, Brexit may lead to a higher level of notifications to national competition authorities in EU member states. From a German standpoint, this may be over-shadowed by the likely decrease in notifications following the reform of the German Act against Restraints of Competition which entered into force on 19 January 2021 and substantially raised the domestic turnover thresholds. These increases are expected to reduce the number of reportable transactions by at least one third. This will significantly ease the regulatory burden on investors acquiring small German companies or international companies who generate minor turnover in Germany. In addition, the reform is expected to free up resources at the FCO, thus allowing the authority to focus on transactions that pose substantive risks. In line with that aim, the statutory review period in Phase II cases has been extended from four to five months.
Finally, it remains to be seen how the EU Commission call[1] on national competition authorities to use Article 22 of Regulation No. 139/2004 to refer deals currently falling below the thresholds but affecting competitive market dynamics will impact the number of transactions reviewed. The FCA has already expressed its great readiness to refer mergers to the EU Commission under its new interpretation of Article 22.[2]
2. Duration of EU, German and French significant investigations trends higher
The average duration of significant investigations concluded by French and German competition authorities in 2020 set new record lengths. The average duration of investigations carried out by the EU Commission also trended higher, reaching the third longest durations for both Phase I Remedy and Phase II investigations since DAMITT started tracking the data in 2011.
On the other side of the Atlantic, despite remaining at the high end, duration of significant investigations concluded by the U.S. agencies decreased slightly relative to 2019. This is only the second time the average duration has declined over the 2011-2020 period tracked by DAMITT.
2.1 EU: Third longest average duration of both Phase II and Phase I remedy investigations over the past decade
Average durations of both Phase I remedy and Phase II proceedings concluded in 2020 were the third longest in DAMITT’s ten-year history. Phase II proceedings averaged 14.9 months in 2020. Phase I remedy cases lasted an average of 9.5 months.
Notably, 66 percent of the cases resolved by the EU Commission in 2020 were assessed under the short-form/simplified procedure. The average duration of the EU Commission’s review of those short-form cases, measured from notification to decision, was 17.6 working days. This is considerably below the maximum Phase I review period of 25 working days. The revised simplified procedure has been one of the most successful features of the 2013 overhaul of EU merger control procedures, resulting in a significant reduction in the time it takes the EU Commission to review straightforward cases.
(1) EU Phase II proceedings
Phase II EU proceedings resolved in 2020 averaged 14.9 months, five percent faster than the 2019 average of 15.6 months, but still nearly 20 percent above the annual average since DAMITT started tracking the data in 2011.
Figure 3: Average duration of EU Phase II cases (2011-2020).
Source: DAMITT data.
This high average is largely attributable to two exceptionally lengthy investigations, the Boeing/Embraer investigation which had already run for 22.4 months at the time it was abandoned, and the PKN Orlen/Grupa Lotos investigation which was resolved after 16.8 months. These were the third and tenth longest EU investigations, respectively, since DAMITT started tracking in 2011. The exclusion of those two investigations brings the average duration down to 12.6 months for 2020.
Unlike past years, the decrease in the average duration of Phase II investigations is entirely attributable to a decrease in the duration of the formal review period, going from 7.9 months in 2019 to 7.2 months in 2020. This shortened duration is linked to the EU Commission’s decreased use of its statutory powers under the EU Merger Regulation to agree to “voluntary” extensions of time with the merging parties and issue “stop the clock” orders in investigations resolved in 2020. Voluntary extensions were granted in only 83 percent of cases resolved in 2020, whereas in 2019 all significant investigations included such extensions. Similarly, only 50 percent of the significant investigations resolved in 2020 were suspended following “stop the clock” orders, down from 78 percent in 2019.
Figure 4: Average duration (months) of pre-notification and formal review for EU Phase II cases (2011-2020).
Source: DAMITT data.
The average duration of the pre-notification periods for Phase II investigations shows only a minor increase in 2020, going from 7.7 months in 2019 to 7.8 months in 2020. But this average continues the upward trend observed since 2011. Pre-notification contacts have been a longstanding feature of EU merger reviews: merging parties invariably institute pre-filing talks with DG Competition staff very shortly after transaction announcement, if not before. The uptick in the period between announcement and notification is mostly explained by the EU Commission’s increased focus on internal company documents, which has contributed to merging parties spending more time and resources on pre-filing contacts.
The May 2020 ruling of the EU General Court in the Hutchison case[3] may further increase the duration of merger reviews, especially Phase II investigations. The judgment raises the evidentiary standard the EU Commission must meet to discharge its burden of proof. This higher standard may lead to more intense merger reviews and a corresponding increase in the duration of investigations.
(2) EU Phase I remedy cases
Figure 5: Average duration of EU Phase I remedy cases (2011-2020).
Source: DAMITT data.
Phase I remedy cases concluded in 2020 lasted 9.5 months on average, up nearly 25 percent from the 2019 average of 7.7 months. The 2020 average is also well above the 7.5-month average observed over the 2011-2019 period tracked by DAMITT.
Contrary to what we observed for Phase II cases, the increased duration of Phase I remedy cases is driven by the increased duration of pre-filing talks. The average duration from announcement to notification in Phase I remedy cases increased from 5.9 months in 2019 to 7.8 months in 2020, with the duration of the formal review period remaining in line with previous years.
Although the EU Commission hinted back in Q1 2020 that merging companies may increasingly use pull-and-refiles, only one Phase I remedy case resolved in 2020 featured a pull-and-refile, whereas two cases involved the use of this tool in each of the three previous years.
2.2 Germany and France: Duration of significant investigations set new records
Figure 6: Duration of German Phase II cases, from date of notification until date of issuance/withdrawal.
Source: DAMITT data.
In Germany, the average duration of merger investigations that proceeded to Phase II in 2020 increased to 7.3 months (from 5.7 months in 2019). This was the longest average duration recorded in the last five years. Although many expected reviews of complex transactions to take longer in 2020 due to the challenges involved in transitioning to remote work during the pandemic, it is worth noting that less than one percent of transactions notified in Germany are subject to an in-depth Phase II investigation. As such, variations in year-over-year averages are typically the result of specific individual circumstances of the cases reviewed by the FCO. Moreover, a COVID-related temporary extension of the FCO’s merger review deadlines expired in the summer without having had any noticeable effect.
Figure 7: Duration of French Phase I Remedy cases, in months (2011-2020).
Source: DAMITT data.
In France, the duration of Phase I significant investigations concluded in 2020 set a new record: Phase I remedy cases were cleared in 8.9 months on average, up 16 percent compared to 2019 (7.7 months). This increase results both from longer pre-notification talks (adding two weeks to the timing on average) and an increase of almost three weeks for the Phase I investigation itself. While other factors may also have played a part, the pandemic likely explains part of the additional delays. Taking account of prenotification talks, Phase I remedy cases now tend to require more than seven times the theoretical duration of the fixed timetable under French Merger control rules (25 working days).
Figure 8: Duration of French Phase II cases, in months (2011-2020).
Source: DAMITT data.
France’s Phase II investigations resolved in 2020 averaged 11.5 months from announcement to decision, up 5 percent compared with the 11-month average of 2018. Again, the pandemic may be to blame for part of this increased duration, although in this case it is also driven by the record-high 13.8-month investigation that resulted in the first prohibition decision issued by the FCA. In comparison, and despite the imposition of remedies, the other Phase II investigation conducted by the FCA lasted only eight months, i.e., less than the average duration for a Phase I case with remedies. These values should however be read with caution considering the limited number of Phase II investigations concluded by the FCA each year.
2.3 U.S.: Average duration of significant merger investigations decreases in 2020
Figure 9: Average duration of significant U.S. antitrust merger investigations (2011-2020).
Source: DAMITT data.
Even with the COVID-19 pandemic and a shift to remote work, the average duration of a significant U.S. investigation from deal announcement to the end of the investigation decreased to 11.4 months in 2020, down from the record high of 11.9 months in 2019. This is only the second time the average duration has declined over the 2011-2020 period tracked by DAMITT. As an exception, the average duration of a significant investigation spiked to an average of 13.5 months in the fourth quarter of 2020. DAMITT will continue to monitor whether this fourth quarter spike is a blip or a sign of a new trend.
Despite the decrease from 2020, the results provide a mixed final verdict on Trump administration efforts to reverse the trend toward longer significant investigations.
Overall, the average duration increased by 15 percent between 2016 and 2020. This was a slower rate of growth than in the final four years of the Obama administration, but it falls short of the ambitious goals set by both agencies early in the Trump administration.
3. Conclusion
Investors planning transactions that may result in a significant merger investigation should allow for a sufficient amount of time for the merger clearance process. Deal timetables for investigations likely to proceed to Phase II need to accommodate an average lapse of 15 months from announcement to clearance if reviewed by the EU Commission and 12 months if undergoing a French examination. Deals subject to German review should provide for approximately seven months from notification to clearance. Deals expected to be cleared in Phase I with remedies now need to allow, from announcement to clearance, for nearly 10 months in case of EU review and nine months if the deal is reviewed by the FCA. As these as indicated reflect average durations, it may be prudent to err on the side of caution in the context of transaction planning.
Hypothetical “significant” deals subject to review only in the U.S. would have to plan on 11-12 months for the agencies to investigate their transaction and another 8-9 months if they want to preserve their right to litigate an adverse agency decision.
Looking ahead to 2021, we should expect some changes to notification patterns in light of Brexit, changes to German competition rules and potentially more referrals to the EU Commission. Moreover, with CMA having become the new regulator on the block as of 1 January 2021, parties to deals with a UK nexus should carefully consider the merits of notification (which is not compulsory) and whether the CMA is otherwise likely to launch an own-initiative investigation.
