M&A deals under the microscope

In recent years, dealmakers have grappled with an increasingly interventionist and unpredictable regulatory environment for M&A. However, there are signs that the momentum of interventionism is beginning to change with calls from politicians to make merger and foreign investment control more effective for economies, businesses, and consumers alike. With new administrations in the EU, UK, and the US, what changes can dealmakers expect in the year ahead?

Regulatory hurdles

Many international deals face several obstacles on their path to completion, including scrutiny under merger control, foreign investment and subsidy control regimes. An increased appetite for intervention has seen several authorities adopt broad approaches to claim jurisdiction over global transactions, as well as using novel approaches on substantive reviews.

Perhaps the most high-profile example was the European Commission’s (EC) attempt to expand Article 22 of the Merger Regulation to claim jurisdiction over deals falling neither within its jurisdiction nor the jurisdiction of any Member State. This policy was notably used to block Illumina’s USD8 billion acquisition of GRAIL. In September 2024, the European Court of Justice declared that approach to be illegal. While the EC sought to play down the significance of this development, it has been searching for new ways to review below threshold deals. For now, the EC has settled on the national "call-in" powers of certain EU Member States, which allow those Member States to review deals even when the turnover thresholds are not satisfied. There are eight Member States with these powers currently and several other Member States are seeking to establish similar powers. In October 2024, Italy used its call-in powers to refer Nvidia’s acquisition of Israeli startup Run:ai to the EC, the first under the new approach.

In the UK, the Competition and Markets Authority (CMA) has been testing its jurisdictional boundaries in its investigations of several partnerships between major tech and generative AI companies. While most of these partnerships were found not to qualify for review, the CMA conducted a full review of (and cleared) Microsoft’s hiring of certain former employees of Inflection and its entry into associated arrangements with their former employer. The CMA’s ability to review deals has also been expanded with a new threshold capturing deals with a UK nexus where at least one party has an existing share of supply of 33% and turnover of at least £350m in the UK.

Once jurisdiction is established, the authorities are ready to apply novel and complex theories of harm to intervene in transactions. For example, in the EC’s prohibition of Booking/eTraveli in 2023, it departed from established guidelines and applied an “ecosystem” theory of harm. That decision is now subject to appeal, although we will likely have to wait a year or two for the judgment. Several authorities had also adopted a stricter stance on remedies in recent years, with a growing tendency in countries like the US for merging parties to abandon transactions in the face of regulatory concerns instead of seeking to negotiate remedies.

The regulatory landscape is further complicated by geopolitical tensions and the rise of protectionist sentiment. Foreign direct investment (FDI) has become a key area of concern, with governments eager to safeguard strategic industries that are crucial for national security, economic stability, and public safety. Several countries have significantly expanded their foreign investment screening regimes, broadening the scope of investments subject to mandatory reviews. In Europe, for example, 24 EU Member States now have screening mechanisms in place, with the remaining three (Croatia, Cyprus and Greece) all taking steps to implement new regimes. The EC has also proposed reforms to the EU FDI Regulation to address divergence and blind spots. In the UK, the number of filings made under the National Security and Investment Act has increased year on year, although the number of deals called for an in-depth assessment remains low.

Meanwhile, the EU’s Foreign Subsidies Regulation (FSR) introduced a new suspensory regime in October 2023 for acquisitions satisfying thresholds related to turnover and financial contributions from non-EU governments. Since then, over 100 deals have been notified to the EC under the regime. In September 2024, the EC announced its first conditional approval under the FSR regime, after finding that the foreign subsidies connected to e&’s acquisition of certain PPF Telecom operations could distort the market post-transaction.

Time for reform in 2025?

Several business leaders and policymakers have called for reforms to this regulatory landscape. The current frameworks, they argue, are outdated, and often focused on protecting domestic competition at the expense of investment and international competitiveness.

In Europe, there is growing momentum for a rethink of the EU’s merger control rules. In September 2024, Mario Draghi’s report "The future of European competitiveness" advocated for a revamped approach to competition and merger reviews to boost growth and innovation. The report suggested that consolidation in sectors such as telecoms and defence should be encouraged to achieve industrial policy goals and that merging parties should benefit from an “innovation defence” where relevant.

Ursula von der Leyen, President of the European Commission, has also outlined the need for a “new approach” to competition policy which should be “more supportive of companies scaling up in global markets”. Teresa Ribera, the EU’s new Competition Commissioner, appears to be on board with this agenda, committing to reviewing the Horizontal Merger Guidelines to ensure that EU merger policy gives the “right weight” to the EU economy’s needs and reflects overall policy objectives and market realities, “including possible efficiencies”.

The UK is also reassessing its approach. Britain’s Prime Minister, Sir Keir Starmer, has stressed that growth should be central to the Labour government’s agenda, with a particular focus on ensuring that economic and competition regulators take growth seriously. The CMA appears to have taken this message on board. In November 2024, the CMA announced that it would “evolve” to help drive the government’s growth mission. At the same time, the CMA announced that it would conduct a review in 2025 of its approach to merger remedies, including of the circumstances in which behavioural (rather than structural) remedies may be appropriate to offset the impact of lost competition. This pro-growth approach is already being seen in practice. In December 2024, the CMA announced its decision to clear the Vodafone/Three UK joint venture based on the behavioural remedies offered by the parties, which included investments in infrastructure.

The UK government has also announced plans to consult on a draft of the next strategic steer to the CMA. While the CMA will remain an independent authority, the steer will provide an indication of where it should focus its enforcement priorities and can be expected to focus on the Labour government’s pro-growth agenda.

In the US, the agencies sought to adopt a more interventionist approach under President Joe Biden’s administration. While antitrust policy did not feature highly in the election campaign, we may expect to see some changes under the next Donald Trump administration. The President-Elect has nominated Andrew Ferguson to be the Chair of the Federal Trade Commission and Gail Slater to be the Assistant Attorney General for the Antitrust Division at the Department of Justice. Both nominees are proponents of robust competition law enforcement and so it remains to be seen what impact they will have on merger control policy and enforcement.

Will the pendulum start to swing back?

As political leaders seek to adjust their regulatory frameworks in 2025, the need to assess competing priorities such as national competitiveness, robust competition enforcement and national security will mean that radical changes are unlikely to happen overnight.

While traditional metrics of market concentration and consumer harm are expected to remain crucial to substantive assessments, there may be an increasing emphasis on evaluating mergers in terms of growth and national or regional competitiveness. However, transactions that may consolidate market power or raise other concerns in strategic sectors could face heightened scrutiny.

For multinational companies, this evolving environment presents both opportunities and challenges, demanding a strategic approach to navigating the regulatory landscape. Dealmakers should factor in the increasing likelihood of conflicting regulatory approaches for global transactions, particularly if the proposed deal touches on politically sensitive sectors.