Enhanced merger scrutiny and enforcement: a cross-border outlook on competition/antitrust changes

 
With a recently elected Trump Administration in the U.S. having recently taken office and an election on the horizon in Canada that is expected to lead to a change in government, new governments may not necessarily lead to a full departure from increased competition enforcement as some policy priorities may continue to appeal across the political spectrum. We discuss what’s happening and what may be ahead.

Scrutiny of serial acquisitions and roll-ups

Serial acquisitions and roll-up strategies, often employed by private equity firms, are facing greater scrutiny by competition enforcement agencies globally. In late 2023, the OECD published a note on the potential anti-competitive effects and merger notification gaps of serial acquisitions and roll-up strategies. Earlier in 2024, the U.S. Federal Trade Commission and Justice Department jointly launched a public inquiry¹ to identify serial acquisitions and roll-up strategies throughout the U.S. economy that have “led to consolidation that has harmed competition”. The inquiry follows the agencies’ publication of revised merger guidelines that expressly incorporate, for the first time, the consideration of previous roll-ups in evaluating whether a proposed transaction may substantially lessen competition. Also, Section 8 of the Clayton Act, which prohibits interlocking directorates that occur when the same person serves as a director or officer in two or more competing corporations, has been gaining greater attention in this context. For example, the U.S. antitrust agencies have taken the enforcement position that Section 8 prohibits private equity and venture capital firms from appointing different individuals to sit on the boards of two competitors in which they are invested to, among other things, prevent the exchange of sensitive information and coordinated business strategies.

In Canada, recent amendments to the Act extended the period during which the Commissioner of Competition (the Commissioner) may challenge a non-notified merger to three years post-closing, which also allows more time to possibly assess serial acquisitions and private equity roll-ups over time. The Bureau has also increased its market monitoring as merger parties to smaller transactions or transactions with a limited nexus to Canada are now routinely contacted by the Bureau to inquire on marker impact. In some cases, these inquiries have led to full investigations. Separately, the Bureau recently obtained a section 11 order² into Broadridge’s acquisitions (including serial acquisition strategy) and business practices resulting from a recent merger review.

Greater enforcement of mergers in Canada

Structural presumptions and market shares

The Act now makes strategic mergers and acquisitions that trip statutory concentration levels (such as whether the parties would have a more than 30% combined share in any market) presumptively anti-competitive. For such mergers, the burden shifts to the merger parties to rebut these presumptions on a balance of probabilities. The amendments, therefore, allow the Bureau to rely solely on market shares when challenging a merger and determining that it is anti-competitive, respectively (for more details, see our previous bulletin). The Bureau is currently reviewing and updating its merger enforcement guidelines to align with the recent amendments to the Act.

New remedial standard for lessening of competition

Prior to the amendments, the statutory substantive merger test and remedial standards were aligned, accommodating some lessening of competition if it wasn't “substantial”. Now, merger remedies must reverse the merger impact and return the market to its pre-merger state, which is consistent with U.S. enforcement practice.

Scrutiny of vertical mergers

The Bureau is expected to provide fresh guidance on vertical mergers, which is likely to mirror U.S. guidance. Recent vertical transactions have experienced greater scrutiny and longer review periods by the Bureau. The U.S. vertical guidance focuses on mergers at different stages of the supply chain that can harm competition, such as by foreclosing rivals, raising their costs, or facilitating coordination.

Are the new governments on the horizon par for the course?

While Canada is set for an election that may lead to a change in government, there may not necessarily be a change in competition policy or direction as all parties unanimously supported amendments to the Act. While we may see some ebbing and flowing in specific enforcement actions, these overall heightened enforcement trends seem to be a rare example of political consensus in these times.

In the U.S., the Trump Administration is expected to scale back the aggressive approach of the past four years—with the notable exception that the government’s crosshairs will remain trained on “Big Tech”. And the U.S. antitrust agencies likely will have a new tool at their disposal to assess the competitive effects of M&A activity with revised Hart-Scott-Rodino requirements set to take effect in February. What is certain is that uncertainty will prevail for the foreseeable future in the U.S.