Regulatory Approvals & Antitrust Review in M&A
15 min read
Regulatory approvals and antitrust review are among the most consequential, and frequently misunderstood, aspects of the acquisition process. While many search fund and ETA transactions fall below the thresholds that trigger mandatory merger control filings, understanding the regulatory environment is essential for any acquirer. As targets grow, as buy-and-build strategies create market concentration, and as foreign investment screening regimes expand globally, the probability that regulatory approval will be required for your transaction increases with each deal. A failure to identify filing requirements can result in significant fines, voided transactions, and criminal liability in some jurisdictions. This guide provides a thorough overview of merger control frameworks, filing thresholds, review processes, remedies, and sector-specific considerations that acquirers must manage to close their deals successfully.
Merger control fundamentals
Merger control (also called antitrust review or competition review) is the process by which government authorities evaluate whether a proposed acquisition will substantially reduce competition in the relevant market. The goal is to prevent the creation or strengthening of market power that would harm consumers through higher prices, reduced output, diminished innovation, or lower quality. Virtually every major jurisdiction has a merger control regime, each with its own thresholds, substantive tests, and procedural requirements.
The key concept is the “relevant market,” which merger control authorities define along two dimensions: the product market (what goods or services compete with each other) and the geographic market (the area in which competition occurs). Market definition is often the most contested aspect of merger review, because the broader the market is defined, the lower the merging parties' combined market share appears, and vice versa.
US merger control: Hart-Scott-Rodino Act
In the United States, the primary merger control regime is the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The HSR Act requires parties to transactions that meet certain size thresholds to file pre-merger notifications with the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division, and to observe a waiting period before consummating the transaction.
Filing thresholds
The HSR Act uses a “size of transaction” test and, in some cases, a “size of person” test. The thresholds are adjusted annually for inflation. As of recent adjustments, the basic threshold requires filing for transactions where the acquiring person will hold an aggregate total amount of voting securities, assets, or interests of the acquired person valued above the minimum threshold (which is adjusted annually and has been in the range of $100 million to $111.4 million in recent years). For transactions above the higher threshold (approximately $445 million and above), filing is required regardless of the size of the parties.
Many search fund acquisitions fall below the HSR threshold, meaning no filing is required. However, the transaction can still be reviewed and challenged by the FTC or DOJ under the Clayton Act even without an HSR filing. The agencies have the authority to investigate and seek injunctive relief against any acquisition they believe may substantially lessen competition, regardless of the size of the transaction.
Review process and timeline
After filing, there is an initial waiting period (typically 30 days, or 15 days for cash tender offers). During this period, the reviewing agency (either the FTC or DOJ, which allocate cases between them) conducts a preliminary assessment. If the agency has competition concerns, it issues a “Second Request” for additional information, a detailed and often burdensome document request that can take months to comply with. The waiting period is extended until 30 days after the parties have substantially complied with the Second Request. The entire process, if a Second Request is issued, can take six to twelve months or longer.
Buyers should address regulatory timing in their letter of intent by including conditions precedent for regulatory approval and establishing realistic timelines for the closing process.
EU merger control: European Union Merger Regulation
In the European Union, the European Commission has exclusive jurisdiction over “concentrations with a Community dimension” under the EU Merger Regulation (EUMR, Council Regulation 139/2004). Concentrations include mergers, acquisitions of control, and the creation of full-function joint ventures.
Jurisdictional thresholds
A concentration has a Community dimension if it meets one of two sets of turnover thresholds:
- Primary thresholds:(a) the combined aggregate worldwide turnover of all undertakings concerned exceeds €5 billion, AND (b) the aggregate EU-wide turnover of each of at least two of the undertakings concerned exceeds €250 million unless each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same Member State.
- Alternative thresholds:(a) the combined aggregate worldwide turnover exceeds €2.5 billion, AND (b) in each of at least three Member States, the combined aggregate turnover exceeds €100 million, AND (c) in each of those same three Member States, the aggregate turnover of each of at least two parties exceeds €25 million, AND (d) the aggregate EU-wide turnover of each of at least two parties exceeds €100 million, again subject to the two-thirds rule.
For concentrations that do not meet the EUMR thresholds, national merger control regimes in individual Member States may still apply. Many Member States have their own filing thresholds based on domestic turnover, and a single transaction may trigger filing obligations in multiple Member States simultaneously.
Review process
The EUMR provides for a two-phase review process. Phase I is a preliminary assessment lasting 25 working days (extendable to 35 working days if remedies are offered). If the Commission identifies serious doubts about the concentration's compatibility with the internal market, it opens a Phase II in-depth investigation, which lasts 90 working days (extendable to 105 or 125 working days). The substantive test is whether the concentration would “significantly impede effective competition” (SIEC test), in particular by creating or strengthening a dominant position.
UK merger control: Competition and Markets Authority
Since Brexit, the UK Competition and Markets Authority (CMA) operates independently of the European Commission. The UK has a voluntary merger control regime, there is no mandatory filing requirement. However, the CMA has the power to investigate and intervene in any merger that meets its jurisdictional thresholds, whether or not the parties have notified the transaction.
Jurisdictional tests
- Turnover test:The target's UK turnover exceeds £70 million in the most recent financial year.
- Share of supply test: The merger results in the creation or enhancement of a share of supply of at least 25% of goods or services of any description in the UK or a substantial part of the UK. This is a broad and flexible test that the CMA interprets expansively.
The CMA's share of supply test is notably lower than most merger control thresholds globally, which means that relatively small acquisitions can fall within the CMA's jurisdiction. This is particularly relevant for buy-and-build strategies where successive acquisitions in the same sector gradually build market position. Acquirers pursuing cross-border acquisitions involving UK targets should assess CMA jurisdiction early in the process.
Remedies: behavioral vs. structural
When a competition authority concludes that a proposed acquisition raises competition concerns, the authority may clear the transaction subject to remedies, conditions that the parties must satisfy to address the identified concerns. Remedies fall into two broad categories.
Structural remedies
Structural remedies involve changes to the ownership or control of assets. The most common structural remedy is a divestiture , the sale of a business unit, product line, or specific assets to an independent third party. Structural remedies are generally preferred by competition authorities because they address the competition concern directly and permanently, without requiring ongoing monitoring. The European Commission has a strong preference for structural remedies and will accept behavioral remedies only in exceptional circumstances.
Behavioral remedies
Behavioral remedies impose ongoing obligations on the merged entity's conduct, such as commitments to license intellectual property to competitors, maintain interoperability with competing products, supply key inputs to downstream competitors, or refrain from certain pricing practices. Behavioral remedies are less intrusive than divestitures but require ongoing monitoring and enforcement, which makes authorities skeptical about their effectiveness.
For search fund acquirers, the practical relevance of remedies is greatest in buy-and-build strategies. As you acquire multiple businesses in the same sector, your combined market share may reach levels that trigger competition concerns. Plan your acquisition strategy with an awareness of market share thresholds, and consider proactively addressing competition authority concerns in your deal documentation through representations and warranties that address market position and competitive dynamics.
Gun-jumping rules
“Gun-jumping” refers to conduct by the merging parties that occurs before the transaction has been cleared by the relevant competition authority. Gun-jumping rules exist to ensure that the competitive independence of the merging businesses is maintained until the authority has completed its review. There are two main categories of gun-jumping violations.
- Failure to notify or observe the waiting period:Consummating a reportable transaction without filing the required pre-merger notification, or closing before the waiting period has expired, is a strict liability violation in most jurisdictions. In the US, the maximum civil penalty for HSR gun-jumping exceeds $50,000 per day. The European Commission has imposed fines of up to €124.5 million for failure to notify.
- Premature coordination or integration:Even before closing, the parties may violate competition law if they coordinate pricing, allocate customers, share competitively sensitive information outside of legitimate due diligence protocols, or exercise control over the target's business decisions before the transaction is approved. The line between legitimate pre-closing planning and unlawful premature integration is sometimes unclear, and parties should establish “clean team” protocols to manage information exchange during the pre-closing period.
Acquirers must be aware of gun-jumping risks from the moment the due diligence process begins. Implement strong information barriers, restrict access to competitively sensitive data to a limited clean team, and ensure that all pre-closing planning activities are structured as contingent on regulatory approval.
Sector-specific regulatory approvals
Beyond general merger control, many sectors are subject to additional regulatory approval requirements that can affect the closing timeline and feasibility of an acquisition.
- Financial services:Acquisitions of banks, insurance companies, investment firms, and other regulated financial institutions typically require approval from the relevant financial supervisory authority (e.g., the Federal Reserve or OCC in the US, the ECB or national supervisors in the EU, the PRA/FCA in the UK). These approvals assess the acquirer's fitness, propriety, and financial soundness.
- Healthcare:Acquisitions in the healthcare sector may require approval from health regulators, particularly when the target holds licenses to operate medical facilities, pharmacies, or laboratories. Some jurisdictions require “change of ownership” applications for healthcare licenses.
- Telecommunications and media: Acquisitions involving telecommunications operators, broadcasters, or media companies often require approval from the sector regulator (e.g., the FCC in the US, Ofcom in the UK, ARCEP in France). Media plurality concerns may also be assessed.
- Defense and national security: Acquisitions involving defense contractors, critical infrastructure, or companies with access to classified information are subject to national security review in most jurisdictions (see foreign investment screening below).
- Energy and utilities: Acquisitions of energy companies, water utilities, and other regulated utilities may require approval from energy regulators or environmental authorities.
Foreign investment screening
Foreign investment screening regimes have expanded dramatically in recent years, driven by concerns about national security, technological sovereignty, and critical infrastructure protection. These regimes impose additional review requirements on acquisitions by foreign persons or entities, beyond the standard merger control framework.
US: Committee on Foreign Investment (CFIUS)
The Committee on Foreign Investment in the United States (CFIUS) reviews transactions that could result in foreign control of, or certain other investments in, US businesses. The Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018 expanded CFIUS's jurisdiction to cover non-controlling investments in businesses involved in critical technology, critical infrastructure, or sensitive personal data. CFIUS review is mandatory for certain transactions involving critical technologies requiring export control licenses and for investments in certain defined sectors by foreign government-controlled entities. For other transactions, CFIUS review is voluntary but strongly encouraged.
EU and Member State regimes
The EU's Foreign Direct Investment Screening Regulation (Regulation 2019/452) established a framework for coordination among Member States on foreign investment screening. However, the regulation does not create an EU-wide screening mechanism; it relies on national screening regimes, which now exist in the vast majority of Member States. Key regimes include France's foreign investment control (Decree No. 2019-1590), Germany's Foreign Trade and Payments Act (AWG/AWV), Italy's Golden Power legislation, and the Netherlands' Investment Screening Act (Wet Vifo).
UK: National Security and Investment Act
The UK's National Security and Investment (NSI) Act 2021 introduced a thorough foreign investment screening regime. The NSI Act imposes mandatory filing requirements for acquisitions of entities active in 17 specified sectors (including AI, defense, energy, transport, and communications). The government can also “call in” transactions outside these sectors if national security concerns arise. Transactions that are completed without required notification can be voided, and civil and criminal penalties apply.
Practical strategies for managing regulatory risk
- Identify filing requirements early: At the outset of any acquisition, assess whether merger control filings, sector-specific approvals, or foreign investment screening notifications are required in any jurisdiction. This analysis should be completed before the letter of intent is signed so that regulatory conditions and timelines can be appropriately addressed.
- Build regulatory timelines into the deal schedule:Regulatory review periods can add weeks or months to the closing timeline. Incorporate realistic regulatory timelines into the deal schedule, and avoid committing to a closing date that does not account for the possibility of extended review.
- Include appropriate conditionality: The purchase agreement should include conditions precedent for all required regulatory approvals, with clear allocation of responsibility for preparing and submitting filings, cooperation obligations, and remedies if approvals are not obtained or are obtained subject to unacceptable conditions.
- Prepare for remedies discussions:If there is a meaningful risk that regulatory review will identify competition concerns, prepare a remedies strategy in advance. Identify the assets or behavioral commitments that would address the authority's likely concerns, and assess whether the remaining transaction is still strategically and financially attractive if those remedies are required.
- Maintain competitive independence: From the moment due diligence begins until regulatory clearance is obtained and the transaction closes, both parties must maintain their competitive independence. Implement clean team protocols, restrict information exchange to what is necessary for legitimate due diligence purposes, and avoid any conduct that could be characterized as premature integration.
Frequently asked questions
Do search fund acquisitions typically require antitrust filings?
Most initial search fund acquisitions fall well below the Hart-Scott-Rodino (HSR) Act filing thresholds, which require notification for transactions where the acquiring person will hold assets or voting securities valued above the minimum threshold (approximately $111.4 million as of the most recent annual adjustment). According to US Federal Trade Commission data, fewer than 2,000 HSR filings are made annually out of tens of thousands of M&A transactions, and the vast majority of search fund deals, typically in the $5-30 million enterprise value range, are exempt. However, the FTC and DOJ retain authority to investigate and challenge any acquisition they believe may substantially lessen competition, regardless of size. Search fund entrepreneurs pursuing buy-and-build strategies should be particularly aware that successive acquisitions in the same sector may eventually trigger filing requirements or attract regulatory attention as market share grows.
How long does regulatory approval add to the closing timeline?
Regulatory approval timelines vary dramatically by jurisdiction and complexity. In the US, the initial HSR waiting period is 30 days (15 days for cash tender offers), and approximately 95% of notified transactions are cleared during this initial period without further investigation. However, if the reviewing agency issues a Second Request for additional information, the process can extend to 6-12 months or longer. In the EU, Phase I review takes 25-35 working days, while a Phase II in-depth investigation takes 90-125 working days. According to the OECD’s Competition Assessment Toolkit, sector-specific approvals (healthcare, financial services, telecommunications) can add an additional 2-6 months to closing timelines. Buyers should address regulatory timing in their letter of intent by including conditions precedent for all required approvals and building realistic regulatory timelines into the deal schedule.
What are the penalties for failing to file required merger notifications?
Penalties for “gun-jumping”, consummating a reportable transaction without filing required notifications or before the waiting period expires, are severe across all major jurisdictions. In the US, the maximum civil penalty under the HSR Act exceeds $50,000 per day of violation, and penalties have been imposed retroactively for transactions completed years earlier. The European Commission has imposed fines of up to €124.5 million for failure to notify, and the UK’s National Security and Investment Act 2021 allows transactions completed without required notification to be voided entirely, with civil and criminal penalties for non-compliance. According to the International Competition Network’s guidelines, the best protection is to conduct a thorough filing analysis at the outset of any acquisition, covering merger control, sector-specific approvals, and foreign investment screening requirements in every relevant jurisdiction.
Sources
- US Federal Trade Commission, Hart-Scott-Rodino Annual Reports to Congress
- US Department of Justice, Merger Guidelines (2023)
- European Commission, EU Merger Regulation (Council Regulation 139/2004)
- European Commission, Merger Remedies Study
- UK Competition and Markets Authority, Mergers: Guidance on the CMA's Jurisdiction and Procedure
- UK Government, National Security and Investment Act 2021: Guidance
- OECD, Competition Assessment Toolkit
- International Competition Network, Recommended Practices for Merger Notification and Review Procedures