Agencies reviewing mergers recognise that, in some circumstances, a merger between competitors that would otherwise give rise to competitive harm should not be blocked, because one of the parties would, in the absence of the merger, have exited the market in any event. In these circumstances, the merger may not cause harm (or additional harm) to customers.

The tests for establishing the so-called “failing or exiting firm scenario or defence” are, understandably, stringent. There may also be variants of this scenario where, short of exiting the market, the competitiveness of one of the merging parties is likely to reduce as it will scale back its activities or otherwise be a less effective competitor in the absence of the merger – the “flailing firm defence”.

At first sight, the exiting firm scenario should be of widespread relevance as we head beyond the COVID-19 healthcare crisis into an economic crisis. However, Amazon/Deliveroo which had been provisionally cleared by the Competition and Markets Authority (CMA) based on Deliveroo becoming a failing firm due to COVID-19 was subsequently rejected, but ultimately cleared on different grounds.

Our recent webinar covers three key areas

  1. The exiting firm – seller and buyer beware? Why the parties to mergers should be mindful that merger control applies in a wide range of scenarios, including to partial acquisitions and the acquisition of assets. Consequently, purchasers should take care before agreeing to purchase stakes in exiting firms or their assets;
  2. Why is the exiting firm scenario typically rejected?; and
  3. What factual evidence is required to satisfy the exiting firm test? Here we provide an overview of the restructuring process and consider what evidence is required from a turnaround and restructuring perspective to demonstrate that, regardless of the merger, the firm and its assets would inevitably exit, and there are no alternative, less anti-competitive purchasers of the otherwise failing target business or assets.