Unpacking the CMA’s proposed new approach to merger efficiencies

After a period of extensive engagement with businesses, advisers and economists, the CMA published on 3 June its draft revised guidance on the assessment of Rivalry-Enhancing Efficiencies (REEs). This is the latest step in an ongoing modernisation programme designed to embed pace, predictability, proportionality, and process (the 4Ps) into the exercise of the CMA’s merger control powers, following updates to its jurisdictional, procedural and remedies guidance at the end of last year. 

The CMA is currently consulting on the revised guidance, which, once finalised, will replace the existing guidance on efficiencies contained in the Merger Assessment Guidelines and inform the CMA's approach in future merger cases. The consultation presents an opportunity to take stock of what is changing and to consider what the proposed changes are likely to mean in practice. 

In brief

Substantively, the draft retains the analytical framework of the current guidance. However, unlike the current guidance, which is relatively short and starts from the position that efficiency claims are difficult to verify and rarely proven, the draft revised guidance is significantly more detailed and actively encourages parties to come forward with such claims, with a commitment to apply the same evidentiary standard when evaluating the likelihood of efficiencies and anti-competitive effects. 

In addition, the revised guidance indicates that efficiencies will be considered within the substantive competition assessment itself, while also recognising that mergers may not only create cost savings (so-called static efficiencies) but could also reinforce the competitive process through dynamic efficiencies, by increasing the parties’ ability and incentive to invest and innovate.

As such, the revised guidance broadly mirrors the approach adopted by the European Commission in its recent draft new EU merger guidelines, reflecting a significant degree of alignment between the evolving thinking of the CMA and the Commission regarding the assessment of and weight that should be attached to efficiencies in merger cases. 

The core framework remains the same

The substantive analytical framework remains the same: efficiencies must be merger-specific, timely, and likely. Merger parties who rely on efficiencies must establish that these conditions are met.

As before, REEs must also occur in the market in which a potential substantial lessening of competition (SLC) has been identified and enhance competitive rivalry by inducing the merged entity to compete more vigorously against its rivals. This enhancement of rivalry must also be sufficiently strong to prevent the SLC from arising - neutralising the anti-competitive effects of the merger in that market, not merely reducing them or generating offsetting benefits elsewhere.

Merger efficiencies will not amount to REEs unless these conditions are met. This creates a high threshold, particularly where the SLC is significant¹. Indeed, it is notable that the CMA has never unconditionally cleared a merger until now based solely on REEs². However, efficiencies falling below that threshold are not necessarily irrelevant, as they can potentially be recognised as relevant customer benefits (RCBs). 

RCBs capture efficiencies that do not prevent an SLC but nevertheless create benefits to customers in the form of lower prices, higher quality, greater choice or innovation that are merger-specific and accrue within a reasonable period³. Accordingly, RCBs can capture efficiencies that materialise in market(s) where no SLC has been identified and/or that have no or only a limited impact on the competitive process. The CMA has a discretion not to refer a merger which creates such benefits to Phase 2 where it believes those benefits outweigh the adverse effects of the SLC. The CMA must also have regard to RCBs when deciding on remedies at the end of a Phase 2 investigation. 

Unlike for REEs, which form an integral part of the substantive competition assessment, RCB claims always require a balancing of competitive harms against consumer benefits. It is therefore unfortunate that the draft revised guidance, whose primary focus is on REEs, does not address how such a balancing exercise will be approached by the CMA (although it does confirm that the CMA will apply some of the same principles - e.g. around merger-specificity, likelihood, and timeliness - when assessing RCBs as it does in relation to REEs)⁴.

So, what has changed?

The draft guidance signals a shift in the CMA’s approach, potentially increasing the likelihood that efficiencies could in the future prove material in influencing the outcome of a case.

A more balanced approach 

As noted above, a marked shift in tone can be observed across many parts of the guidance. For a start, it no longer states at the outset that many efficiency claims are rejected because “the evidence supporting those claims is difficult to verify and substantiate", nor does it flag "the difficulty involved in accepting prospectively that a merger is likely to lead to efficiencies".

More substantively, the draft expressly states that the CMA will apply the same standard when assessing evidence relating to merger benefits as it does when assessing theories of harm. This is consistent with the approach taken by the Commission in its draft guidelines, and is likely intended to address the perception that, in practice, a higher evidentiary bar has in the past been applied to efficiencies arguments. 

Importantly, the draft also makes clear that the CMA will assess efficiency claims as part of its overall consideration of the competitive impact of a merger, rather than first considering whether an SLC may arise, and then dealing with efficiency claims in a subsequent exercise (by which point its views on the merger may be entrenched, particularly at Phase 1).

Greater detail and practical guidance

Whereas the current guidance is relatively sparse, the draft is significantly more detailed and sets out examples of different situations in which efficiencies can arise, such as cost savings, the elimination of double marginalisation, increases in quality or innovation arising from the combining of unique assets, and enhanced product integration. It also sets out examples of the types of evidence on which the CMA is likely to place weight - including operational and financial data, strategy documents (particularly those dealing with transaction rationale), transaction materials, and the parties' track record in realising similar benefits in previous mergers. Previously, the guidance referenced only examples of past mergers that have given rise to efficiencies as evidence the CMA might take into account. 

On evidence, the draft guidance also confirms that contemporaneous internal documents generated in the ordinary course of business will carry the greatest weight. At the same time, however, the CMA acknowledges that such documents may not address all aspects of the CMA's analytical framework. Consequently, the draft leaves the door open for bespoke supporting evidence - including economic analysis of how the merger would affect the parties' ability and incentives to innovate or to pass on benefits to their customers - whilst cautioning that such evidence should be grounded in real-world assumptions. 

Recognition of a broader range of acceptable efficiencies

Three aspects of the draft guidance are particularly noteworthy here.

First, unlike under the current guidance, to count as REEs claimed merger benefits need not counteract the specific harms to competition identified. Instead, when assessing sufficiency, the CMA will consider the overall impact of a merger on all parameters of competition in the relevant market, both positive and negative. This means that merger-related benefits to product quality or innovation could, in principle, outweigh anti-competitive effects resulting from likely price increases, as long as they arise in the same product and geographic market(s).

Second, the draft gives meaningful recognition to dynamic efficiencies, i.e. benefits from increases in the merger parties' ability and incentive to compete through investment, innovation and R&D. Importantly, the CMA acknowledges that there may be uncertainty about the outcome of investment and innovation efforts, including as to whether they will ultimately lead to the launch of improved products or services. In such cases, the CMA may instead take into account the merger’s tendency to strengthen the process of dynamic competition as amounting to a relevant efficiency in itself. This may be of particular relevance to mergers in R&D/investment-intensive sectors such as pharmaceuticals, telecommunications and technology.

Third, on timeliness, the current guidance states that claimed efficiencies must be assessed within the same timeframe as the CMA’s competitive analysis. And the longer the period needed for efficiencies to be realised, the greater the doubt that they will be realised at all. The draft guidance takes a more balanced approach. It recognises that efficiencies may arise over different timeframes and that certain dynamic efficiencies may not be realised for several years, whilst confirming that the CMA remains open to considering such efficiencies in its assessment. However, to ensure a fair comparison between short-term harms and longer-term gains, the CMA will apply appropriate discounting to expected future benefits. 

The role of remedies 

As foreshadowed by the CMA's revised Merger Remedies Guidance published in December 2025, the draft confirms that where the CMA sees the potential for efficiencies, but has concerns about their timeliness or likelihood, remedies - particularly behavioural ones - can be used to address those concerns⁵. Such remedies are likely to be appropriate where there is strong evidence that the efficiencies satisfy all other limbs of the test, the remedy changes incentives in a way that is difficult to reverse, and an effective remedy can be designed. 

Vodafone/Three is the paradigm for this hybrid approach. In that case, the CMA concluded that while the merger might generate efficiencies in the form of 5G network improvements, the parties would not necessarily be incentivised to deliver the full extent of the claimed benefits. The CMA therefore accepted a package of behavioural remedies, comprising a legally binding commitment to invest approximately £11bn in network infrastructure over eight years, coupled with time-limited price caps to protect customers against short-term price increases. As noted in our article on the case, this approach marked a significant departure from the CMA's traditional preference for structural remedies. 

Process improvements

The draft places considerable emphasis on early engagement. Parties that wish to make efficiency claims are encouraged to engage with the CMA early in the process, including during pre-notification, and the CMA will discuss and provide feedback on efficiency submissions. This includes indicating where further evidence or analysis is needed to substantiate efficiency claims.

Finally, addressing a concern that has historically deterred some parties from raising efficiencies arguments, the draft makes clear that doing so will not be treated as an implicit acceptance that the merger is likely to result in an SLC.

Conclusion

The draft guidance signals a clear willingness on the CMA's part to give greater consideration to efficiencies arguments advanced by merger parties. The removal of sceptical language, the commitment to equal evidential standards, the more detailed practical guidance, and the integration of REEs into the substantive competitive assessment are all welcome developments - even if some of these additions reflect what was already current practice⁶.

It is not unreasonable to expect, therefore, that efficiency claims will come to be seen as less of a non-starter, and that such discussions could become a more integral part of the assessment of many mergers - particularly in sectors where dynamic competition, investment and innovation are central to the competitive landscape.

That said, the threshold for a successful REE argument remains high. Despite the shift in tone, the CMA will assess each case on its facts and remains dubious about the extent to which mergers (particularly horizontal mergers in concentrated markets) can generate clear benefits that are passed on to customers. The substantive framework is unchanged, and the draft makes clear that only well-evidenced claims will receive serious consideration. Looking ahead, more cases may follow the Vodafone/Three precedent, with behavioural remedies being used to address CMA concerns around timeliness and likelihood where claimed REEs are credible but uncertain.

For merger parties considering raising efficiencies arguments, the practical takeaways are clear: engage early; invest in building a robust evidential base, underpinned by consistent contemporaneous documentation and supplemented with econometric analysis where necessary; and consider whether behavioural commitments could be deployed to bridge any gap between short-term competitive harms and longer-term customer benefits.