Competition authority intervention in digital & tech markets is gathering pace both internationally and in the UK. The US Department of Justice has launched its long awaited lawsuit against Google, the European Commission is investigating Amazon and Apple, and the UK’s Competition & Markets Authority (CMA) has said that it will open investigations into Facebook and Google next year if the Government does not legislate to establish the industry regulator it has recommended.
On merger control, the CMA has also floated the prospect of a tougher regime for the digital & tech sector. This could involve compulsory notification of acquisitions by the tech giants, a lower standard of proof for it to block or place conditions on these acquisitions, and an ability to take public interest factors, such as privacy, into account.
While much sound and fury is directed towards the tech giants, the CMA is increasingly active in reviewing all sorts of digital & tech deals. The sector’s share of the CMA’s merger review caseload doubled from around 15% in 2015 to 30% in 2020.
Some of this increase has been a natural result of businesses migrating online. Gambling, retail and media are all good examples of where business has moved online and CMA attention has followed. However, most of the increase in CMA scrutiny has been in core digital & tech products like enterprise software, online platforms and fintech. Together, these three categories now represent 50% or more of CMA digital & tech merger reviews each year.
The potential for ‘killer acquisitions’ in the tech sector is receiving a lot of attention, with the CMA suggesting that past deals, like Facebook’s acquisition of Instagram, may have been cleared too easily. The CMA does not seem to have too many problems in identifying smaller tech deals for review though.
Nearly two thirds of digital & tech transactions looked at by the CMA since 2015 have been under the ‘share of supply’ test. This captures deals where the target has annual revenue of less than £70 million, and has included Zoopla’s acquisition of Websky, a provider of enterprise software for real estate agents, with annual revenue of around £4 million, moneysupermarket.com’s acquisition of Decision Technologies (annual revenue of £8m), and eBay’s acquisition of Motors.co.uk (annual revenue of £14m).
Moreover, for all the attention being paid to digital & tech deals, the CMA has not, until recently, been noticeably tougher on the sector. Over 2015-20 as a whole, the CMA reached adverse findings on just under 30% of all digital & tech deals, which is about the same as other sectors. In 2020, though, the CMA reached adverse decisions on nearly half the digital & tech deals it finished reviewing, including Sabre/Farelogix and Taboola/Outbrain. Several more, where the CMA is yet to finalise its decision, such as viagogo/Stubhub, look to be in trouble.
With the CMA taking responsibility from Brussels in January for reviewing major international digital & tech deals that affect the UK, an increasingly activist and interventionist approach looks likely. For those contemplating deals in the sector, the CMA’s track record in reviewing smaller UK-focused deals in recent years – as well as larger international deals – indicates that an early evaluation of merger control risks is likely to pay dividends.