Author: Alex Haffner
Whilst the power wielded by the FANGs (Facebook, Amazon, Netflix and Google) is the subject of incessant debate, recent announcements by the UK competition regulator the Competition and Markets Authority (CMA) indicate a new battlefront may be opening up.
Earlier this week, the CMA announced it was considering whether or not Google’s acquisition of Looker Data Sciences might harm competition on any relevant market in the UK. The Looker acquisition was first announced in June 2019 and, at US$2.6 billion, represents Google’s third largest ever acquisition. Looker, is a US based provider of business intelligence software and data analytics and is intended to be integrated into Google’s Cloud Division. Cloud infrastructure is a rapid growth area with the ever greater need for data storage and capacity and Google, prior to the Looker transaction, finds itself in a battle with Amazon and Microsoft for supremacy in this market segment.
UK merger control is somewhat unique amongst equivalent regimes across the globe in so far as it operates a “voluntary” notification regime. In summary terms, this means that parties to qualifying M&A transactions do not need to seek the CMA’s clearance prior to completion. However, in not doing so, the risk is that the CMA (as it entitled to do) investigates a transaction of its own volition and decides that it needs to put in place measures to deal with any identified competition concerns. The idea is that parties should take their own advice as to these risks, so preventing the CMA from having to deal with significant numbers of “technical notifications” – transactions which qualify under the relevant jurisdictional test(s), but have no material impact on competition. It appears that Google and Looker may have decided to take such a risk in this case.
The CMA is very active in searching out transactions which have not been notified to it, but might have been. Transaction parties will commonly find themselves receiving so-called “enquiry letters” requesting information which will enable the CMA to decide whether or not a transaction requires further investigation.
At this stage, the CMA is conducting preliminary inquiries into the Google/Looker transaction – its announcement therefore leaves open the questions of (a) whether or not the transaction qualifies for assessment, and (b) if so, whether any competition concerns arise should the parties complete. However, it can be inferred from the fact that the CMA has issued a public announcement requesting comment from any “interested parties” that it has at least some degree of concern and needs more information to decide what to do next.
The jurisdictional rules in the UK are based on two alternative tests, either one of which if satisfied renders a transaction a “qualifying” one. The first (that the target had UK turnover of £70 million or more) is easy to apply. The second, is less straightforward and requires that there is some overlap between the merging parties’ activities and that, following the transaction, their combine “share of supply” of any goods/services in the UK (a substantial part of the UK) is 25% or more. It is often the niceties of the share of supply test which determine whether or not CMA has jurisdiction over a transaction.
CMA’s investigation of Google’s Looker acquisition follows-on from an ongoing investigation it is also carrying out under its merger control powers into Amazon’s acquisition of a stake in Deliveroo. Amazon announced in May 2019 it had made a “major” investment in Deliveroo, the online food delivery company as part of a £450 million fundraising. The CMA announced in August 2019 it was looking at the deal, by then completed, and officially launched a merger inquiry on 16 October 2019.
The Amazon/Deliveroo enquiry is notable because it involved the acquisition of a minority stake by Amazon. UK merger control applies to transactions where one party acquires at least “material influence” over another party, meaning in particular the ability to influence that party’s business decision making. Clearly the CMA considers that there is a prospect this test would be met in relation to Amazon’s investment.
Aside from the legal technicalities concerning the scope of the CMA’s jurisdiction to investigate the two transactions, the investigations into Amazon and Google are likely to raise broader issues as to the power and influence wielded by the two companies. The CMA’s remit is to consider whether a qualifying transaction could result in a “substantial lessening of competition”. In assessing that question, the CMA will look at (horizontal) overlaps between the parties concerned at the same level of trade and (vertical) overlaps which occur in two or more related markets, for example where one party supplies inputs that can be used by the other to supply its own customers. Given the reach of Amazon and Google’s business empires, the CMA is likely to be considering a wide range of potential issues in reviewing the competitive impact of their acquisitions.
With so many companies affected by the activities of the FANGs, it will be important to keep a close eye on the CMA’s investigations and, for those involved on the same markets as those under consideration by the CMA, to consider whether they might seek more direct involvement in the CMA’s deliberations.