Antitrust authorities have identified ‘killer’ acquisitions as being a particular issue in the tech industry in recent years. A ‘killer’ acquisition is usually described as a large established company acquiring a smaller, innovative start-up. Often the start-up will have limited or no turnover (hence can fall below relevant merger thresholds) and may never have made a profit, yet the price paid can be significant. The definition is sometimes expanded to suggest that the reason for the acquisition is to pre-empt competition between the start-up and incumbent.
In September last year we reported on the Commission’s clearance of Apple’s acquisition of Shazam. Although the Commission concluded in that case that the merger of Apple and Shazam’s datasets would not harm competition, we explained our view that the Commission seemed to be almost disappointed that it had been unable take real action against a big tech company hoovering up a smaller but data-rich target. Subsequently, the Commission has confirmed that this is very much an issue on its radar. At a conference in January 2019, Margrethe Vestager, EU Commissioner for Competition highlighted the fact that the Commission keeps hearing that promising ideas from small innovators disappear “because bigger businesses buy them in order to kill them” (see here at 6:40).
Other antitrust authorities are also interested in these kinds of issues. The UK’s Competition and Markets Authority recently conducted a phase II investigation PayPal’s acquisition of iZettle. It published an Issues Statement explaining its concerns about the potential impact on competition in developing market of mobile payment systems, where PayPal was an established presence and iZettle was expanding, particularly in relation to ‘omni-channel’ payment services (where a merchant can take online and offline payments through a single provider in an integrated system). After an extensive review, including a survey of over 6,000 customers, the CMA provisionally concluded in April 2019 that the merger did not raise competition concerns: customers were relatively willing to switch and other competing companies also provided mobile point of sale devices.
Despite the eventual clearance, that this merger went to phase II is a clear sign that the CMA is taking the concept of killer acquisitions seriously. The CMA’s review included assessing significant numbers of internal documents relating to PayPal’s rationale for the merger and what the commercial strategies of both parties would have been without the merger. Internal documents are becoming increasingly important as a feature of UK merger reviews: the recent investigation of the potential Sainsbury’s/Asda merger involved the review of “hundreds of thousands of the Parties’ internal documents” (here). For transactions that could be potentially be characterised as killer acquisitions, it will be vital that the parties’ internal documents reflect the pro-competitive rationales for the transaction.
For potential killer acquisitions involving platforms and data, one potential remedy could be for the merged entity to provide access for other undertakings to its datasets. The issue of data access is considered in the recent EU report on Competition policy for the digital era (see our introduction here and chapters 5 and 6 of the report here). However, across the Pond, the AAG of the Department of Justice, Makan Delrahim, has suggested that data is an asset just like any other. He rejected the view that a company owning critical data should be required to offer up access to it to avoid an insurmountable barrier to entry, explaining that if a company has invested into collecting data, they should be able to keep it. However, as a caveat, he noted that if two companies with critical data are merging, they might be required to divest one of those data sets in order for the merger to clear (see here, subscription required).
We expect that there will continue to be significant developments in this area in the future.