CMA flexes its muscles in small-scale technology mergers

In August 2019, the UK Competition and Markets Authority ("CMA") used its statutory merger control powers to: block a technology merger where it had previously issued an Unwinding Order; and impose an Unwinding Order in an investigation into another technology merger.  Both transactions were very small (total consideration was £11 million in one and US$12.5 million in the other), and both had been completed before clearance was sought or obtained from the CMA.

The CMA's approach demonstrates that it will actively intervene even in very small technology transactions, reflecting its current policy interest in digital markets, and it highlights the risks of proceeding unconditionally in small transactions which raise potential competition concerns.

These cases also show the CMA's readiness to impose an Unwinding Order to reverse action already taken by the parties to implement a completed merger.

Tobii/Smartbox

The transaction

In August 2018, Swedish company Tobii AB ("Tobii") announced that it had agreed to acquire Smartbox Assistive Technology Ltd and Sensory Software International Ltd (together "Smartbox") for total consideration of £11 million. Completion occurred on 1 October 2018. Smartbox achieved total net sales of £9.3 million in 2017.

Tobii and Smartbox both supply augmentative and assistive communication ("AAC") solutions globally and in the UK. AAC solutions are communication aids for people who find communication difficult, such as those with a disability. End-users are usually dependant on AAC technology to communicate, and accordingly the CMA regarded them as vulnerable consumers. It is perhaps also significant, from a policy perspective, that the main customers of AAC solutions in the UK include public bodies such as the NHS, local authorities and schools.  

The CMA investigation

The CMA commenced an investigation on its own initiative and issued an Initial Enforcement Order on 28 September 2018, prohibiting Tobii from taking steps to implement the transaction. However, Tobii and Smartbox had already taken certain steps, including entering into a reseller agreement for Tobii's products in the UK and Ireland, withdrawing certain products from sale in the UK and Ireland and discontinuing certain R&D projects. The CMA considered that these steps might prejudice the CMA's ability to implement effective remedies. Accordingly, the CMA issued an Unwinding Order on 28 March 2019, which included the following obligations:

• requiring the parties to terminate the reseller agreement; and
• obliging Smartbox to supply the discontinued products and to reinstate the R&D projects.

Having referred the merger for an in-depth Phase 2 investigation on 8 February 2019, the CMA published its finding on 15 August 2019 that the transaction had resulted, or would be expected to result, in a substantial lessening of competition ("SLC").

In particular, the CMA found that the parties were each other's closest competitors in the supply of dedicated AAC solutions, with a combined market share in the UK of 60-70 per cent. Most of the customers who responded to the CMA's questionnaire raised concerns about the merger. The CMA's investigation also identified that – consistent with customer concerns - the merger strategy expressly involved reducing the range of products available to customers and reducing R&D.

The CMA also identified vertical competition concerns, in terms of the merged entity's ability and incentive:

• to foreclose downstream competitors' access to Smartbox's Grid software, on which competitors' dedicated hardware is reliant; and
• to foreclose upstream competition in the supply of eye gaze cameras (which are used to control certain AAC solutions), through limiting the compatibility of Smartbox's Grid software with the eye gaze cameras of Tobii's rival suppliers.

The CMA also concluded that:

• the partial divestiture and behavioural remedies offered by Tobii would not address the SLC identified;
• there were no relevant customer benefits arising from the merger which could be taken into account; and
• only the full divestiture of Smartbox would comprehensively remedy the SLC and its resulting adverse effects.

Tobii will be required to give undertakings to the CMA to divest Smartbox to an approved purchaser, on terms approved by the CMA. If Tobii does not give suitable undertakings within the statutory timescale (12 weeks from the date of the final report, extendable in exceptional circumstances), the CMA will issue an Order requiring divestment.  

Bottomline/Experian  

On 6 March 2019, Bottomline Technologies (de) Inc. ("Bottomline") acquired certain technology and assets from Experian Ltd (the Experian Payments Gateway, or "EPG") for a cash consideration of approximately US$12.5 million.

Although the transaction was not notified to the CMA for merger approval, it came to the CMA's attention. The CMA issued an Initial Enforcement Order on 22 May 2019, prohibiting the parties from integrating the businesses. On 2 August 2019, shortly prior to its announcement that it was commencing an investigation, the CMA issued an Unwinding Order to Bottomline. This stated that the Monitoring Trustee, whom the CMA had directed Bottomline to appoint, had identified material integration between Bottomline and EPG. Under the provisions of the Unwinding Order, Bottomline is:

• prohibited from using confidential information obtained from EPG to solicit any EPG customer; and
• required to segregate the parties' respective confidential information (such as customer lists, pricing, knowhow and IP) between the businesses and to ensure that neither party's confidential information can be accessed by the other party.

Observations

The CMA's voluntary merger notification regime means that businesses may complete their transactions and proceed to implement them without applying to the CMA for approval. However, when the CMA decides to intervene in such completed transactions, it needs to be able to preserve the possibility of restoring effective competition in the event that the transaction raises competition concerns.

Whilst Initial Enforcement Orders are an effective tool in the CMA's armoury to prevent the merging parties taking further steps to implement a merger, they do not remedy the steps which the parties may already have taken. For these purposes the CMA may issue an Unwinding Order to reverse those steps.

These cases demonstrate that the CMA is very willing to use Unwinding Orders to ensure that the independence and integrity of the merger parties, as well as competition in the affected markets, are maintained pending the CMA's final decision. These cases also demonstrate the significant risks that parties run from proceeding unconditionally with mergers which may raise material competition concerns, even when the transactions and the relevant markets are very small.

In this regard, the CMA has singled out technology markets as being a key focus, and has recently initiated a review of its approach to the assessment of digital mergers.

In other recent news, on 24 September 2019, the CMA published its decision to impose a £250,000 penalty on PayPal for failure to comply with the a CMA Initial Enforcement Order issued in the context of PayPal's completed acquisition of iZettle AB. PayPal had engaged in integration projects outside the UK, but which affected the UK businesses in contravention of the CMA's order. This is a further example of the CMA ramping up its enforcement of procedural merger control restrictions.