On 6 November 2020, the UK Competition and Markets Authority ("CMA") ordered FNZ to sell GBST, having concluded that the acquisition raised significant competition concerns in the supply of software and services which enable retail investment platforms in the UK.
| what you need to know - key takeaways |
- Although mergers can be completed without seeking UK clearance, this places risk on the purchaser. The CMA can call the case in for investigation and, if competition concerns are found, can ultimately block a completed merger and require the divestment of the entirety of the acquired business.
- In 2020 to date, the CMA has prohibited more mergers at Phase 2 (four, including JD Sports/Footasylum) than it has cleared (three, including Amazon/Deliveroo and Bauer Media), with a further six transactions abandoned by the parties.
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In November 2019, FNZ, a UK-based wealth management technology company, completed its acquisition of GBST, an Australian financial technology company. The acquisition was not notified to the CMA, but the CMA opened an own-initiative investigation and imposed a hold separate order preventing integration of the two businesses. On 8 April 2020, following a Phase 1 investigation during which FNZ declined to offer remedies, the CMA referred the acquisition for an in-depth Phase 2 investigation.
At Phase 2, the CMA concluded that the acquisition would result in a significant lessening of competition. Although there are differences in FNZ and GBST's business models (the former providing an integrated software and servicing solution, the latter providing software only), the CMA found that they are two of the four leading suppliers of retail platform solutions to investment platforms in the UK, compete closely with one another and face a significant competitive constraint from just one other supplier. The merged business would be by far the largest UK supplier with a market share of nearly 50%. The CMA was concerned that the merger could cause costs to rise and service quality to decline for millions of UK consumers who hold pensions or other investments.
The CMA considered three remedy options. The partial divestiture of GBST's UK or global wealth management business was discounted as an effective remedy, in particular, because it was closely integrated with other parts of GBST's business. The CMA considered that risks would arise from divesting just the UK business, because FNZ would have retained access to the source code for GBST's wealth management product for use outside the UK. A source code licensing remedy proposed by FNZ was found to be highly unlikely to address the competition concerns. The CMA therefore concluded the only effective remedy would be for FNZ to fully divest GBST.
This case provides a further example of the CMA's power to block mergers at Phase 2, following JD Sports/Footasylum (since partially overturned by the Competition Appeal Tribunal – see our related newsletter article in this edition) and Sainsbury's/Asda, and is a reminder of the risks of completing transactions without UK merger clearance.
