Startups clash with watchdog over digital merger regulation

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British startups have been plunged into a bitter war of words with the competition watchdog as the two sides clash over how major tech mergers should be regulated.

Industry body the Coalition for a Digital Economy (Coadec) has penned a scathing letter to chancellor Rishi Sunak warning that the Competition and Markets Authority (CMA) risked “killing” British tech firms by launching lengthy investigations, while global rivals were free to pull ahead.

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“The recent actions of the CMA reflect an ignorant one-size-fits-all approach to tech acquisitions, investment and mergers that can only damage the tech ecosystem in the UK,” wrote Coadec executive director Dom Hallas in a letter seen by City A.M.

The watchdog has made a number of high-profile interventions in recent tech deals, including Just Eat’s merger with and Amazon’s investment in Deliveroo.

It comes amid a wider tightening of tech regulation as the UK aims to clamp down on the unchecked growth of digital behemoths.

However, Hallas said an interventionist approach risked deterring both scaling companies trying to grow in global markets and the investors backing them.

“These interventions not only create investor uncertainty but also starve scaling companies of capital at the very moment they need it most,” he wrote.

But the CMA today returned fire, insisting instead that regulators had not come down hard enough on tech firms.

Speaking at an event in London, chair Lord Andrew Tyrie said there had “probably been under-enforcement of merger control in digital markets”, adding that this could have a negative impact on consumers.

Tyrie took aim at large online platforms, which he said could “destroy a small business with a change to an algorithm”.

The comments came a day after CMA chief executive Andrea Coscelli cited Facebook’s takeovers of Instagram and Whatsapp as examples of mergers that had contributed to “poor market outcomes”.

In his speech Tyrie argued that the watchdog should make greater use of its so-called soft power, meaning it should engage more with tech firms before enforcement action became necessary.

But he also called for a strengthening of both competition and consumer protection powers to ensure the watchdog had a “hard edge”.

One industry source told City A.M. that promoting soft power while also calling for more enforcement was “inherently contradictory”.

A report published earlier this week by law firm Allen & Overy revealed the CMA had become a “standout enforcer” among global antitrust authorities, blocking three deals last year and causing a further five to be abandoned.

The UK has cemented its position as a tech hub in recent years, with venture capital funding for UK tech firms hitting £10.1bn in 2019. This surpassed growth in all other countries, including the US and China, and beat the funding levels of Germany and France combined.

In his letter, Hallas cited the Furman Review into digital competition, which last year warned that enforcement could be “slow and unpredictable, which is even more costly than normal in rapidly evolving technology markets”.

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“The CMA now risks making the very mistake that the review identified – killing British companies with lengthy investigations whilst global digital markets move on around them,” Hallam added.

“There must be a more appropriate approach than stifling British companies of investment whilst their global competitors grow.”

Main image credit: Getty

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