Making UK merger control fit for digital markets

Posted July 24, 2019
by Alberto Prandini

What actually is a digital merger?

The demarcation between ‘digital’ and ‘non-digital’ mergers is somewhat artificial and a clear-cut dividing line risks being arbitrarily drawn. There is likely to be a continuum in the nature of mergers cases and recent inquiries in highly innovative sectors which fall short of multi-sided platform ‘digital mergers’ still raised many of the key issues the CMA is exploring. For example, the role of innovation and potential competition, the evidentiary weight of internal documents and deal evaluation are equally relevant to deals outside the digital (or technology) space.

Dynamic counterfactuals do not happen in a vacuum

As the prospect of being acquired is a motivating factor for many startups, the analysis of dynamic counterfactuals should include the possibility that an alternative acquisition of the target by another player, with the combined entity expanding its range of services and/or its user base. Third parties should expect the CMA to scrutinise in greater detail their future plans, for example by requesting a wide set of internal documents and probing them extensively at oral hearings.

Internal documents, or lack thereof

Internal documents often provide a wealth of evidence relevant to a merger inquiry such as the deal rationale and how closely merger parties consider they compete with one another. However, the CMA might misunderstand internal documents it reviews if it does not understand how the companies that have produced them operate. This is especially true in technology and digital mergers for several reasons:

  • Innovative business units (or local branches within multinational companies) compete for allocation of staff, R&D and other capital resources from the parent company, so the authors may be petitioning an internal stakeholder rather than expressing objective views on the firm’s strategy.
  • When companies have multi-layered decision making, drafts versions and junior documents can only attract low evidential weight, especially if they were not submitted to or agreed by the board.

High transaction value, low evidentiary weight

Unusually high multiples in the valuation of the target over its market price may be an indicator of competitive concerns, but that is a far cry from arguing that a high valuation is on its own evidence that the merger will be anti-competitive. In digital markets especially, there may be significant synergies from combining two services, from adding superior technology to a company with a strong brand and established user base, or from combining the resources of a larger firm with the disruptive technology of a smaller one.


In reviewing aspects of the MAGs, the CMA is moving forward with the reset of merger reviews in digital markets called for by the Furman Review. This is a step in the right direction.