News

Unlock the Editor’s Digest for free

Brussels has ramped up its fight against any anti-competitive behaviour by Big Tech giants but the response from some in the European start-up community might not be what regulators have been expecting.

Last month, Amazon abandoned its ambitions to buy Roomba maker iRobot for $1.45bn after it was facing a veto on the deal in Europe and a likely similar fate in the US.

Amazon executives were quick to point out that their ditching of the
deal would be bad for consumers and innovation. David Zapolsky,
Amazon’s senior vice-president, warned: “This outcome will deny
consumers faster innovation and more competitive prices.”

But there was also criticism from the start-up community. Some entrepreneurs are concerned that if Amazon can’t buy a maker of vacuum cleaners, it sends a signal that it will be difficult for Big Tech to buy anything at all — and that might be a blow for their exit strategies and for innovation as a whole.

Stefan Moritz, secretary-general of lobbying group European
Entrepreneurs, which represents 2.4mn companies employing more than 20mn people across all EU member states, is worried. “It’s a bad sign if
the EU intervenes so heavily,” he said, referring to the iRobot deal.
“In the long run nobody will want to be an entrepreneur, many
companies will shut down or be bought if they have any remaining
valuable assets.”

European start-ups have traditionally looked at Big Tech’s deep pockets
as a way to maximise their growth plans. Recent examples include
Microsoft’s acquisition of Luxembourg-based video chat app Skype for
$8.5bn in 2011 and Apple’s purchase of UK-based music recognition app
Shazam for $400mn in 2018.

Still regulators have been seen to increase their scrutiny on
seemingly small tech deals because of concerns that they have waived through acquisitions in the past they perhaps shouldn’t have, such as Facebook’s takeover of Instagram and WhatsApp and Google’s purchase of online ads network DoubleClick — deals which expanded the market power of some companies more than expected.

Olivier Guersent, director-general of the EU’s competition unit, said Brussels’ concerns about iRobot rested on worries that Amazon would favour Roomba sales on its platform over competing products.

“We think we had a very good case for this,” Guersent said at an antitrust
conference in Brussels. “A lot of evidence. And we actually think that
this is why Amazon decided to drop the case rather than take a
negative decision or challenge it in court.”

Amazon’s deal is not the only digital transaction to have taken a hit
recently. Last year, the EU blocked US online travel site Booking Holding’s €1.63bn acquisition of Etraveli Group on competition concerns. And last month Adobe abandoned its proposed $20bn acquisition of software company Figma as the deal faced a veto.

Margrethe Vestager, the bloc’s competition commissioner, insists the market shouldn’t jump to the conclusion the EU will start vetoing a flurry of tech deals. “Every case is specific,“ she said a recent press conference. Vestager pointed to Google’s $2.1bn acquisition of fitness tracker Fitbit
as a deal that was cleared but with commitments made by the search
giant to allow other wearable devices to access Google’s ecosystem.
“So I think you’ll see all those three situations: some [deals] where
we don’t have concerns, some where we have deep concerns that may lead
to a prohibition and some where things can actually be remedied.”

But some believe the signals sent by Brussels will inevitably mean fewer mergers and acquisitions. “European start-ups being bought by Big Tech companies just became a less viable path,” said a seasoned adviser to Big Tech groups in Brussels.

Andreas Schwab, the parliamentarian who steered the debate on the
bloc’s flagship tech’s rules, also sees the risks to innovation when it
comes to big players but thinks there is a silver lining for European
entrepreneurs. He said: “It’s good for the economy that start-ups
should not rely on a few Big Tech players but that we push innovative
companies with new products to penetrate the market by themselves,
thereby diversifying institutional channels.”

But if not Big Tech, then who should invest in the technology leaders
of the future, critics of Brussel’s actions wonder. One option
discussed by regulators is to look at how to encourage investment groups to increase funding of the bloc’s start-ups. Given the dominance of venture capital by US groups, this might increase investments of these mostly large American institutions — possibly not what the EU wants.

javier.espinoza@ft.com

Articles You May Like

Nixon Peabody elevates public finance attorneys
Muni AAA yields are at highs for year
MSRB to seek comment on Form A-12
Brightline adds high-yield muni piece to upcoming refinancing
Texas issuers say they feel pinch from state anti-‘boycott’ laws