Increased protectionism could curb digital M&As

Mergers and acquisitions (M&As) are regarded as shortcuts to accelerating businesses’ digital journeys, but organisations must assess how their M&A activities could be curbed by new anti-competitive regulations.

EY’s recent M&A integration report found that companies are increasingly joining forces through mergers or acquisitions in order to compete with new digitally native businesses.

“While it would have been almost impossible to predict that an app like Uber, as opposed to a company like Tesla, would have been the largest threat to companies like Ford and GM, we are seeing companies being a lot more strategic and forward-looking in their approach to acquisitions,” wrote Brian Salsberg, EY global buy and integrate leader.

Although M&As are extremely prevalent in the high-tech sector, they are increasingly being used in traditional business to inject organisations with skills and technology for the digital age, and acquiring new customers.

However, international law firm Freshfields’ annual Global antitrust in 2019 report warned that increased protectionism may impact M&A activity, which could affect digital business strategies.

The report noted that the challenge for businesses seeking to invest in technology is that detailed scrutiny and scepticism are likely. “The European Commission’s clearance of the recent Apple/Shazam transaction is a good example of this,” said the Freshfields report, “also illustrating how EU member states are willing to exercise their jurisdictional referral rights to refer such deals to the commission for a pan-EU review.”

Natasha Good, global transactions partner at Freshfields in London, warned business leaders to expect further reforms that could impact digital M&A and minority investments. “More aggressive enforcement is expected in Germany, where recent foreign investment reforms identified cloud computing software as being particularly sensitive,” she said.

In France, said Good, the scope of the regime has been expanded to a number of sensitive industries, including artificial intelligence, cyber security, robotics, semiconductors and hosting of data., while UK reforms cover deals involving computing hardware or quantum technology.