In the Financial Times, Tom Braithwaite reports on how lawsuits and a changing climate in Washington D.C. are affecting Big Tech’s interest in acquisitions. He writes:
Today’s tech giants were built on innovation — just not always their own. At key moments in their history, Google and Facebook made savvy acquisitions of smaller companies that supercharged their growth or snuffed out future competition.
Now that strategy has big obstacles. The latest sign came this month when the US Department of Justice sued to halt Visa’s $5.3bn acquisition of fintech group Plaid. The deal “must be stopped”, the government lawyers wrote, as it would “eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers”.
Visa controls about 70 per cent of online debit transactions in the US. Plaid, which was founded in 2013 as a developer of software to share financial data between bank accounts and third-party apps, is not even in the payments market but is developing its own debit tool.
The DoJ peppered its lawsuit with incriminating-sounding messages from Visa’s executives. Acquiring Plaid when it was preparing to launch a “threat to our important US debit business” would be an “insurance policy”, chief executive Al Kelly told his CFO. Another executive is quoted as saying: “I don’t want to be IBM to their Microsoft.”
Colourful though this may be, substantively it is all quite weak. The clue is in the word “nascent”.
“Normally, with mergers you worry about, one firm has 40 per cent and another has 30 per cent,” said George Hay, a professor and antitrust expert at Cornell Law School. “It’s nothing like that here. No matter how you define the market, Plaid is tiny. There’s not a lot of good case law on acquisitions of very small firms that might grow into a potential competitor.”
As Mr Hay points out, the government’s case has an additional prong that might prove more effective: going after Visa as a monopolist. The main reason the DoJ is likely to prevail, however, is nothing to do with the merits of the case. Companies tend to abandon mergers rather than fight the government in court, even when they have a significant chance of victory.
Most companies do not need a lawsuit to know the mood music in Washington has changed. In 2007, Google’s acquisition of internet advertising platform DoubleClick was approved by competition authorities. Facebook’s acquisitions of photo app Instagram in 2012 and messaging app WhatsApp in 2014 were waved through. Yet in the past few weeks, the Federal Trade Commission has been reported to be reviewing those acquisitions all over again and the DoJ has sued Google, accusing it of illegally protecting a monopoly in search advertising. A growing number of lawmakers want big tech companies broken up.
Read more here.