The Competition and Markets Authority (CMA) has said that it may block the proposed merger of Crowdcube and Seedrs after its investigation found that it would reduce competition and innovation in the market.
The equity crowdfunding platforms unveiled plans to merge last October, subject to regulatory approval, saying the £140m deal would create “one of the world’s largest private equity marketplaces”. The CMA fast-tracked its inquiry into the merger into a full investigation in November.
As part of the investigation, the competition watchdog noted that Crowdcube and Seedrs compete closely against each other to win the business of small- and medium-sized enterprises (SMEs), and a significant number of firms view equity crowdfunding as their only way to secure financial backing.
In its provisional findings, the CMA said the deal is likely to substantially reduce competition, leading to less innovation and worse outcomes, such as higher fees, for SMEs and investors.
The CMA said its initial view is that blocking the merger may be the only way of addressing these competition concerns.
To reach its provisional finding, a group of independent CMA panel members reviewed evidence from the companies’ own documents, their customers, and other stakeholders.
Read more: Seedrs and Crowdcube: A P2P history
“Investment in small and growing businesses is vital to the UK economy as we emerge from the coronavirus pandemic, and we have given this deal careful consideration,” said Kirstin Baker, chair of the CMA inquiry group.
“These are the two largest equity crowdfunding platforms in the UK, with at least a 90 per cent share of the market between them and we see them competing closely on price and innovation. This means the merger could lead to less choice and higher fees for SMEs and investors.
“We have therefore reached the view that blocking this merger is likely to be the best way to maintain competition. The decision to block any deal is not taken lightly and is only made if there is a real risk of customers losing out.”
“We’re obviously disappointed with the CMA’s decision,” said Darren Westlake, founder and chief executive of Crowdcube.
“However, I’d like to reassure you that it’s business as usual at Crowdcube, and we continue to focus on delivering a great experience for businesses and investors alike.”
The CMA has called for feedback and ideas of possible remedies by 5pm on 7 April and has launched a consultation on the provisional findings with views welcomed by 5pm on 14 April 2021.
In its issue statement in December, the competition watchdog had already warned that the merger may result in a reduction in competition in the market.
The CMA said it carefully considered the firms’ arguments as part of its investigation.