The CMA’s Grip on Mergers and Acquisitions: Safeguarding Competition or Stifling the Future of UK Startups?

For startups, survival is a race against time. The right funding and strategic moves can mean the difference between exponential growth and an untimely demise. For years, Seedrs and Crowdcube stood at the forefront of equity crowdfunding in the UK, offering ambitious founders a platform to raise capital and fueling the growth of innovative businesses. Then, in 2020, a game-changing opportunity emerged—a merger that would create one of the largest private equity marketplaces in the world.

It was a bold vision: a $140 million powerhouse combining the strengths of both platforms, expanding access to investment, and propelling UK startups to new heights. But what seemed like a natural evolution of the market quickly became a regulatory nightmare. The Competition and Markets Authority (CMA) intervened, citing concerns that the deal would create a near-monopoly in the equity crowdfunding space. After months of scrutiny, the verdict was clear—the merger was blocked.

The aftermath was swift. Seedrs, once a thriving UK-based platform, was acquired by U.S.-based Republic, while Crowdcube remained standing but lost its chance to cement itself as a global leader. The decision sent a chilling message about the CMA’s grip on mergers and acquisitions: even in niche markets where competition is scarce, regulators were willing to intervene.

Was this a necessary move to prevent monopolistic control, or did it stifle the natural progression of a growing industry? And more importantly, is the UK’s regulatory climate making it harder for innovative companies to thrive?

This concern isn’t just limited to startups. Microsoft President Brad Smith, following the CMA’s initial decision to block Microsoft’s acquisition of Activision Blizzard, remarked that Britain was becoming “bad for business,” a sentiment echoed by global investors frustrated with the UK’s regulatory unpredictability.

The CMA’s Intervention in High-Profile Mergers

The CMA has particularly tightened its grip on transactions in the technology, fintech, and artificial intelligence sectors. Unlike regulatory bodies in the US and EU, which often approve deals with conditions, the CMA has outright blocked or significantly altered transactions, leading to heightened regulatory risk for corporations and investors alike.

Landmark Cases that Shaped the CMA’s Reputation

• Meta and Giphy (2022): In a landmark decision, the CMA blocked Meta’s $315 million acquisition of Giphy, citing concerns that the deal would stifle competition in the digital advertising market. Giphy, initially founded in 2013 by Alex Chung and Jace Cooke as a simple project, quickly became a dominant player in the visual content industry, partnering with platforms like Facebook, Twitter, Snapchat, Slack, and TikTok. Prior to the acquisition, it had launched innovative advertising services in the US and had planned to expand into the UK, posing a competitive threat to Meta’s dominance in digital ads. The CMA argued that the acquisition would enable Meta to tighten its grip on digital advertising, a sector in which it already controlled nearly half of the UK’s £7 billion display advertising market. Furthermore, Meta could leverage its ownership of Giphy to limit competitors’ access to GIFs or demand additional user data in exchange for integration, reinforcing its market power. Despite Meta proposing several behavioral remedies—including maintaining open API access, eliminating exclusivity clauses, and allowing licensing agreements—the CMA ruled that these measures were insufficient and ordered Meta to divest Giphy. The decision marked the first time the CMA blocked a major tech acquisition, signaling an aggressive regulatory stance against Big Tech consolidations.
• Microsoft and Activision Blizzard (2023): The CMA initially blocked Microsoft’s $68.7 billion acquisition of Activision Blizzard over concerns that it would create a monopoly in cloud gaming. The deal, which ultimately closed at $75.4 billion on October 13, 2023, was the largest video game acquisition in history, bringing major franchises like Call of Duty, Warcraft, Diablo, and Candy Crush under Microsoft’s gaming division. Regulators, including the CMA and the U.S. Federal Trade Commission (FTC), feared that Microsoft could use its market power to limit competition, particularly in cloud gaming. To address these concerns, Microsoft restructured the deal, agreeing to offload cloud gaming rights for Activision Blizzard titles to Ubisoft for ten years. While this concession secured the CMA’s approval, the prolonged scrutiny added months of uncertainty, delaying Microsoft’s strategic ambitions in mobile gaming, the metaverse, and subscription-based services like Game Pass.
• Adobe and Figma (2023): Adobe abandoned its $20 billion acquisition of Figma after facing significant regulatory opposition from the UK’s Competition and Markets Authority (CMA) and the European Commission. Regulators feared that the deal would stifle competition and innovation in the design software market, as Figma was seen as a rising alternative to Adobe XD. The CMA proposed remedies, including significant asset divestments, but Adobe rejected these terms. With no clear path to regulatory approval, both companies mutually agreed to terminate the deal, forcing Adobe to pay Figma a $1 billion reverse termination fee. The decision reinforced concerns that the UK’s regulatory stance was making it less attractive for high-profile tech deals, with critics arguing that blocking the acquisition may have hindered, rather than protected, innovation.

These decisions have drawn criticism from prominent Silicon Valley investors like David Sacks and Marc Andreessen as well, who argue that the UK’s regulatory environment is deterring startups from setting up European headquarters in the country.

CMA’s Grip on Mergers and Acquisitions: Ripple Effects on UK Startups

The CMA’s restrictive policies have had far-reaching consequences for UK startups, affecting valuations, exit opportunities, and investor confidence.

1. Shrinking M&A Opportunities

Startups rely on M&A as a primary exit strategy, but increasing regulatory scrutiny has made such deals less viable. Even when transactions are eventually approved, the extended review timelines—often stretching six to twelve months beyond expectations—introduce uncertainty, affecting valuations and deterring potential acquirers.

2. Depressed Valuations

Investors now apply a discount to UK startup valuations, recognizing the heightened difficulty in securing lucrative exits. As a result, startups that might have attracted high-value acquisitions in a more favorable regulatory environment are forced to explore alternative, often less beneficial, exit routes.

3. The Struggles of the UK IPO Market

When M&A exits become challenging, IPOs should, in theory, provide an alternative. However, the UK IPO market has struggled due to low liquidity, stringent regulations, and underwhelming market performance.

Many high-profile UK startups have opted to list on foreign exchanges:

• ARM (2023): The UK’s leading semiconductor company chose NASDAQ over the London Stock Exchange due to higher investor demand and better valuations.
• Revolut: The fintech giant has been considering a US IPO, citing concerns that UK regulations could dampen its valuation.
• Cazoo (2021): The online car retailer secured a faster and more lucrative exit through a US-based SPAC listing.

In 2023, London IPOs raised just $1 billion, compared to NASDAQ’s $24 billion, underscoring the growing disparity between the UK and US capital markets. This dynamic further incentivizes startups to relocate, exacerbating the talent drain.

The UK’s Competitive Disadvantage: US and EU Comparisons

The UK startup ecosystem faces mounting competition from the United States and the European Union, where regulatory environments are perceived as more conducive to business growth.

• The US Model: The Federal Trade Commission (FTC) and the Department of Justice (DOJ) primarily target mega-mergers, allowing smaller transactions to proceed with fewer barriers. This fosters a dynamic startup landscape where exits remain a viable pathway.
• The EU Model: The European Commission often approves deals with conditions rather than outright blocks, offering more predictability and reducing regulatory uncertainty for startups and investors.

The result? In 2023, venture capital investment in the UK declined by 57%, whereas Europe collectively raised four times more startup funding. Cities like Berlin and Amsterdam are increasingly attracting startups that might have otherwise remained in London.

The Decline of Venture Capital Investment

Venture capitalists prioritize markets that offer strong exit opportunities, and the UK’s regulatory uncertainty has significantly impacted investment inflows.

• In 2023, UK startup funding fell by 57%, compared to a 37% decline in the US.
• The number of UK unicorns (startups valued at over $1 billion) remains significantly lower than in both the US and EU.
• AI startups, in particular, are increasingly relocating to San Francisco, benefiting from stronger funding networks and a more accommodating regulatory climate.

These trends raise serious concerns about the UK’s long-term competitiveness as a startup hub.

Finding a Balance: The Need for Regulatory Reforms

The CMA’s role in maintaining competition is essential, but its current approach may be doing more harm than good. Without a more balanced regulatory framework, the UK risks losing its position as a global leader in innovation and entrepreneurship.

Potential Reforms:

• Streamlining Approval Processes: Introducing clear timelines and review mechanisms to reduce uncertainty in M&A transactions.
• Conditional Approvals Instead of Outright Blocks: Adopting a more flexible approach, similar to the EU, where deals are approved with conditions rather than rejected outright.
• Aligning UK Regulations with Global Standards: Ensuring that UK policies remain competitive with those of the US and EU to attract and retain high-growth startups.

Conclusion: A Crossroads for the UK Startup Ecosystem

The CMA’s interventionist approach, while rooted in the need to preserve competition, has had unintended consequences that threaten the UK’s startup ecosystem. A more balanced regulatory framework is needed to sustain innovation, attract investment, and ensure that startups have viable exit opportunities.

As global competition for startups and capital intensifies, the UK must adapt to remain competitive. Without targeted reforms, the country risks falling behind its international peers, pushing its most promising startups to seek opportunities elsewhere.