15 October 2019

More scrutiny of data in M&A deals under merger control, including traditional sectors

Does your company gather data? While this question has mostly been relevant for large tech-companies, it has become increasingly relevant for other sectors, too. Data can help companies gain a competitive advantage by optimising the quality and interoperability of products and services, even in many traditional sectors. At last week’s European Parliament hearing, EU Commissioner Margrethe Vestager reinforced her message that data has the Commission’s full attention whenever the Commission conducts merger reviews or is researching an abuse of dominance case. Although the Commission and national competition authorities have widely considered the role and value of data when it comes to the online economy and potential competition concerns, data collection and its use in other, more traditional sectors is likely to become a more focal point in merger cases as well.

According to Vestager, data collection by companies should be at the heart of the Commission’s policy agenda (see our previous coverage on her agenda). Data can be used for a wide range of applications, such as product and process optimisation, integration, digitisation, automation and for the development of new products and services. By making use of data and digitisation, certain industries may transition from more traditional business forms into data-driven ecosystems. This will not occur in every industry and certainly not at the same pace or to the same extent, but in certain industries, huge benefits can be realised from combining data and integrating separate elements into one integrated system. For instance, in the healthcare sector, it may be valuable to combine data from various types of medical equipment to optimise the equipment’s overall performance and to improve accuracy of predictions.

While competition authorities have gained some experience in reviewing data mergers in technology sectors, data collection in more traditional sectors have been less of a focus in merger cases. Given the increased debate about the effects of data collection, the Commission and national competition authorities are likely to increase scrutiny of data collection in other industries and its potential effect on competition. At last week’s hearing, Vestager indicated that she wants to “expand our insights as to how this works, and we have learned a lot from some of the merger cases that we have been doing, to see how data can work as an asset for innovation and also as a barrier to entry.” We expect competition authorities to look at potential overlaps between data sources and at the effects on competition if small innovators are acquired by incumbents in “killer acquisitions.”

How to make the analysis
The question of whether data-possession can restrict competition after a merger, specifically the foreclosure of competitors, has been the subject of debate in several cases, including: TomTom/TeleAtlas, Nokia/Navteq, the UK mobile wallet JV, Facebook/Whatsapp and Microsoft/Linkedin. In all of these cases, the European Commission evaluated possible anti-competitive effects on the markets where the merging companies were already active, and on potential and even hypothetical markets. In applying its analytical framework, the Commission treated data as an asset that could also serve as “input” in a related market. Broadly, the Commission evaluated: (i) whether the data is indispensable for competitors; (ii) whether there is no alternative means in acquiring those data; and (iii) the ability and incentives of merged entities to foreclose.

The issue of whether data could raise concerns about a merger will have to be assessed on a case-by-case-basis. Companies should anticipate a change in the way mergers outside the online economy are assessed, especially when it concerns data-driven mergers.

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