How the Digital Markets Act Impacts M&A of Social Media Giants?

The EU Competition Act is the Act regulating the competition element of the market in Europe. This Act avoids anti-competitive practices such as creating alliances or monopolies in the markets that harm society’s interests. So, in the year 2020, the European Commission announced the Digital Markets Act to control the fast-growing digital market. This Act intends to make sure that no abuse of power takes place in this market (online) by the big tech companies & tries to create a safer environment for new players to come into this market. In this blog, we shall discuss how the Digital Markets Act impacts M&A of social media players.

Any law regulating competition has a significant impact on Mergers and Acquisitions transactions. This is due to any combination of Mergers and Acquisitions that can have a major impact on the competitive elements of the market. Digital Markets Act impacts M&A of social media giants to an extent by managing the gatekeepers of the online world and subjecting their every Mergers and Acquisitions deal to examine.

Advantages of the Digital Markets Act – Digital Markets Act Impacts M&A of Social Media Giants

1. Business users who depend on gatekeepers to provide their services in a single market will have a fairer business environment;
2. Clients will have more & improved services to choose from, more opportunities to switch their provider if they desire so, direct access to services, and fairer prices;
3. Technology start-ups & innovators will have new opportunities to compete & innovate in the digital platform environment without having to fulfill unfair terms & conditions limiting their improvement or growth;
4. Gatekeepers will keep all possibilities to innovate & provide new services. They will not be permitted to use unfair practices towards the business customers that depend on them to gain an undue benefit.

What is the Idea of Gatekeepers in Digital Markets Act? – Digital Markets Act Impacts M&A

Digital Markets Act has fabricated the word “gatekeepers” and is used for those platforms which have a presence in one or more digital 8-core services (online intermediation services, video-sharing platforms, operating systems, interpersonal communication services, advertising, and cloud computing) & are working at least three the European Union States. These platforms fulfilling the following conditions will be deemed as gatekeepers.

1. This platform serves as a significant gateway for business users to reach end-users;
2. This platform has a vital impact on the internal market;
3. This platform enjoys an ingrained & strong position or is likely to continue to have such a position.

The vast online platforms have established an ecosystem of agglomerate services & a business should use the service of these companies to come into the market. Massive digital platforms act as a gatekeeper between users & businesses. For instance, if a local business desires to switch digital to sell its products, it should provide its products over Amazon for better reach to the public. In such a case, an individual has no choice but to accept the cost & policy of Amazon to operate a successful business online.

How is the Digital Markets Act Impacts M&A of Social Media Gatekeepers?

The Digital Markets Act regulates the gatekeepers’ Mergers and Acquisitions deals by imposing an extra examination process by the Regulator even when the target is not subject to Merger Control. In its Article 12 provides an obligation of the social media giants to notify the Competition Commission of any Mergers & Acquisitions deal they might enter. These provisions themselves don’t attract any supervision mechanism. Recital 31 of the Digital Markets Act suggestion which signifies this process and says that this is only to make sure that the Commission can adjust the status of the platform being a gatekeeper & revise the core services by the platform in effect to that Mergers and Acquisitions deal.

In case the provision of the new Act with Article 22 of the Merger Control Regulations, it becomes insistent. Article 22 gives the power to the countries to approach the Commission & examine a Mergers and Acquisitions deal even if the deal is beyond their national threshold.

In European countries, M&A deals are regulated by Merger Control Regulations. Not every deal comes under the purview of these regulations. There is a specified threshold to attract the examination of the Commission. However, the Digital Markets Act is spreading the range of jurisdiction of the Commission by requiring an obligation on online platforms to notify the Commission of every single deal.

What Types of Tools & Powers for the Commission and other bodies have?

The Digital Markets Act (DMA)^[1] grants different powers & tools and different procedural rights to the EC (European Commission) & set up the DMCA (Digital Markets Advisory Committee) for issuing thoughts concerning DMA.

Following are some powers that the DMA gives the Commission:

• To re-examine ad-hoc the gatekeepers’ status on request or on their own;
• To exempt a gatekeeper from certain obligations under the DMA on the levels of public morality, security or health;
• To designate main platform services that fulfil the criteria of DMA as a gatekeeper;
• To identify measures to be taken by the gatekeeper to obey the DMA;
• To suspend definite gatekeeper obligations in the DMA at the request of the gatekeeper, if the gatekeeper shows that compliance with the specific obligation would endanger their economic feasibility;
• To start market investigations:
  1. To inspect whether a provider of primary platform services should be designated as a gatekeeper.
  2. To inspect whether the definite services in the digital or online sector should be added to the core platform services’ list & recognise practices that might restrict the contestability of platform services or might be unfair.
  3. Into systematic non-compliance by a gatekeeper.

The Digital Markets Act permits enforcement, supervising & investigative powers to the Commission at the time of its proceedings based on which the Commission is eligible:

• Algorithms & access databases;
• Order temporary measures against a gatekeeper on the basis of a prima facie finding of an infringement of obligations under the DMA;
• Interview any legitimate company or any private individual to gather information concerning the subject matter of an investigation;
• Observe the efficient execution & compliance with the obligations under the DMA;
• Request information from any responsibilities & from the Government and authorities of European member states.

What are the Positive and Negative Sides of the Gatekeepers?

Following are some Positive and Negative Sides of the Gatekeepers of Digital Markets Act impacts M&A:

• Positive Side
  1. Customer Welfare: With the enhanced oversight over social media giants, the final beneficiary is the public at great. This Act will make sure that clients have a massive choice in terms of social media engagements & have a lesser price to pay towards using these services.
  2. Prevention of Mistreatment by Gatekeepers:  This targets social media giants specifically because they hold the capacity to change several fair market exercises. They can quickly obtain companies to form cartels and control the market; resort to predatory costing, several social media giants can form monopolies & influence the services’ prices, etc. Since not even a small Mergers and Acquisitions of gatekeepers is least uninformed by the Act, and the Act is to prevent abuse or mistreatment by the social media giants.
  3. Better Surroundings for New Players: Such regulations are for the primary benefits of the social media stages. This Act will make sure that they are not side-lined or targeted by the gatekeepers & make better surroundings for every applicant to pay their cards.
• Negative Side
  1. Increased Price: This provision is bound to raise the price of deals as the Regulator will subject the platforms to different compliances & procedures, which they ordinarily won’t do.
  2. Slow Deals’ Conclusion: The Digital Markets Act, by putting the additional measure to authorise mergers of every type, will slow the conclusion process of Mergers and Acquisitions deals.
  3. Impact on Innovation: This Act has adopted the protective principle towards Mergers and Acquisitions deals of the gatekeepers. It does by imposing an obligation on the gatekeepers to notify the Commission. It’s a well-known fact that the protective principle kills creativity & innovation as it requires the subject too; hence by adopting this approach, it’s believed that this Act will sincerely hamper the innovation in social media platforms.

Conclusion

After discussing the Digital Markets Act impacts M&A of social media giants, the clients’ behaviour regarding social media is a vital consideration. The majority of clients with a platform that can be fit for all that is they can use it to connect to all their friends & family, share their content, etc. The client behaviour can be monetised easily by the social media giants by entering into different Mergers and Acquisitions transactions. This makes customers extremely susceptible to abuse by social media giants like manipulating behaviours, unilateral contracts, etc.

The extra examination by the Regulator to every Mergers and Acquisitions deal avoids abuse by the social media giants and safeguards the client’s interest. Moreover, this Act also forbids merging data by the platforms collected by them from various sources without the user’s consent. This clause prevents the benefit a gatekeeper would have over the other online platforms and hence preventing abuse.

Furthermore, the consequence of such regulation is that it obstructs innovation. Social media flourishes on experiments & innovations. They can deliver innovative & new services and make the client experience more enjoyable by entering into different Mergers & Acquisitions deals with various types of entities. However, these regulations can shape the connections of social media platforms according to the Regulator’s convenience.

Read our article:Key Considerations in Transitional Service Agreement in M&A