CMA steps in on payment software merger

Out-Law News | 10 Oct 2019 | 9:52 am | 2 min. read

A UK regulator has signalled its intention to open an in-depth investigation into payment software provider Bottomline Technologies' acquisition of Experian Payments Gateway (EPG) after raising competition concerns.

The Competition and Markets Authority (CMA) carried out an initial investigation into the acquisition, which was completed on 6 March this year, and said that it was concerned the deal has resulted or may be expected to result in a substantial lessening of competition, and that it could lead to increased prices, reduced product availability, or reduced investment in innovation.

The CMA said it will move forward with a more in-depth investigation to examine the impact of the deal on competition more closely unless Bottomline offers solutions to address its initial concerns by 14 October.

Joel Bamford, senior director of mergers at the CMA, said: "Payment software is critical to many businesses in the UK for managing payments including direct debits and paying their staff. Bottomline is already the largest supplier and has purchased a rival who is trusted by many large businesses with few remaining competitors left in the market."

"Our investigation has shown that other options for the EPG business were available which could have resulted in more competition in the future. We are therefore concerned this transaction could lead to prices going up or less development of current software," Bamford said.

On 22 May the CMA imposed an initial enforcement order on Bottomline to prevent the company taking action that might prejudice a full competition investigation into the merger or any action stemming from that. The order required Bottomline, among other things, to put on hold the integration of the EPG business with its own, although the regulator granted the company a number of derogations. Bottomline was ordered to appoint a monitoring trustee to review its compliance with the order.

A report by the monitoring trustee in July "identified material integration" between the two businesses and this spurred the CMA to require Bottomline to appoint a so-called 'hold separate manager' to operate the EPG business separately from the Bottomline business.

However, in August the CMA went a step further and imposed an unwinding order against Bottomline. It said there were reasonable grounds for suspecting integration between Bottomline and EPG's business occurred prior to it imposing its initial enforcement order.

The unwinding order is "for the purposes of restoring the position to what it would have been had the pre-emptive action not been taken or otherwise for the purposes of mitigating its effects", the CMA said.

The unwinding order prohibits Bottomline from using confidential information of EPG's to solicit any EPG customer in relation to any product or service Bottomline offers that competes with the EPG business, and it further requires Bottomline to "procure the segregation of confidential information between the Bottomline business and the EPG business".

Competition law expert Robert Vidal of Pinsent Masons, the law firm behind Out-Law, said the case "demonstrates the CMA’s increasingly robust approach in reviewing completed tech/digital mergers".

Vidal said: "Bottomline and EPG are both active as software providers in the dynamic and rapidly evolving payments sector. The merger of close competitors in technology-based innovation-driven markets might well spur a fuller CMA competitive assessment than would be feasible during the initial 'phase 1' stage. In the PayPal/iZettle merger case the CMA considered alternative counterfactuals during its in-depth 'phase 2' review before unconditionally clearing the fintech merger earlier this year."

"More generally, this case highlights the risks of completing transactions without prior UK merger clearance despite such merger notifications being ‘voluntary’. Bottomline is only the second purchaser to ever be issued with an unwinding order during a live CMA merger review. The first such order was imposed on Tobii AB in a merger the CMA ultimately blocked and ordered to be reversed altogether although the CMA’s decision has now been appealed to the Competition Appeal Tribunal," he said.