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August 19, 2021

Unwinding Facebook’s Giphy acquisition would set an important precedent

By GlobalData Thematic Research

In May 2020, Facebook announced plans to buy Giphy, one of the world’s largest GIF libraries. However, following an investigation, the UK’s Competition and Markets Authority (CMA) raised competition concerns about the acquisition. If these concerns are confirmed, Facebook could be forced to unwind the deal and sell off Giphy.

The CMA’s final report on the deal is due in early October. The unwinding of a merger is unexplored territory for regulators, so this case could set an important precedent for future M&A activity.

Antitrust watchdogs are increasingly targeting Big Tech

According to GlobalData’s deals database, GAFAM (Google, Amazon, Facebook, Apple, and Microsoft) completed a total of 168 M&A deals between 2018 and 2020. Most of these deals were not investigated, nor were competition authorities notified. According to merger regulations in most jurisdictions, including the CMA and the US Federal Trade Commission (FTC), notification is obligatory if the acquisition exceeds specific turnover thresholds.

Antitrust watchdogs are increasingly concerned that digital platforms use acquisitions to crush competitors, as Facebook did to Instagram.

Facebook has already attracted the FTC’s scrutiny

Prior to the CMA probe, the FTC opened an antitrust investigation against Facebook in October 2020, which contemplates the unwinding of its purchases of Instagram and WhatsApp. Facebook’s aggressive M&A strategy targets players that it thinks might be potential threats to nullify the competition.

The company’s acquisition of Instagram in April 2012 is a prime example. Instagram was a rapidly growing startup that emerged at a critical time when users were switching to smartphones and were increasingly embracing photo-sharing apps. According to the FTC’s complaint, filed in 2020, Facebook initially tried to compete with Instagram by improving its own offerings, but once it realized it posed a threat to its monopoly power, it chose to buy it instead.

Moved by similar concerns, the European Commission fined Facebook €110m ($129m) in 2017 for misleading regulators over its takeover of the WhatsApp messaging service three years earlier.

Giphy could add to Facebook’s competitive advantage

According to the CMA’s analysis, Facebook’s platforms, including WhatsApp and Instagram, already account for over 70% of the time people spend on social media. It also found that before the Facebook and Giphy deal, the latter was considering expanding its advertising services to other countries, including the UK. This would have brought a new player into the online advertising market and a potential challenger to Facebook in this segment.

Facebook aims to integrate Giphy with Instagram. That could lead to Facebook withdrawing GIFs from competing platforms, such as TikTok, Twitter, and Snapchat, or restricting access to those willing to provide additional data. In the EU, the social media giant has already been attacked for its dominance in the online advertising market and perceived monopoly over its users’ data.

Regulatory bodies worldwide are considering measures to curb Big Tech’s growing power, including mandating the spin-off of specific business units or subsidiaries. The FTC has also asked for Instagram and WhatsApp to be split off from the main Facebook company but must demonstrate that Facebook illegally maintains monopoly power, which is not an easy task.

If the CMA is able to unwind Facebook and Giphy, it would set an important precedent for future M&A activity. No matter the outcome, Big Tech’s M&A activity will come under increased scrutiny in the future.

Verdict deals analysis methodology

This analysis considers only announced and completed artificial intelligence deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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