Back in October 2020, the companies announced their £140M (€162.5M) merger and in order to complete the development, they needed to go through an approval process with shareholders, the Competition & Markets Authority (CMA), and the Financial Conduct Authority (FCA).
Unfortunately for both the companies, the Competition and Markets Authority (CMA) has provisionally blocked this merger.
The big disappointment!
Back in November 2020, the CMA agreed to ‘fast track’ the anticipated merger of Crowdcube and Seedrs to an in-depth Phase 2 investigation, after finding likely competition concerns.
On Wednesday, the CMA announced that, as part of its Phase 2 investigation, it found that Crowdcube and Seedrs compete closely against each other to win the business of SMEs, with a significant number of businesses viewing equity crowdfunding as their only way to secure financial backing. “A deal between the 2 could result in UK SMEs and investors losing out as a result of higher fees and less innovation.”
According to the CMA’s initial view, blocking the merger may be the only way of addressing these competition concerns.
The watchdog came up with this provisional finding, after a group of independent CMA panel members reviewed evidence from the companies’ own documents, their customers, and other stakeholders. “And, CMA is now considering after concluding everything carefully, that in case the deal does not go through, there could be the possibility that one or both firms exit the market or would need to re-orientate their business strategy,” it mentions.
Kirstin Baker, Chair of the CMA inquiry group, says, “Investment in small and growing businesses is vital to the UK economy as we emerge from the coronavirus pandemic, and we have given this deal careful consideration. These are the two largest equity crowdfunding platforms in the UK, with at least a 90 per cent share of the market between them and we see them competing closely on price and innovation. This means the merger could lead to less choice and higher fees for SMEs and investors.”
In the UK, a firm is said to have “monopoly power” if it has more than 25 per cent of the market share. Monopolies are created by private enterprises that are designed to eliminate the competition and maximise their profits. And, to make sure such developments do not take place, the Government has created policies that protect consumers and innovative companies.
Baker adds, “We have therefore reached the view that blocking this merger is likely to be the best way to maintain competition. The decision to block any deal is not taken lightly and is only made if there is a real risk of customers losing out.”
The CMA has now launched a consultation on these provisional findings and views are invited by 14th April 2021.
How does Crowdcube feel about this decision?
The crowdfunding platforms, if merged, would have created the world’s largest private equity marketplace and further democratise investment.
In a blogpost, Crowdcube’s founder & CEO – Darren Westlake, mentions, “We’re obviously disappointed with the CMA’s decision. However, I’d like to reassure you that it’s business as usual at Crowdcube, and we continue to focus on delivering a great experience for businesses and investors alike.”
As an investment crowdfunding platform, Crowdcube enables entrepreneurs to raise funds with the added benefit of being backed by their community. For investors, the platform provides a way to hand-pick a stake in an innovative business they believe in that traditionally would have been restricted to professional investors. Since its inception in 2011, Crowdcube has helped more than 1,120 startups to raise funds. With more than 900,000 members, a total of £1B (approx €1.1B) has invested via the platform, to date.
Westlake also mentions that the company has been recording outstanding levels of growth in the last 12 months and remains in a very strong financial position following record revenue in 2020 and two consecutive quarters of profitability.”
“We continue to invest in our people and products, and we expect to be profitable again in the first half of 2021, with an unprecedented level of high profile European businesses set to fundraise with us in the coming weeks,” he adds.
Seedrs: “Deeply disappointed”
As for Seedrs, it is also an online investment platform. It allows investors to buy and sell shares in private companies, and ambitious entrepreneurs to gain investment for their businesses while building communities in the process. Since its launch in 2012, Seedrs has funded over 1,140 deals, with nearly £1B (approx €1.1B) invested on the platform to date.
The company mentions that it is “deeply disappointed with these findings, and we firmly disagree with the CMA’s view that this would be an anti-competitive transaction.”
It strongly believes that this merger would have a “highly positive outcome” for British small businesses. Seedrs is evaluating the CMA’s findings and considering its next steps.