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June 2, 2020

Breakingviews: Tech giants dare antitrust deal watchdogs

by Breakingviews.

Technology giants are tempting antitrust regulators. Facebook, Microsoft and Apple have been on a buying spree of small companies. U.S. regulators are examining such deals but their work has been hindered by Covid-19. Big Tech walks a fine line.

The pandemic hasn’t contained Silicon Valley dealmakers. Microsoft has bought or invested in five firms this year, including two acquisitions in May alone. Apple has acquired at least five firms, including machine-learning startup Inductiv, a purchase reported by Bloomberg last week. Facebook has bought or invested in four firms, with the latest being GIF database Giphy for $400 million.

U.S. watchdogs have signaled that small deals, which had gotten a pass, would draw more scrutiny. In February, the Federal Trade Commission issued special orders to the five biggest tech companies to provide data about past deals that had fallen below certain reporting threshold, previously $90 million in 2019.

The worry is that they are buying small firms to absorb or shut down nascent competitors. Though not in technology, razor company Edgewell Personal Care scrapped its deal to buy disruptor Harry’s after the FTC sought to stop the deal. And Facebook’s $1 billion acquisition of Instagram in 2012 is a cautionary tale – that deal, small at the time, ultimately gave it bigger market share in social networking. Watchdogs in Washington and in Brussels have also launched broader antitrust probes.

Amid the economic crisis spurred by the pandemic, big tech firms could try to justify their deals by arguing a small company would fail without their offers. To the extent that regulators are distracted, a few deals may sail by. Alphabet unit Google is in talks to acquire cloud startup D2iQ, Axios reported. It recently laid off dozens and projected a 40% drop in sales, according to Business Insider.

One of the areas watchdogs care about the most is the impact on consumers. Facebook’s acquisition of Giphy, which will be integrated into Instagram, will create a better user experience. But Mark Zuckerberg’s company will also gain more data, which is already a Washington concern. As the biggest tech companies become more powerful amid the pandemic, they are pushing their luck.

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