The UK government is investigating whether IBM’s acquisition of cloud infrastructure company HashiCorp will result in a “substantial reduction in competition” within the UK market.
IBM announced its intention to acquire HashiCorp for $6.4 billion in April 2024 to support its customers’ growing AI-related needs. HashiCorp offers hybrid and multi-cloud lifecycle management products, such as infrastructure-as-code tools like Terraform, that facilitate building and running AI applications.
HashiCorp will not be part of IBM’s open source subsidiary Red Hat and will operate as a division of IBM Software. It said the deal will help its products reach more customers.
The Competition and Market Authority notified the two companies of the first stage of the investigation on August 1, 2024, and officially began the investigation on December 30. Feb. 25 and relevant third parties have until Jan. 16 to submit comments.
IBM declined to provide further comment. TechRepublic has reached out to HashiCorp for a response.
The IBM-HashiCorp deal drew criticism.
IBM has faced challenges since announcing the acquisition, with the U.S. Federal Trade Commission reviewing the company for potential antitrust issues.
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IBM’s shares fell about 9% shortly after the announcement as the company reported total first-quarter revenue of $90 million, below London Stock Exchange estimates.
Conversely, HashiCorp’s stock rose 4% after suffering a significant decline in 2023 due to the company relicensing Terraform from the open source Apache 2.0 to the more restrictive Business Source License. This alienated some in the open source community and led them to fork the original Terraform code into the open source OpenTofu, which was placed under the oversight of the Linux Foundation.
Also in June, HashiCorp investors sued the company, claiming IBM’s acquisition disproportionately benefited board members over shareholders. Executives are believed to receive significant personal benefits from the deal, including certain “golden parachutes” and the conversion of large illiquid stock holdings into cash.
According to the plaintiffs, these incentives created a conflict of interest, causing the board to favor the IBM acquisition over opportunities that were potentially more profitable for shareholders and potentially reducing the value of the investment. However, the suit was withdrawn two days later for unknown reasons.
The UK cloud market does not present a level playing field.
In October 2023, telecoms regulator Ofcom identified a range of issues in the UK cloud market, including the dominance of Amazon and Microsoft, which presented challenges for businesses and consumers. Microsoft’s Azure and AWS account for 70-80% of the UK cloud services market, while Google Cloud accounts for 10%.
One of the most pressing issues is the cost of migrating data from cloud platforms. These cost barriers prevent customers from switching between cloud providers and stifle competition in the sector.
see: Microsoft and OpenAI partnership catches the eye of UK antitrust regulators
Shortly after these findings were published, the CMA began investigating the issues raised. These findings and potential remedies for anti-competitive practices are expected to be announced later this month.
The Synopsys and Ansys merger is likely to be approved.
On December 20, the CMA completed the first phase of its investigation into chip design software provider Synopsys’ $35 billion acquisition of simulation software company Ansys. This is the largest technology deal since Broadcom acquired VMware for $69 billion in 2023.
The CMA found that the merger is likely to significantly reduce competition in the chip design and lighting simulation markets, but may still approve it if both companies submit acceptable relief proposals.
Synopsys and Ansys compete in three main categories: The first is a register transfer level power consumption analysis that evaluates the chip’s power demands and usage. The other two are optics and photonics software, both of which are used to design and model lighting-related products such as camera lenses, TV displays, car headlights, and lasers.
Merging these companies could result in fewer product choices in three areas: This is because two companies will become market leaders and the smaller company will have a hard time competing. “This could lead to a loss of innovation, lower software quality and higher prices, which could be passed on to UK businesses and consumers,” the CMA said in a press release.
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The CMA also suspected that the deal would allow Synopsys and Ansys to limit the interoperability of their products to maintain their advantage. However, research has shown that this factor is so important to customers that they would switch providers if their security is breached, so they have no incentive to do so.
Synopsys announced the deal in January 2024, saying it wanted to combine its expertise in electronic design automation with Ansys’ simulation to expand its reach across design from silicon to systems. Ansys accepted the contract to accelerate growth and provide more integrated solutions to its customers. The two have already been working together for several years now.
If companies do not propose appropriate mitigation measures by December 31, 2024, competition authorities will conduct a more in-depth stage 2 investigation. But Synopsys said in a published response that it had “already taken steps to address all concerns raised by the CMA.” One of those measures is a commitment to sell the optical solutions business to another company once the Ansys acquisition is complete.
According to Reuters, the merger is expected to be approved by the European Commission. The source added that Synopsys will provide the CMA with the same relief it did to address competition issues in the EU.
“Together, Synopsys and Ansys can help drive innovation across industries by addressing rapidly growing customer demand for system design solutions that provide deep integration of EDA and simulation and analysis (S&A) software,” a Synopsys spokesperson said. “There is,” he said.
