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| 2 minutes read

Capitalizing on the disruption caused by the latest digital markets regulation through M&A

The introduction of the Digital Markets Act (DMA) in the European Union (EU) and the proposed Digital Markets, Competition and Consumers (DMCC) Bill in the United Kingdom (UK), is causing a market shift. The DMA, in force since March 2024, establishes a set of rules aimed at promoting fair competition within the digital market.  Meanwhile, the DMCC Bill, currently in the UK Parliament, proposes a similar framework for the UK.

The DMA has deemed Google, Amazon, Apple, ByteDance (TikTok owner), Meta, and Microsoft to be "gatekeepers" due to their significant power within the digital market. These gatekeepers will be subject to specific regulations designed to ensure a level playing field for smaller businesses. For smaller and medium-sized businesses (SMBs) in the tech sector, the DMA and its potential UK equivalent present exciting opportunities:

  1. Increased Market Access: The DMA's focus on fair competition can potentially dismantle barriers erected by gatekeepers in the EU, allowing SMBs to reach new customers and compete more effectively. If the DMCC Bill is passed in a similar form, UK SMBs could also benefit from increased market access.
  2. Level Playing Field: The regulations enforced by the DMA and the potential UK equivalent could lead to a more equitable landscape in both the EU and UK, where innovation and competition, rather than gatekeeper control, determine success.
  3. Data Sharing Potential: The DMA may introduce provisions that make it easier for SMBs to access and utilize data, a valuable asset for developing data-driven products and services. Similar regulations in the UK could have the same effect.
  4. Reduced Reliance on Gatekeepers: With a more open market in both the EU and potentially the UK, SMBs may have the option to bypass restrictive gatekeeper practices and develop their own independent solutions.

Seizing the Opportunity for M&A Value Creation

M&A investment teams and management teams of portfolio companies should be keenly aware of the impact of the DMA and the DMCC. Here's why:

  1. Undervalued Tech Assets: Smaller tech businesses, previously hindered by gatekeepers, could see a surge in value as the DMA/DMCC level the playing field. Early identification and investment in such assets could lead to significant returns.
  2. Strategic Acquisitions: Acquiring smaller tech companies with niche capabilities poised for growth under the regulations could be a strategic move for larger companies seeking to expand their market reach.
  3. Innovation Potential: The rise of empowered SMBs could lead to a wave of innovation within the tech sector, presenting lucrative investment opportunities.

By assessing target capabilities against specific value creation opportunities offered by the DMA and the DMCC during due diligence, M&A and portfolio management teams can position themselves to capitalize on the changing market.

 

The DMA is Europe's attempt to rein in Google, Amazon, Apple, TikTok, Meta, and Microsoft to create a level playing field for smaller rivals..

Tags

m&a, digital market