The UK competition watchdog has spiked the merger of investment platform firms FNZ and GBST in a ruling handed down last week.
Following a three-month ‘Phase 1’ investigation, the Competition and Markets Authority (CMA) says in a release that “the loss of competition brought about by the merger could result in UK investors losing out as a result of higher prices, fewer options and less innovation”.
FNZ has until this Monday (UK time) to counter the CMA arguments or risk “the deal will be referred for an in-depth (Phase 2) investigation”, the regulator says.
The Edinburgh-based global platform giant bought GBST in a bold bidding move last July, securing the ASX firm for about A$260 million.
While the two platform software businesses are more or less complementary in Australasia they form something of a duopoly in the UK.
According to the CMA ruling, “FNZ has a particularly strong position in the supply of Retail Platform Solutions given its range of capabilities in technology and servicing; and GBST is one of only a few rivals that exerts a competitive constraint on FNZ in the supply of Retail Platform Solutions”.
The UK regulator identified just two other “competitors of significant scale” during its investigation, namely Bravura (also listed on the ASX) and SS&C.
“Bravura, which offers a software-only Platform Solution similar to GBST, was mentioned most often as a competitor by third parties, consistent with Bravura’s greater participation in recent tenders in Retail Platform Solutions than other third-party competitors,” the CMA report says. “SS&C, which offer a combined software and servicing Platform Solution, was mentioned less often by third parties, although it has recently been successful in tenders for Retail Platform Solutions.”
The CMA says it considered a broad range of evidence – including internal corporate documents, third-party consultation and market testing – during the investigation.
Specifically, the report says GBST stand-alone software clients could be corralled into “higher margin” FNZ “combined software and servicing solution” post a merger.
“This concern is consistent with concerns raised by customers and FNZ’s internal documents regarding FNZ’s plans for GBST’s Retail Platform Solution,” the report says. “Therefore, the unilateral effects of the Merger may be particularly acute with respect to existing GBST customers.”
In a statement, Joel Bamford, CMA senior director of mergers said platform software was a “critical” element of the UK retail investment market.
“FNZ is already the largest supplier and has purchased an established rival who is trusted by many platforms, with few remaining competitors left in the market,” Bamford said. “We are therefore concerned that this transaction could lead to customers losing out.”
Founded in Wellington in 2004, FNZ, led by Adrian Durham, has since grown into the largest investment platform concern outside the US with some $500 billion under administration.
In 2018, Generation Investment Management (launched by former US Vice President Al Gore) and Canadian pension fund Caisse de Depot et Placement du Quebec teamed up to buy two-thirds of FNZ for about $2.3 billion.
Earlier this year, the Singapore sovereign wealth fund, Temasek, also took a small stake in FNZ for an undisclosed price.
“FNZ notes the CMA’s decision to refer the acquisition of GBST by FNZ to a phase 2 investigation,” the group said in a statement. “FNZ looks forward to continuing to work with the CMA to address their concerns.”