The proposed FNZ-GBST merger has again been blocked by the Competition and Markets Authority due to the potential of “substantial lessening of competition”. FNZ was set to acquire GBST in a £220m deal last summer, but was placed under investigation from the CMA in November 2019.
FNZ sits behind the likes of Aviva and Standard Life, while GBST provides technology for platforms including those of Aegon and Novia.
The competition watchdog judged FNZ’s potential purchase of GBST to result in “higher costs and lower quality services”.
If the acquisition went ahead, the merged company would hold almost 50 per cent of the market. In the UK, a firm is deemed a legal monopoly at 25 per cent of the market; the proposed merger would see a monopoly that would be “by far the largest supplier in the UK”.
The CMA said: “Although there are differences in the business model that the two companies use, with FNZ providing an integrated software and servicing solution and GBST being a software-only provider, the CMA provisionally considers that they compete closely in a concentrated market in which there are few other significant suppliers.”
It was not only the sheer size of a merged FNZ-GBST that led the CMA to its decision: the barriers to entry in the technology provider platform industry are vast, preventing small and medium companies from entering or growing in the market. For instance, the CMA noted that switching platforms was an “expensive and complex process” for customers.
Chair of the CMA inquiry group, Martin Coleman, said: “The evidence we’ve seen so far consistently points in the same direction – that FNZ and GBST are two of the leading suppliers within this market and compete closely against each other.
“That’s why we’re concerned that their merger could lead to investment platforms, and therefore indirectly millions of UK consumers who hold pensions or other investments, facing higher fees and lower quality services.”
The CMA have begun discussing solutions to their findings, including having FNZ sell all or part of GBST. Mr Coleman commented: “We’re now inviting comments on our provisional findings and possible remedies.”
FNZ have spoken out against this judgement, labelling it “outdated”.