On November 30, 2021, the UK Competition and Markets Authority (CMA) concluded that the acquisition by Facebook (now Meta) of GIPHY, a deal which was originally signed in April 2020 and completed in May 2020, would reduce competition between social media platforms, and that the $315 million acquisition has already removed GIPHY as a potential challenger in the display advertising market. The CMA rejected as unsuitable the "behavioural remedies" suggested by Facebook, which had included open access to GIPHY for new and existing API partners, removing a restriction against "commingling" GIPHY's search results with the results of another GIF provider, and creating a sale and licensing arrangement for GIPHY's content library and algorithms. The CMA stated that its competition concerns can only be addressed by Facebook divesting GIPHY to an approved buyer.

As discussed in our previous alert in October, the CMA's concerns have centred on Facebook preventing rival social media platforms from having access to GIFs, or demanding more data from GIPHY customers to ensure their continued access to GIPHY's library of GIFs. GIPHY's services allow companies to promote their brands through these GIFs and visual images. Consequently, the CMA also studied how the deal would affect the display advertising market. It found that, pre-acquisition, GIPHY had launched innovative advertising services which it was considering expanding to countries outside the U.S., including the UK. It further found that GIPHY's advertising services had the potential to compete with Facebook's own display advertising services, which would have encouraged innovation from other market participants including social media sites and advertisers. The CMA was particularly concerned that Facebook terminated GIPHY's advertising services at the time of the acquisition, thereby removing a key source of potential competition. The CMA highlighted that Facebook already controls nearly 50 percent of the £7 billion display advertising market in the UK.

In its final report, the CMA emphasised that the "multi-sided nature" of the markets in which the parties operate meant that a lessening of competition in the market for the supply of social media services has effects on competition in the market for the supply of display advertising. This is another demonstration of the CMA's intense scrutiny of acquisitions by dominant tech platforms, and its growing cognisance of the interconnectedness of digital markets. There are also several factors which make this decision of concern to parties based in the U.S. and other jurisdictions who are interested in tech deals with a UK nexus:

• First, this is the first time the CMA has reversed a fully completed tech acquisition involving one of the Big Tech "GAFAM" companies.
• Second, the target was a U.S. company which was not generating revenue in the UK at the time of the acquisition. This has been a recurring theme with CMA decisions involving acquisitions throughout the tech industry.
• Third, the declaring of Facebook's proposed remedies as unsuitable shows that the CMA may be reluctant to engage in any ongoing post-transaction monitoring of compliance with behavioural remedies when the competition issues found are not time-limited.

The CMA will set a deadline for the sale of GIPHY in the next few months. Facebook is considering its options, including a possible appeal to the Competition Appeal Tribunal.

For more information, please contact Beau Buffier or another member of the global antitrust and competition practice at Wilson Sonsini Goodrich & Rosati.