UK regulator probes IBM's $6.4 billion HashiCorp acquisition

Further delay to a deal IBM expected to close by Christmas

The UK's Competition and Markets Authority (CMA) has launched a preliminary investigation into IBM's proposed acquisition of HashiCorp, a provider of cloud infrastructure and security tools.

The CMA is examining whether the $6.4 billion deal could potentially harm competition in the UK's cloud services and related industries.

"The CMA is considering whether it is or may be the case that this transaction, if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services," the regulator said.

The CMA has issued a call for comments from interested parties, with a deadline of 16th January 2025. A decision on whether to refer the merger for a more in-depth Phase 2 investigation is expected by 25th February 2025.

The development follows CMA's notification to IBM and HashiCorp in August that it intended to conduct a Phase 1 review of the acquisition.

The timescale and scope of the new investigation suggest that the merger may involve significant complexities, particularly in light of the CMA's ongoing scrutiny of the UK's cloud services market.

HashiCorp, founded in 2012, offers a suite of tools that help businesses manage and secure their cloud infrastructure across various platforms. The company boasts a significant client base, including 85% of Fortune 500 companies.

The UK is not the only region probing the acquisition. In July, HashiCorp said the US Federal Trade Commission (FTC) was also reviewing the deal, as noted in a filing with the US Securities and Exchange Commission (SEC).

HashiCorp shareholders have already voted in favour of the acquisition.

The merger was announced last April, with IBM confident that the deal would close by the end of the year. Big Blue views the acquisition as a strategic move to enhance its cloud offerings.

The outcome of the CMA's latest investigation is expected to have significant implications for both IBM and HashiCorp, as well as for the broader cloud computing market in the UK.

Last year, communications regulator Ofcom published a report highlighting concerns about customer flexibility and choice in the market, particularly regarding the dominance of major players like Amazon and Microsoft.

The CMA is examining the business practices of the three largest players: Google, Microsoft and AWS. The probe focuses on several key areas, including the overall competitive landscape, the impact of technical barriers and data transfer fees (egress fees) on cloud provider switching, as well as the potential anti-competitive effects of cloud provider discounts.

The CMA is expected to publish its findings sometime between February and April this year.