Mergers: EU Commission clears acquisition of Kustomer by Meta (formerly Facebook), subject to conditions

The European Commission has approved under the EU Merger Regulation the proposed acquisition of Kustomer by Meta (formerly Facebook).

The approval is conditional on full compliance with commitments offered by Meta. The decision follows an in-depth investigation of Meta’s proposed acquisition of Kustomer. Meta and Kustomer operate in vertically-related markets. The Commission’s investigation focused on whether Meta may disadvantage Kustomer’s rival providers of customer service and support customer relationship management (‘CRM’) software.

Following its market investigation, the Commission had concerns that the transaction, as initially notified, would have harmed competition in (i) the market for the supply of CRM software and (ii) the market for the supply of customer service and support CRM software. In particular, the Commission found that Meta would have the ability, as well as an economic incentive, to engage in foreclosure strategies vis-à-vis Kustomer’s close rivals and new entrants. To address the competition concerns identified by the Commission, Meta offered comprehensive access commitments with a 10-year duration: (i) a public API access commitment and (ii) a core API access-parity commitment. The Commission concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns.

Executive Vice-President Margrethe Vestager, responsible for competition policy, said: ntinue to “We must carefully review transactions that could further strengthen large players that increasingly dominate the digital economy, irrespective of the target company’s size. Our decision today will ensure that innovative rivals and new entrants in the customer relationship management software market can effectively compete. The commitments offered by Meta  ensure that its rivals will continue have free and comparable access to Meta’s important messaging channels.”

Kustomer’s rival providers of customer service and support CRM software.

The Commission’s investigation

During its in-depth investigation, the Commission gathered extensive information and feedback from competitors and customers, and worked in close cooperation with competition authorities of the Member States and around the world.

Following its market investigation, the Commission had concerns that the transaction, as initially notified, would have harmed competition in:

  • the market for the supply of CRM software and
  • the market for the supply of customer service and support CRM software.

In particular, the Commission found that Meta would have the ability, as well as an economic incentive, to engage in foreclosure strategies vis-à-vis Kustomer’s close rivals and new entrants, such as denying or degrading access to the application programming interfaces (‘APIs’) for Meta’s messaging channels. Similar to Kustomer, these players have a focus on small and medium business customers (‘SMBs’) and are particular drivers of innovation. Such foreclosure strategies could reduce competition in the market for the supply of CRM software and the market for the supply of customer service and support CRM software, leading to higher prices, lower quality and less innovation for business customers, SMBs in particular, which may in turn be passed on to consumers.

With respect to the market for the supply of online display advertising services, where the Commission had raised preliminary concerns, the Commission found that the merger was not likely to lead to a significant impediment of effective competition.

In particular, the Commission investigated what data Meta would obtain from Kustomer’s customers. Kustomer offers a business-to-business product and does not own the data of its business customers. Access to data would be dependent on agreements with its business customers who need consent from their end customers. In any event, because of Kustomer’s small size, even taking into account its potential growth, the amount of additional data will not be significant. Moreover, rival providers of online display advertising services have, and will continue to have, access to similar commercial data because of the strong commercial interest of businesses in sharing such data with both Meta and rival advertising platforms in order to measure and optimise the performance of their ad campaigns.

Therefore, the Commission concluded that any additional data that Meta may gain access to for the purposes of improving its online display advertising service would not result in a significant negative impact on competition between providers of online display advertising services.

The proposed remedies

To address the competition concerns identified by the Commission, Meta offered comprehensive access commitments with a 10-year duration:

  • A public API access commitment: Meta commits to guarantee non-discriminatory access, without charge to its publicly available APIs for its messaging channels to competing customer service CRM software providers and new entrants.
  • A core API access-parity commitment: To the extent any features or functionalities of Messenger, Instagram messaging or WhatsApp that are used by Kustomer’s customers today may be improved or updated, Meta commits to also make available equivalent improvements to Kustomer’s rivals and new entrants. This would also hold for any new features or functionalities of Meta messaging channels in the future if used by a sizeable proportion of Kustomer’s customers.

A trustee, to be appointed before the transaction can close, will monitor the implementation of the commitments. To fulfil its duties, the trustee will have far-reaching powers, including access to Meta’s records, personnel, facilities or technical information, and can appoint a technical expert to assist in the performance of its duties. The commitments also include a fast track and binding dispute resolution mechanism that can be invoked by third parties. They also include the requirement for Meta to publish details of relevant APIs and functionalities on its website, in addition to quarterly reporting to the monitoring trustee on any ongoing beta testing of new messaging features.

The Commission concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns. The Commission’s decision is conditional upon full compliance with the commitments.

Companies and product

Meta (formerly Facebook), founded in 2004, is a US based multinational company that provides various websites and applications for mobile devices offering social networking, consumer communications and photo and video-sharing functionalities. These include Facebook, Messenger, Instagram and WhatsApp. Meta offers most of its services at no cost to users. Meta’s primary revenue-generating activity is offering ads space and related services to third parties, which currently accounts for the vast majority of its annual revenues globally. Meta’s messaging channels, WhatsApp, Messenger and Instagram messaging, are increasingly important channels for interactions between businesses and their customers.

Kustomer, founded in 2015, is a US based company that offers a CRM Software as a Service (SaaS) tool specialising in customer service, which displays all interactions that a consumer has had with the business in a single timeline view, including the consumer’s purchase history, refunds, complaints and all other communications. Kustomer’s CRM software integrates with a wide range of B2C communication channels and supports agent communications with consumers through communication channels including phone, email, webchat, SMS, Messenger, WhatsApp, Instagram and Twitter.

Merger control rules and procedure

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the EU Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.

The proposed transaction did not meet the turnover thresholds of the EU Merger Regulation. However, the transaction was required to be notified to Austria for regulatory clearance. Following such notification, on 2 April 2021, Austria submitted a referral request to the Commission pursuant to Article 22(1) of the EU Merger Regulation. On 12 May 2021, the Commission accepted the request from Austria, which was joined by Belgium, Bulgaria, France, Iceland, Ireland, Italy, the Netherlands, Portugal and Romania. Following this acceptance, the referring Member States will not apply their own national legislation on competition to the transaction. The Commission assessed the impact of the acquisition of Kustomer by Meta within the territory of these Member States under the EU Merger Regulation.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

There are currently five on-going Phase II merger investigations: the proposed acquisition of Rectiecel by Greiner, the proposed acquisition of Arm by NVIDIA, the proposed acquisition of Grail by Illumina, the proposed merger between Cargotec and Konecranes, and the proposed acquisition of Trimo by Kingspan Group.

More information will be available on the Commission’s competition website, in the Commission’s public case register under the case number M.10262.

www.ec.europa.eu