Amazon’s 16% investment in Deliveroo approved by CMA

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Following an in-depth investigation, the Competition and Markets Authority (CMA) has today cleared Amazon’s 16% investment in Deliveroo after finding that it will not substantially lessen competition.

The CMA completed an initial ‘Phase 1’ investigation in December last year. At that point the CMA concluded that there was a ‘realistic prospect’ that the transaction could harm competition by, for example, discouraging Amazon from re-entering the online restaurant food market or further developing its presence in the online convenience grocery delivery market in the UK. The CMA therefore referred the deal for an in-depth ‘Phase 2’ investigation to assess more thoroughly the potential competition concerns.

In the course of a Phase 2 investigation, the CMA typically has to determine whether, on the ‘balance of probabilities’, a transaction would lead to a substantial lessening of competition. However, in this case, Deliveroo argued that the impact of the coronavirus (COVID-19) pandemic on its business meant that it would fail financially and exit the market without the Amazon investment. Given the seriousness and urgency of Deliveroo’s financial situation the CMA concluded that Deliveroo met the criteria for a ‘failing firm’ and that its exit from the market would have been worse for competition and customers than allowing the investment to go ahead. The deal was provisionally cleared on that basis.

The CMA continued to monitor the situation. After reviewing Deliveroo’s finances from April 2020 onwards, it became apparent that the restaurant food delivery market had recovered much more sharply than had been expected and that the restaurant ‘mix’ had also shifted towards smaller, independent restaurants and away from large fast food chains, several of which closed or stopped offering home delivery. Both factors contributed to a rapid and significant turnaround in Deliveroo’s financial position. Given this change in circumstances, the CMA concluded that Deliveroo could no longer be considered a failing firm and that it would be necessary and appropriate to complete the CMA’s substantive assessment of whether the transaction would lead to a substantial lessening of competition.

The CMA’s final decision to clear the deal on competition grounds is the culmination of extensive analysis of internal documents from Amazon and Deliveroo, a survey of more than 3,000 consumers, and extensive submissions from interested third parties.

The CMA’s assessment has focused on how a 16% shareholding held by Amazon would affect its incentives to compete independently with Deliveroo in both restaurant delivery and online convenience grocery delivery in the coming years. The CMA ultimately found that this level of investment will not substantially lessen competition in either market.

However, if Amazon were to acquire a greater level of control over Deliveroo – through, for example, acquiring a controlling interest in the company – this could trigger a further investigation by the CMA.

Stuart McIntosh, Inquiry Chair, said: “Today’s final decision is the result of a thorough examination of this deal and the markets in which Amazon and Deliveroo operate. The CMA’s initial Phase 1 review of the transaction highlighted potential competition concerns which the independent Inquiry Group has considered in detail during the Phase 2 investigation. Taking account of the higher legal standard that applies at Phase 2, the Group has concluded that the transaction will not result in a substantial lessening of competition in either restaurant delivery or convenience grocery delivery. Our decision reflects the scale of Amazon’s investment in Deliveroo (16% of the company’s equity) and its incentives to compete in both markets.

“When looking at any merger, the CMA’s role is to assess whether consumers will lose out from a substantial lessening of competition. We have not found this to be the case given the scale of Amazon’s current investment, but if it were to increase its shareholding in Deliveroo, that could trigger a further investigation by the CMA.”

A statement from Amazon read: “We are delighted that the CMA has concluded its 15 month investigation and that the Amazon minority investment can now go ahead.

“This is fantastic news for UK customers and restaurants, and for the British economy. British born Deliveroo will use the investment to increase choice and value for customers, support for restaurants and will be able to offer more riders the flexible work they value as the company expands.

“Deliveroo is excited that Amazon, the most customer-obsessed and innovative company in the world, has shown such a huge vote of confidence in Deliveroo and chosen to invest in the company’s future.”