Earlier this week, it was reported that the proposed merger between crowdfunding giants Seedrs and Crowdcube has been cancelled after an initial CMA investigation.
Crowdcube and Seedrs are the two largest equity crowdfunding platforms in the UK.
These types of platforms connect small and medium-sized enterprises (SMEs) looking to raise equity investment with investors willing to provide funding in return for a stake in the business. The proposed deal would result in the combined company having at least a 90% share of this important market.
Following a request from the companies, the Competition and Markets Authority (CMA) agreed to fast-track the deal to an in-depth Phase 2 investigation in November 2020.
According to the CMA, it was clear from an early stage that the competition concerns would likely require a thorough review.
As part of its Phase 2 investigation, the CMA found that Crowdcube and Seedrs compete closely against each other to win the business of SMEs, with a significant number of businesses viewing equity crowdfunding as their only way to secure financial backing.
A deal between the two would have resulted in UK SMEs and investors losing out as a result of higher fees and less innovation. The CMA’s initial view is that blocking the merger may be the only way of addressing these competition concerns.
Following the initial announcement earlier this week, Darren Westlake, CEO and Co-founder of Crowdcube responded: “We’re obviously disappointed with the CMA’s decision. However, I’d like to reassure you that it’s business as usual at Crowdcube, and we continue to focus on delivering a great experience for businesses and investors alike.
“Crowdcube recorded outstanding levels of growth in the last 12 months and remains in a very strong financial position following record revenue in 2020 and two consecutive quarters of profitability. We continue to invest in our people and products, and we expect to be profitable again in the first half of 2021, with an unprecedented level of high profile European businesses set to fundraise with us in the coming weeks. We are excited by the growing market opportunity in the UK and across Europe.”
However, earlier today, Seedrs announced that it would terminate the pursuit of the merger.
A statement from the company read: “Following on our message about the CMA’s provisional findings yesterday, I wanted to share with you that we have agreed to terminate our merger with Crowdcube. We fervently disagree with the CMA’s view, but given the low likelihood that they will change their mind at this point, we have concluded that it does not make sense to continue the battle. However, we had prepared for this possibility, and we’re pleased to announce that we have agreed [to] a new funding round for the business. Given the strength of the business’s recent performance, we will be able to use this round to return to our pursuit of major growth initiatives. We will share full details of the round very shortly. Thank you again for all of your support for Seedrs, and here’s to our great opportunities ahead!”