The U.K. government is investigating whether IBM’s acquisition of cloud infrastructure firm HashiCorp will result in a “substantial lessening of competition” within markets in the country.
IBM announced its intention to buy HashiCorp for $6.4 billion in April 2024 to help it support its customers’ growing AI-related demands. HashiCorp provides hybrid and multi-cloud lifecycle management products, such as infrastructure as code tool Terraform, which facilitate building and running AI applications.
HashiCorp will operate as a division of IBM Software rather than being brought into Red Hat, IBM’s open-source subsidiary. It said that the deal would help its products reach a larger audience.
The Competition and Markets Authority notified the two companies of an upcoming Phase 1 probe on Aug. 1, 2024, and formally launched it on Dec. 30. It will have to make a preliminary decision on whether to carry out a full-scale investigation by Feb. 25 and relevant third-parties can submit comments up to Jan. 16.
IBM declined to provide additional comment. TechRepublic has reached out to HashiCorp for a response.
IBM-HashiCorp deal has inspired criticism
IBM has faced challenges since announcing the acquisition, with the U.S. Federal Trade Commission reviewing it for potential antitrust concerns.
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IBM’s stock tanked by about 9% shortly after the announcement due to simultaneously posting a total first-quarter revenue of $90 million below London Stock Exchange estimates.
Conversely, HashiCorp’s stock rose by 4% after suffering considerable declines in 2023 brought on by relicensing Terraform from open-source Apache 2.0 to the more restrictive Business Source License. This alienated parts of the open-source community, and they forked the original Terraform code into the open-source OpenTofu and placed it under the oversight of The Linux Foundation.
Additionally, in June, a HashiCorp investor sued the company, claiming that the acquisition by IBM disproportionately benefited its board members over the shareholders. The executives allegedly stood to gain substantial personal benefits from the deal, such as certain “golden parachutes” and converting their large, illiquid stock holdings into cash.
Such incentives created conflicts of interest, according to the plaintiff, leading the board to favor the IBM acquisition over potentially more lucrative opportunities for shareholders and potentially diminishing the value of their investments. However, the suit was mysteriously withdrawn two days later.
U.K. cloud market does not present a level playing field
In October 2023, telecoms regulator Ofcom identified various issues in the U.K. cloud market that present challenges for businesses and consumers, including Amazon and Microsoft’s dominance. Microsoft’s Azure and AWS have between 70% and 80% of the U.K.’s cloud service market share compared to Google Cloud’s 10%.
One of the most pressing concerns is the cost of migrating data from cloud platforms. This cost barrier discourages customers from switching between cloud providers, stifling competition in the sector.
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Shortly after these results were published, the CMA began investigating the issues raised. These results — and any potential remedies to anti-competitive practices — are expected to be announced later this month.
Synopsys and Ansys merger likely to be approved
On Dec. 20, the CMA completed its Phase 1 investigation into the $35 billion acquisition of simulation software company Ansys by chip design software provider Synopsys. It represents the biggest tech deal since Broadcom acquired VMware for $69 billion in 2023.
The CMA found that the merger has the potential to substantially lessen competition in the chip design and light simulation market but may still approve it if the two companies submit acceptable mitigations.
Synopsys and Ansys compete in three key sectors. The first is register transfer level power consumption analysis, which assesses a chip’s power demands and usage. The other two are optics and photonics software, both used to design and model light-related products like camera lenses, TV displays, car headlights, and lasers.
Merging these companies could reduce the choice of products in the three areas, as they would become a market leader, and smaller companies would struggle to compete. “This could lead to a loss of innovation, lower quality software, and/or higher prices, which may then be passed onto UK businesses and consumers,” the CMA said in its press release.
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The CMA also suspected the deal would allow Synopsys and Ansys to limit their products’ interoperability to maintain dominance. However, the investigation found that this element is so important to their customers that they would switch providers if it was compromised, so they don’t have the incentive to do so.
Synopsys announced the deal in January 2024, claiming it wanted to expand its reach across silicon-to-systems designs, combining its expertise in electronic design automation with Ansys’ in simulation. Ansys accepted the deal to accelerate its growth and offer more integrated solutions to its customers. The two had already been working together for several years up to this point.
If the companies did not propose suitable mitigations by Dec. 31, 2024, the competition authority would conduct a more in-depth Phase 2 investigation. However, Synopsys said it had “already taken steps to address all concerns raised by the CMA” in a published response. One such step is its promise to sell its optical solutions business to another company once the Ansys acquisition has closed.
The merger is expected to be approved by the European Commission, according to Reuters. Sources added that Synopsys will offer the same remedies to the CMA that it did to address competition concerns in the E.U.
“Together, Synopsys and Ansys can help drive innovation across industries by addressing the rapidly increasing customer need for system design solutions that provide a deeper integration of EDA and Simulation and Analysis (S&A) software,” a Synopsys spokesperson said.
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