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Just yesterday, Europe<\/span><\/span>\u2019s<\/span><\/span> top competition authority said it would be scrutinizing smaller acquisitions<\/span><\/span> made in the continent by foreign tech giants. The comments<\/span><\/span>, made by Margrethe Vestager, the European Union\u2019s (EU) chief competition officer, come amid an alleged \u201cshopping<\/span> spree\u201d carried out by American<\/span> behemoths.<\/p>\n Although this appears to be meant to protect the European tech ecosystem, what will<\/span> the actual effect<\/span> be on startups and investors in the continent?<\/p>\n [Read:\u00a0Pizza, beer, and ping-pong \u2014 why your image of early-stage startups is wrong]<\/em><\/p>\n Europe<\/span><\/span> has indeed seen its fair share<\/span><\/span> of acquisitions<\/span><\/span> by tech giants in recent years. In 2011, for example, US tech giant Microsoft paid $8.5 billion for Skype. While such deals make headlines<\/span><\/span> for obvious reasons, it\u2019s reasonable for regulators to consider keeping a closer eye<\/span><\/span> on transactions<\/span><\/span> that aren\u2019t typically subjected to the same level of scrutiny.<\/p>\n \u201cWhat we will<\/span><\/span> try to do is to find ways to make sure that we see these acquisitions<\/span><\/span> because sometimes these businesses<\/span><\/span> are quite small, and maybe the sums, the turnover will<\/span><\/span> not meet our thresholds,\u201d Vestager told CNBC<\/span><\/span>.<\/p>\n So, what\u2019s currently happening to those smaller deals that often go under the radar.<\/p>\n Jonathan Simnett, director at specialist technology M&A<\/span> advisory firm Hampleton Partners told GQ that most disclosed transactions<\/span> in the European technology markets over the past 30 months involved European companies<\/span> buying other European players.<\/p>\n \u201cTo put this into context, only 25% of the global transactions<\/span> in the past 30 months have involved the acquisition<\/span> of European companies<\/span> versus 68% being North American<\/span>. So, the term \u2018shopping spree\u2019 could be considered alarmist even if the transaction<\/span> for the smallest firms may not be disclosed,\u201d he added.<\/p>\n Increased regulatory scrutiny may be useful to ensure the market<\/span> stays competitive for consumers, but Simnett believes the focus needs<\/span> to be adjusted<\/span> to ensure the ecosystem offers the same opportunities for companies<\/span> without them having to relocate elsewhere.<\/p>\n \u201cWhat should concern the EU<\/span> more is that one of the major reasons European companies<\/span> are bought \u2014 whatever the nationality of their buyer \u2014 is that they are unable to achieve scale<\/span> at the rate<\/span> of those in North America<\/span>, and increasingly, in Asia<\/span>, and particularly China<\/span>,\u201d he continued.<\/p>\n Simon Menashy, a partner at venture capital<\/span> firm<\/span> MMC Ventures, said the EU<\/span>\u2018s proposals were \u201cwell-meaning\u201d but noted that acquisitions<\/span> \u2014 regardless of size \u2014 were part of the ecosystem\u2019s lifeblood.<\/p>\n \u201cThreatening that cycle, whether actually blocking acquisitions<\/span> or just introducing delay and friction, may undermine investors<\/span>\u2018 confidence<\/span> that they will one day be able to sell their stake for a profit<\/span> \u2014 key to taking that early-stage risk in the first place<\/span>,\u201d he told me.<\/p>\n \u201cWe have been here before,\u201d he added. \u201cVenture funding in France<\/span> took a dive in 2014 after the government<\/span> blocked Yahoo<\/span>\u2018s<\/span> acquisition<\/span> of Dailymotion because it \u2018had to remain French.\u2019 This time around the ecosystem is much larger and the stakes are higher. And with a tit-for-tat attitude in the US<\/span> administration, let\u2019s not provoke retaliation against our own emerging tech successes as they set out to conquer America.\u201d<\/p>\n Andy Moseby, a corporate partner at Kemp Little, a law firm<\/span> specializing in technology and digital<\/span> media<\/span>, agreed. He did, however, acknowledge that there needs<\/span> to be a balance between protecting consumers from monopolistic practices and discouraging US<\/span> tech investment in the EU<\/span>.<\/p>\n \u201cWithout a buoyant M&A<\/span> market<\/span>, there is little incentive for European<\/span> entrepreneurs<\/span> to create world-class businesses<\/span> in their home states<\/span> when they could just move to the US West Coast,\u201d he added.<\/p>\n Ed Macnair, the CEO<\/span> of cybersecurity<\/span> company<\/span> Censornet, said the rate<\/span> of acquisition<\/span> in Europe<\/span> was evidence<\/span> of a thriving ecosystem of innovation and technology.<\/p>\n \u201cThe reality is that we want UK<\/span> and European<\/span> companies<\/span> to succeed internationally and most founders and CEOs<\/span> have global ambitions. One of the paths to global growth<\/span> is through acquisition<\/span> and it builds confidence<\/span> to see that European<\/span> companies<\/span> are attracting international buyers, which helps to bring European<\/span> tech into new markets<\/span>,\u201d he added.<\/p>\n There\u2019s no denying that the EU<\/span> has a hard task at hand: Regulating the industry<\/span> while also giving tech companies<\/span> in the continent the best chance<\/span> to succeed.<\/p>\n Unveiled today, the EU<\/span>\u2019s first draft digital<\/span> strategy<\/span> is likely to have major consequences for tech behemoths such as Facebook<\/span>, Apple<\/span>, and Google<\/span> \u2014 it\u2019s also a signal that Vestager and her team<\/span> aim to cement the EU<\/span>\u2019s global role in regulation<\/span>.<\/p>\n The EU<\/span>\u2018s challenge<\/span> will<\/span> be to do what others have struggled to do before: find the balance between regulation and innovation. If they manage to do this, while preserving a fair and competitive market<\/span>, it\u2019s likely that startups and scaleups will<\/span> benefit.\u00a0The ball is in Vestager\u2019s court<\/span>.<\/p>\n Like what you\u2019ve read? On Growth Quarters, we strive to go beyond generic \u2018fortune cookie advice\u2019 and\u00a0<\/span>learn\u00a0<\/span>directly from\u00a0people<\/span><\/span>\u00a0<\/span>who have\u00a0walked<\/span><\/span>\u00a0<\/span>the\u00a0walk<\/span><\/span><\/span>. And this summer, at\u00a0TNW Conference 2020\u00a0in\u00a0Amsterdam<\/span><\/span><\/span>, we\u2019ll take Growth Quarters\u00a0offline<\/span><\/span>\u00a0<\/span>with a vibrant\u00a0program<\/span><\/span>\u00a0<\/span>dedicated to\u00a0<\/em>sustainable<\/span><\/span>\u00a0business<\/span>\u00a0<\/span><\/em>growth<\/span>. Hear from those leading the world\u2019s most successful\u00a0companies<\/span>\u00a0<\/span>and get actionable insights to help you grow professionally.\u00a0Get early bird tickets now\u00a0and\u00a0learn more about the Growth Quarters track.<\/em><\/p>\n \n Published February 19, 2020 \u2014 16:34 UTC\n <\/p>\n<\/p><\/div>\n\nEU should focus on\u00a0<\/b>why<\/i><\/b>\u00a0<\/b>
\n<\/h2>\nA\u00a0signal of a healthy ecosystem<\/b>
\n<\/h2>\nFinding the balance<\/b><\/h2>\n