FNZ and GBST — two of the three major tech providers for UK adviser platforms — had agreed a merger deal worth £220m last summer but the Competitions and Markets Authority began investigating the agreement in November 2019.
Here are the main sticking points the watchdog flagged in its 67-page decision published on Friday (April 24).
1 FNZ’s already strong position
A major red flag for the CMA was FNZ’s already strong position in the retail platform solutions market.
Prior to the merger, FNZ accounted for about 30 per cent of the share of solutions in the UK — excluding those platforms with in-house software — based on assets under administration as at 2018, the CMA noted.
When collecting evidence, the watchdog was told FNZ was currently the “only credible player” offering a combined software and servicing solution and that the firm had a simpler and more efficient operational model than its competitors.
FNZ’s competitors, including GBST, only provide software for platforms and this software is then paired with in-house or third party servicing.
2 The firms are close competitors
The watchdog also found third parties, customers and the firms themselves considered FNZ and GBST to be close competitors.
Internal documents from FNZ and GBST showed both providers viewed each other as rivals, often comparing offerings, while the firms had regularly competed for contracts from platforms over the past few years.
The CMA was also told by third parties during its evidence collection that FNZ and GBST were close competitors. According to the third parties which responded to the merger investigation, the differences in their delivery models had not prevented FNZ and GBST from directly competing with each other.
Platforms — FNZ/GBST’s customers — told the CMA both firms would be considered when choosing a software provider and that GBST “could be used to replace the FNZ offering” to a significant extent.
3 Limited external constraints
Third party evidence showed the CMA that, outside of FNZ and GBST, only a few other players were considered suitable alternative providers of retail platform solutions.
Bravura was the main alternative named, and some said its partnership with third parties, such as Genpact, could be an “attractive choice” compared to FNZ.
However, others told the CMA that Bravura’s partnership with Genpact to compete with FNZ had “not been tested at scale in the UK market”, was “not as attractive as FNZ’s solution” and was “retreating from the market”.
Other options, such as SS&C, were considered to have a “limited competitive constraint” on FNZ and GBST.
4 Bad effect on the market
The CMA ultimately believes the merger could result in a worse situation for platforms and therefore retail investors.
It raised concerns that platforms might end up in a weak negotiating position due to the lack of credible alternatives and the high barriers to switching software providers.
The watchdog also thought the merged entity of FNZ and GBST could seek to “exploit its increased market power” by applying pressure on GBST’s existing standalone customers to take a combined software and servicing solution by scaling back GBST’s development of this software.
It also noted barriers to the platform solutions market were high, meaning there was unlikely to be an entry or expansion into the market that would be sufficient to constrain the GBST/FNZ merger.
The phase two investigation is expected to be completely by September 2020.
imogen.tew@ft.com
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