The UK Competition and Markets Authority (CMA) has opened a phase 1 investigation into IBM’s planned $6.4bn acquisition of multi-cloud infrastructure automation company HashiCorp. The inquiry seeks to determine whether the deal could significantly impact competition in the UK’s cloud and IT markets.
The British competition watchdog’s decision to commence the phase 1 probe follows its confirmation that the merger notice submitted by IBM and HashiCorp complies with the requirements set out in section 96(2) of the Enterprise Act 2002. The review formally begins on 31 December 2024, initiating a critical assessment period that will run until 25 February 2025. By that date, the CMA must decide whether the merger will require further scrutiny under a phase 2 investigation. The regulator has clarified that while 25 February is the current deadline for a decision, extensions or adjustments to this timeline are possible depending on the progress of the merger assessment.
The primary focus of the phase 1 investigation is to assess whether the merger constitutes a “relevant merger situation” as defined under UK competition law. The CMA will examine whether the transaction, if completed, could lead to a substantial lessening of competition in any UK market for goods or services.
As part of this evaluation, the CMA has invited stakeholders and other interested parties to provide written comments regarding potential competition issues arising from the merger. These submissions will inform the authority’s decision on whether the transaction warrants a deeper phase 2 probe.
The investigation is being conducted against a backdrop of heightened scrutiny of the cloud services sector in the UK. Ofcom, the UK’s telecommunications regulator, recently recommended a closer examination of competition within the cloud industry, adding to the regulatory attention surrounding the IBM-HashiCorp merger.
Strategic rationale for the acquisition
IBM’s acquisition of HashiCorp, announced in April 2024, is a significant step in its strategy to expand its hybrid cloud and artificial intelligence (AI) offerings. Under the agreement, HashiCorp shareholders will receive $35 per share.
Listed on the Nasdaq, HashiCorp offers expertise in automating hybrid and multi-cloud environments. Its suite of tools, including Terraform for infrastructure lifecycle management, plays a critical role in enabling organisations to scale their IT operations efficiently. By integrating HashiCorp’s capabilities with Red Hat’s Ansible Automation Platform, IBM aims to simplify the provisioning and configuration of hybrid cloud environments.
Through the merger, IBM aims to bolster its commitment in technologies it views as central to future growth, such as data security, IT automation, and consulting services. The deal is also claimed to position IBM as a leader in hybrid cloud solutions, an area of increasing importance for modern enterprises.
The CMA’s phase 1 probe is part of a broader pattern of regulatory attention on the deal. HashiCorp disclosed in an 8-K filing with the US Securities and Exchange Commission that it was notified by the CMA in August 2024 of the pending review. The acquisition is also under review by the US Federal Trade Commission (FTC), reflecting the global scale of regulatory interest in the transaction.
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