Legal tech firm loses appeal over merger clearance

A legal tech company has lost its appeal against the findings of regulators that purchaser approval criteria was not met in a proposed merger.

Dye & Durham Limited, which provides cloud-based software and tech for legal, financial and business professionals, acquired the entire allotted and issued share capital of TM Group (UK) Limited, a company that provides technology to assist with real estate due diligence for conveyancers and intermediaries, in 2021. Both companies overlap in the supply of property search report bundles (PSRBs) in England and Wales.

The company did not notify the Competition & Markets Authority (CMA) or seek clearance for the acquisition.

The CMA concluded that the proposals by the company to avoid the potential of a substantial lessening of competition were not acceptable and could not be satisfied that it would result in divestment to a suitable buyer with the characteristics required to restore competition in the market.

The tech company filed an application for review in the Competition Appeal Tribunal under four grounds, stating the CMA had erred in law.

Hodge Malek KC, Paul Lomas and William Bishop unanimously dismissed the appeal in Dye & Dye Durham Limited and Dye & Durham (UK) Limited v Competition and Markets Authority.

The 71-page judgment found no error in the CMA’s approach investigating the merger and that the authority had not erred in law.

In dismissing one of the four grounds, the judgment said: ‘When parties merge without seeking CMA clearance in advance, they take the risk that the CMA will ultimately find that the merger should be unwound on competition grounds and that the shares in the company acquired should be subject to a compulsory process of divestiture.

‘In such circumstances, a purchaser will usually, ultimately, be in a position of being a forced seller under an obligation to dispose of its shareholding within a fixed period. The market price for the shares may well be different to when the shares were originally required, and this could involve a loss.

The judgment said it was ‘reasonable for the CMA to conclude that there were competition risks’. It added: ‘There were only a limited number of other competitors in the sector. Any loss of business and market share in TMG through aggressive competition from the applicants could well reduce the value of the shares in TMG (or vice versa).’

It acknowledged that the CMA’s concerns ‘were not limited to independence’ and found ‘no error in the CMA’s assessment’.

Dismissing the appeal, the judgment said: ‘With the common shareholdings, there may be less support by shareholders for injecting funds or the raising of capital for the development of TMG’s business. The CMA was entitled to find that this was a risk, which would be avoided by a private sale to a single purchaser as envisaged by the final undertakings.'

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