Visa abandoned its $5.3 billion acquisition of Plaid Inc., a fintech company known for its data aggregation technology, but which was developing a potential rival to Visa’s online debit services. The parties abandoned the transaction, which was announced in January 2020, in the midst of a challenge to the deal by the U.S. Department of Justice Antitrust Division (“DOJ”), which sued to block the transaction in early November 2020 based on the theory of nascent competition.
According to the DOJ, although Plaid did not directly complete with Visa at the time in the market for online debit services, it was uniquely positioned to challenge Visa in the market because its core technology, among other features, had “connections to 11,000 U.S. financial institutions and more than 200 million consumer bank accounts,” and it was planning to leverage those bank and customer relationships to compete with Visa in the online debit services market.
Nearly all merger challenges by the U.S. antitrust enforcement agencies target the lessening of competition between existing competitors; however, the antitrust agencies will investigate and challenge deals that they believe to be so called “killer acquisitions” — the acquisition of a nascent or potential competitor in an attempt to thwart potential competition by the upstart rival. The DOJ did exactly that here, alleging, “[a]cquiring Plaid would eliminate the nascent but significant competitive threat Plaid poses, further entrenching Visa’s monopoly in online debit.” The DOJ argued numerous Visa internal documents supported this theory and cited, for example, Visa’s CEO saying, “[C]learly, on their own or owned by a competitor [Plaid is] going to create some threat to our important U.S. debit business,” and describing the acquisition as, “[an] insurance policy to protect our debit biz in the U.S.” Ultimately, but without conceding the nascent competition point to the DOJ, the parties acknowledged that protracted and complex litigation would likely take substantial time to resolve and abandoned the deal.
Fintech companies and start-up companies contemplating deals with potential rivals, especially when one of the merging parties has a large market share that would be threatened by potential entry of the other, should be aware that the proposed transaction risks being held up by an antitrust investigation or litigation. As a point of advice, nascent competition issues, like those raised in Visa/Plaid, can take longer to resolve with the antitrust agencies. Goodwin’s Antitrust + Competition Team regularly advises and counsels on these risks and on how to best mitigate them. Please contact any of us if you have any questions.