Competition regulator clears £54bn buyout of major government tech provider

The Competition and Markets Authority has given the green light to the proposed $69bn acquisition of VMware – a deal which it had previously warned could lead to customer price increases

UK regulators have given the green light to the blockbuster acquisition of a major software supplier to the public sector – a deal which the watchdog had previously warned might stymie competition and cause increases for users.

First announced last year, chipmaker Broadcom has agreed a deal in principle to acquire virtualisation specialist VMware for $69bn – equating to £54bn at currenct exchange rates. The acquisition will bring together major providers of core hardware and software components for servers, which the Competion and Markets Authority has previously warned could unfairly inhibit Broadcom’s competitors and, ultimately, lead to price rises for organisations.

These concerns were enough for the watchdog to launch an in-depth investigation, following the completion of its initial assessment earlier this year. Led by an independent panel of experts, this detailed probe has now also concluded and the CMA has today announced that, after “considering new evidence and stakeholder feedback, [it has] provisionally found that Broadcom’s proposed purchase of VMware would not substantially reduce competition in the supply of server hardware components in the UK”.

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The regulator also examined whether the acquisition of VMware – which is currently publicly traded, with Dell founder Michael Dell owning about 40% of shares – could damage market innovation and “harm the ability of Broadcom’s rivals to compete if the merged company were to make their products work less well – or not at all – with VMware’s server virtualisation software”.

“However, it has found that the potential financial benefit to Broadcom and VMware of making rival products work less well with VMware’s software would not outweigh the potential financial cost in terms of lost business,” said a statement issued today by the regulator.

VMware’s software – which enables monolithic servers to operate as numerous smaller virtualised servers – is widely used across the public sector. Government’s online records show more than 400 results for contracts and other procurement documents related to the firm’s technology and services.

Last year, the Department for Work and Pensions signed a two-year deal with the company worth £3.5m, while this month Department for Energy Security and Net Zero entered into a three-year engagement through which it will spend £2.3m with VMware. In spring of 2020, the virtualisation outfit won a £3m-plus contract to support the early stages development of the NHS Covid-19 contact-tracing app.

Other contracts from the past year covering the provision of the firm’s technology – either directly or through its network of reseller partners – include more than £400,000 spent by the Cabinet Office on 8,250 software licences “to manage all Apple devices and Android mobile phones” in use across the department, as well as a near-£700,000 deal with the NHS Counter Fraud Authority and £900,000 spent across two agreements with the UK Health Security Agency.

Richard Feasey, the CMA independent chair who led the detailed investigation into the Broadcom-VMware buyout, said: “Broadcom and VMware are US-based companies supplying hardware and software used by thousands of businesses and public bodies in the UK. Even if the UK market represents a small proportion of total sales in a merger, the CMA’s job is to scrutinise deals like this thoroughly to ensure they don’t harm competition in the UK. In this case, having carefully considered the evidence and found no competition concerns, we have concluded the deal can go ahead.”

Sam Trendall

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