On 16 June 2021, the Administrative Council of Economic Defence (CADE) unconditionally cleared the acquisition of Linx by Stone Group, following the dismissal of several competition-related risks.

Linx is a cloud technology company that focuses on business management using a software-as-a-service (SaaS) model. Stone Group provides payment processing services, including technology solutions for data and transaction collection, transmission and processing. Additionally, it operates as an acquirer in payment processing, provides online gateway services, business management software development, and electronic fund transfer services etc.

Although there are overlaps in the activities of the merging parties (namely, acquirer and sub-acquirer services, online gateway services, business management software development, and electronic fund transfer services), the main competitive concerns were potential market foreclosures that the transaction could cause.

According to CADE, the main risk of the transaction was the non-horizontal approach to market concentration that treated the operation as a conglomerate merger, which could have potential effects on the whole payment processing environment. CADE acknowledged that market definitions in digital markets lack clarity, and as such it would not strictly restrict its assessment to straight horizontal overlaps and vertical integrations.

Although CADE took a secondary role in the assessments, it analysed the concept of a digital ecosystem formed by management, credit, payments, and business management software. It considered that the competitive impact of the transaction on forming a corporate structure could control a significant part of the payment processing ecosystem, and consequently disadvantage consumers.

However, CADE dismissed competitive risks in this regard, understanding that:

  • the ecosystem counted on the presence of several relevant rivals, including financial conglomerates; and
  • Stone Group was already active in several markets comprised by the ecosystem.

CADE also considered the use of open banking technology in relation to competition concerns. Interested third parties Cielo, Adyen, and Safra alleged that the operation would give Stone Group access to sensitive information from its competitors, including data on prices and conditions of retailers and rival acquirers. However, CADE understood that open banking – especially after proper regulation from the Brazilian Securities and Exchange Commission and the Central Bank – would facilitate access to this information by non-integrated competitors, ultimately dismissing the competitive concerns.

The Stone/Linx merger shows that the payments industry is still one of CADE's main focuses and that the authority is increasingly adopting diagonal or systemic views of markets, rather than more traditional vertical or horizontal approach. It remains to be seen how the authority will develop its assessments of similar cases, and whether it will follow international trends. However, CADE currently appears to show little regard for the potential harm of these new market views.

For further information on this topic please contact Marcela Mattiuzzo or Arthur Sadami at VMCA by telephone (+55 11 3939 0708) or email ([email protected] or [email protected]). The VMCA website can be accessed at http://www.vmca.adv.br.