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What happened? 

Amazon has dropped its $1.4bn (around £1.1bn) deal to buy Roomba maker, iRobot, after the EU vetoed the potential deal. 

The e-commerce giant will fork out a $94 million break fee to iRobot. 

In the after-effects of the collapsed deal, iRobot plans to cut 31% of its workforce (around 350 employees) and its CEO is set to leave the company. 

More on the story 

Amazon announced that it planned to acquire iRobot in August 2022, for an initial $1.7bn, which amounted to around $61 a share.  

In 2023, the value of the deal dropped to $1.4 bn ($51.75 a share). A reason for the decrease included the regulatory scrutiny the deal was facing and a slowdown in sales, which I’ll go into more detail below. 

iRobot: A Quick Glance 

What? A US technology company that designs and builds consumer robots.  

Founded: In 1990 by Colin Angle, Rodney Brooks, Helen Greiner 

Current CEO: Colin Angle 

Market Capitalisation: $350.20 million (at the time of writing) 

If you would like to read this section for Amazon, you can read my previous write up below. 

What factors have led to this? 

• The regulatory scrutiny the deal was facing. The EU Competition Commissioner recently said they had intended to block the deal, amid concerns that it could stifle competition and lead to higher prices for consumers within the robot cleaning industry. They further said that any concerns they have are either meant to be debunked or addressed with solutions to resolve the issue. The deadline for doing the latter passed a few weeks ago, with Amazon providing no solution to the EU Competition Commissioner’s concerns. 

• A slowdown in sales. Not as many people wanted to buy iRobot’s products, compared to 2020. The pandemic significantly increased the number of orders of iRobot’s, as people wanted to keep their homes clean. Post-pandemic, the market is much softer, and people have returned to more normal habits, such as cleaning their homes themselves, or cleaning their homes less. It has resulted in less people needing and wanting the product, and thus a decrease in sales for the company. Although this can be classed as a potential reason, it still holds some weight as a growing market is one factor companies who want to acquire, look for. Although the robot vacuum cleaning industry is set to grow, current conditions point to a slow trajectory. 

 What impact could the collapsed deal have? 

For iRobot:  

The drop in the deal is something they weren’t happy with. However, it gives them the opportunity to continue to innovate with their products and potentially increase sales. Maybe Amazon could acquire them sometimes in the future. 

For Amazon:  

It’s a blow for Amazon too. The deal could’ve helped to expand Amazon’s smart home devices. They already have the Alexa smart speaker, and Ring doorbell. The Competition and Markets Authority, which is the UK’s competition regulatory, had cleared the takeover in June 2023. But all regulatory bodies need to agree for a deal to go through. Since Amazon is so big, I’m sure they have a whole list of potential acquisitions they can make, but as getting the green light on one has shown, it won’t be an easy journey. 

For the M&A market: 

This isn’t the first time a deal has been blocked by EU regulators. In December 2023, a deal between Adobe and Figma collapsed, due to regulatory roadblocks in the EU as well as the UK. Adobe had to pay $1bn break fee, which is much lower than the $94 million Amazon will have to pay. 

A goal for many start-ups, is to one day be sold to another company in the future. Founders with this aim may feel discouraged with the number of deals that are being terminated or blocked due to some sort of regulatory pushback.  

A continuation of this trend could lead to a slowdown in M&A activity even further, as start-ups may not want to go public anymore, or companies may not want to buy or merge (and pay hefty breakup fees), due to the tough regulatory environment.  

For the Robot vacuum cleaning market:  

For the other players, such as Ecovacs, it could be seen as a positive sign, as they no longer have to compete with the giant that is Amazon. It leads to fairer and heathier competition within the market too. 

However, as I’ve just stated, many start-ups within the industry may want to be acquired in the future. The announcement could act as an unintentional deterrent from going down that path. 

With all of this being said, it can also be used as an example of what regulators want to see and help better prepare such companies if an acquisition is still a part of the long-term plan.  

 A closer look at Competition Regulators... 

The story made me wonder why competition regulators exist. According to this website, a competition regulator is the institution that, “oversees the functioning of markets. It identifies and corrects practices causing market impediments and distortions through competition law.” I acknowledge that Wikipedia is not the best source but this does a decent job of underpinning what they are, and why they exist. The aim of them is to ensure that the markets work well. 

The UK’s competition regulator is the Competition and Markets Authority (CMA) and they are responsible for, “competition and consumer protection.” They do this by: 

• Issuing penalties 

• Investigating cases 

• Supporting government and other market regulators 

• Providing rulings 

More information about the CMA can be found here.  

A recent decision by the CMA: Sainsbury’s and Asda merger was blocked in 2019 due to concerns over reduced competition and increased prices for consumers. 

A recent decision by the EU regulators: EU Antitrust regulators could be set to block Lufthansa’s bid for a minority stake in ITA Airways, after the regulator said the deal could reduce competition in flights to and from Italy. 

A recent decision by US regulators: They initially blocked Microsoft Activision's $69 billion deal, but the deal went through after UK and EU regulators came to an agreement. 

On the topic of regulators... 

I recently heard a quote and it made me stop and think: 

”The US innovates, China imitates, and the EU regulates.”- Unknown 

The focus is on the last part of the quote, specifically, “The EU regulates.” I don’t know who wrote this, but I discovered it on X/Twitter and I thought it would be nice to share. 

You can view this quote in a positive light or in a negative one. However, on my journey of better understanding the business and financial world, I have come to the slow realisation of just how much power and influence regulators have. In December 2023, we found out that the EU agreed to a landmark deal on the regulation of AI. AI is a hot topic and I do agree that it needs some oversight. It marked the world’s first comprehensive set of laws to regulate the fast-growing technology. Regulators in the UK and US are mulling over the contents of the deal and it’s highly likely that they will use it as a guide for producing their own set of regulations.  

The fact that it is EU regulators have contributed to the collapse of the Amazon-iRobot deal is another interesting factor. According to this Fortune article, Amazon’s failed iRobot deal is European regulators “latest win a yearslong campaign to stop Big Tech from getting bigger.” It reminded me that whatever technology related deal that EU regulators block, is a part of a much bigger mission at play. On the one hand, it can be argued that Big Tech is already too big, but on the other, blocking such deals could limit innovation within this important sector. 

I mention all of this to make the point that regulators are much more important than many think. Yes, they give direction, advice and rules-but they can also prevent market-moving deals from happening. How you view this is completely down to you. 

Closing thoughts 

I have been hearing a lot about how regulators have been blocking recent M&A deals. To me, it is a sign that doing so in such markets is tough and such a move has to be fair and done for the benefit of not just those involved, but those who use the product or service too, ie consumers.  

I think if this trend continues, we will get an uproar because companies could be fed up with regulatory bodies blocking important moves they want to make. Thinking of the bigger picture, it could lead to more discouragement for both founders who want to be sold, and companies who want to acquire or merge, as well as less innovation and less investment in companies from venture capital firms and angel investors. 

That’s it for this week! 

What are your thoughts on the story? Do you think Amazon will buy iRobot in the future? What effect do you think this story will have? I’d love to know- either leave your thoughts below, send me a message on any of my social media platforms, or send me an email: hello@parahinsights.com. I look forward to hearing from you. 

Until next time, remember to stay curious! 

Further resources: 

‘Amazon drops $1.4bn deal to buy iRobot after RU veto reports’- Article by The Guardian 

‘Amazon Drops $1.4 Billion iRobot Deal’- YouTube video by Bloomberg Technology 

‘Amazon, iRobot Lower Acquisition Price’- YouTube video by Bloomberg Technology 

‘Amazon to buy Roomba-maker iRobot for $1.7 billion’- YouTube video by CNBC Television 

‘Should You Buy a ROBOT Vacuum Cleaner? (Roomba 980 Review) | The Tech Chap- YouTube video by The Tech Chap 

Disclaimer:  

This blog is for informational purposes only. Parah Insights is not associated with the news sources in this blog, and sharing does not equal endorsement. Parah Insights does not provide financial, tax, legal or accounting advice – always consult your financial and legal advisors to determine what’s right for you and your business.