The competition watchdog has provisionally blocked the planned £140m merger between Seedrs and Crowdcube over concerns it would lead to less choice and higher fees.
The two crowdfunding platforms announced plans to merge in October, saying the deal would create one of the world’s largest private equity marketplaces.
But following an in-depth investigation, the Competition and Markets Authority (CMA) found the tie-up would result in a substantial lessening of competition.
The watchdog said the combined company would have at least a 90 per cent share of the crowdfunding market, which it argued could result in UK SMEs and investors losing out as a result of higher fees and less innovation.
“We have therefore reached the view that blocking this merger is likely to be the best way to maintain competition,” said Kirstin Baker, chair of the CMA inquiry group.
“The decision to block any deal is not taken lightly and is only made if there is a real risk of customers losing out.”
The initial decision comes despite warnings from the two companies that they could face collapse if the deal does not go ahead.
Seedrs said it was “deeply disappointed” in the CMA’s decision and argued the merger would have a “highly positive outcome” for British small businesses.
But it insisted it was in a strong position to continue as a standalone business if necessary, pointing to a doubling of revenue year on year in the first quarter.
Crowdcube added: “We’re obviously disappointed with the CMA’s decision, however, Crowdcube recorded outstanding levels of growth in the last 12 months and remains in a very strong financial position following record revenue in 2020 and two consecutive quarters of profitability.”
The CMA has now launched a consultation on its provisional finding and is inviting views by 14 April.