UK regulator greenlights Microsoft's Inflection acquihire, but also designates it a merger

The UK’s Competition and Markets Authority (CMA) has determined that Microsoft’s acquisition of the Inflection AI team qualifies as a merger, despite not being a full acquisition. This decision follows a phase 1 inquiry initiated in July, which aimed to assess whether the deal raised competition concerns. The CMA concluded that the transaction did not pose significant competition issues, as Inflection was not a strong competitor to Microsoft’s existing AI products, such as Copilot and ChatGPT. Microsoft’s new consumer AI division, launched in March, is led by Inflection’s founders, including Mustafa Suleyman. The CMA noted that Microsoft hired nearly the entire Inflection team, acquiring their expertise and know-how essential for developing foundation models and chatbots. This move reflects a broader trend among tech companies to navigate regulatory scrutiny through strategic hiring and partnerships, often referred to as 'quasi-mergers.' Despite Inflection remaining a standalone entity, the CMA emphasized that the transfer of key employees and the establishment of commercial agreements blurred the lines between the two companies. The CMA’s assessment highlighted the importance of ongoing development in the rapidly evolving AI sector, where technology can quickly become obsolete without the right talent. While Microsoft has avoided regulatory intervention this time, the CMA is closely monitoring future deals involving large tech firms and smaller startups. This scrutiny indicates a growing concern about how such transactions could impact competition in the tech industry, regardless of whether a full acquisition occurs.