The UK’s move to block Microsoft’s takeover of video games maker Activision Blizzard risks damaging the country’s tech sector, according to industry executives, investors and start-up entrepreneurs who have attacked the landmark decision.

The Competition and Markets Authority ruled to block the $75bn transaction on Wednesday, dealing a potentially fatal blow to what would be the US tech group’s largest-ever deal.

In an extraordinary backlash, Microsoft and Activision criticised the CMA’s argument that the deal would stifle the nascent cloud gaming market, framing the regulatory action as a hammer blow to the UK economy.

Microsoft’s president Brad Smith lambasted the decision as “bad for Britain”, saying it would “discourage innovation and investment in the United Kingdom”.

Activision said it would “reassess our growth plans for the UK”, adding that “global innovators large and small will take note that — despite all its rhetoric — the UK is clearly closed for business”. Both companies are set to appeal against the decision.

Their furious reaction rippled through the UK’s tech sector this week, with entrepreneurs and investors expressing concern that the decision was a sign the country’s status as Europe’s leading tech hub was slipping.

“The CMA decision does the reverse in terms of encouraging innovation,” said Ophelia Brown, founder of venture capital firm Blossom Capital, which has previously invested in London-based start-ups and Dija.

“It is more bad PR for UK tech and very disappointing,” she added.

Tech industry figures are particularly worried about the recent hawkishness of the CMA, which appears to be staking out a position as a global leader in scrutinising Big Tech in the wake of Brexit.

In October, the watchdog ordered Meta to reverse its $315mn acquisition of Giphy, forcing the social media group to sell the gif image maker — the first time the regulator had moved to dismantle a completed Big Tech deal.

The CMA’s decision to block the Microsoft-Activision deal marked the first such step by a global regulator. The EU is expected to make a decision next month, while the US Federal Trade Commission has already started legal action to prevent the deal.

On Tuesday, Deliveroo founder Will Shu criticised the CMA over its 18-month inquiry into Amazon’s $500mn purchase of shares in the London-based takeaway platform, which was eventually cleared by the body.

“I was treated like a criminal,” he told the Business Studies podcast. “I had to testify in front of panels . . . That is the opposite of trying to build companies, or trying to take risk. It’s trying to kill companies.”

However, others in the industry have defended the UK regulator. William Kovacic, former chair of the FTC and previously a non-exec director at the CMA, told the FT ahead of this week’s decision that the CMA was best placed to rule on issues of the magnitude of the Microsoft-Activision deal.

“Compared to anybody else on the planet, they’ve put themselves in a position to understand what’s going on in this field,” said Kovacic, noting the UK regulator’s investment in engineers, computer scientists and analytics experts to evaluate significant tech takeovers. “They are by far best prepared to do this.”

The CMA said its job was “to do what is best for the people, businesses and economy of the UK, not merging firms with commercial interests”. 

Sarah Cardell, the watchdog’s chief executive, said the Microsoft-Activision decision was “entirely consistent with the government’s investment ambition and makes sure that tech markets are open to competition”.

Still, investors also expressed concern that blocking the Microsoft-Activision deal risks making the UK a less attractive marketplace at a time when investment in its tech sector has already been waning.

In the first three months of this year, venture capital investment in London dropped 79 per cent to $2.1bn, according to Dealroom. That compares with a 42 per cent drop in Berlin, to $925mn, and a 68 per cent drop in Paris, to $1.2bn. 

Prime Minister Rishi Sunak has said he wants Britain to be “the next Silicon Valley”, and last month the UK government pledged more than £370mn to support tech investment and transform the country into a “science and technology superpower” by 2030. This included £250mn to invest in artificial intelligence, quantum and engineering biology start-ups.

Many within the UK’s tech scene pointed to other government policies that they believe are stifling the sector, such as plans to scale back the R&D tax credit support that has been widely used by British start-ups.

“We are seeing a distinct lack of support for high-growth businesses,” said John Ryan, chief executive and co-founder of SymTerra, a communication app for construction sites.

Ryan said his company was considering relocating to the US to attract better investment. “From the time taken to open bank accounts, difficulties getting skilled workers, and the R&D tax grants — [the UK] is actively encouraging us to seek out a better future elsewhere,” he added.

London’s public markets have also been hit over the past year by a wave of takeovers and take-private deals that have stripped it of several UK tech groups, such as Aveva, Micro Focus and cyber security company Avast. Meanwhile, Cambridge-based chip designer Arm has rejected the UK to pursue an IPO in New York.

“The UK’s public markets are perceived as an unattractive destination for growth capital,” said Sam Gyimah, former government minister and partner at venture capital firm Lakestar.

Others are more optimistic about the UK’s ability to remain a tech hub, suggesting that broader macroeconomic factors are the real issues frustrating founders.

Analysis by London & Partners of fDi Markets data, part of the Financial Times Group, indicated that London attracted the second-highest level of tech foreign direct investment last year, behind Dubai, and was the largest recipient of tech investment projects in Europe.

“It is not just the UK struggling with investment, it is the whole world,” said Lucy Jung, founder of Cambridge-based start-up Charco Neurotech, who is currently fundraising. “The environment is not great, but we have been able to navigate it because we have the existing ecosystem.”

Additional reporting by Ivan Levingston and Madhumita Murgia in London

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