The Competition and Markets Authority, the U.K.’s antitrust watchdog, said today that it has opened an inquiry into the deal Facebook Inc. inked to acquire Giphy Inc. last month.

An Axios report at the time indicated that the social network is paying about $400 million for the company. While the CMA’s investigation is ongoing, Facebook and Giphy must pause efforts to combine their respective workforces, as well as any product integration initiatives they may have started. The companies are also prevented from jointly signing any business deals.

The CMA is investigating if the deal has led to the “a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” the watchdog said.

The $400 million Facebook is said to be paying for Giphy is a small fraction of the $4.9 billion net income it generated in the first quarter. However, the deal is significant for the social media ecosystem because of Giphy’s massive global reach. Searches on its popular library of animated GIF images amount to about 15% of the number of searches on Google every day, Chief Executive Alex Chung told the business magazine Campaign last year.

Buying the startup would expand the already dominant market reach of Facebook, which passed 3 million active users in the first quarter. The CMA might examine at how the acquisition would affect consumers who use Giphy.

It’s also possible officials will look at the deal’s impact on advertisers. Giphy makes money from its platform by enabling advertisers to place branded GIFs at the top of searches for certain keywords. Many of the keywords users search in Giphy are terms that aren’t typically entered into Google, Chung told Campaign last year, which means Facebook would gain control of a potentially important part of the search advertising market if the CMA approves the deal.

“We are prepared to show regulators that this acquisition is positive for consumers, developers, and content creators alike,” Facebook said in a statement. The company has also taken other steps to strengthen its argument, the most notable of which was promising to keep Giphy’s application programming interfaces accessible to other companies. 

Giphy made a similar commitment in a separate statement today. “Everyone will continue to have the same access to GIPHY,” it said. “We look forward to demonstrating how this partnership is a win for our users, partners, and content creators.”

The CMA is inviting third parties to submit comments on the inquiry through July 3. 

Photo: Eston Bond/Flickr