The Competition and Markets Authority (CMA) has provisionally cleared Amazon and Deliveroo’s prospective tie-up, after finding the food delivery app’s financial position has “deteriorated”.

Ecommerce giant Amazon announced in May last year it would be leading on a £450m investment in Deliveroo as part of a wider consortium, but the plan was initially blocked and investigated by the CMA.

The authority had concerns the deal would “result in Amazon and Deliveroo ceasing to be distinct” enterprises.

However, the watchdog said today it had provisionally cleared the tie-up after Deliveroo said that without Amazon’s investment it would “fail financially and exit the market”.

The CMA said “it has become clear that the coronavirus pandemic is having a significant negative impact on Deliveroo’s business” and that, “despite being a highly successful company which has grown strongly” the delivery app is “particularly reliant on continued investment to be able to support its operations”.

It said the lockdown had resulted in the closure of many of the restaurants Deliveroo relies on, which has led to a “significant decline in revenues”.

While the app has made moves into grocery delivery to make-up these shortfalls, the CMA noted: “These sales are limited and have not made up for the losses in its restaurants business.”

Chair of the CMA independent inquiry group Stuart McIntosh said: “These wholly unprecedented circumstances have meant reassessing the focus of this investigation, reacting quickly to the impact of the coronavirus and deciding what it would mean for the businesses involved in this transaction and, in turn, for customers.

“Without additional investment, which we currently think is only realistically available from Amazon, it’s clear that Deliveroo would not be able to meet its financial commitments and would have to exit the market. This could mean that some customers are cut off from online food delivery altogether, with others facing higher prices or a reduction in service quality. Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon’s investment in Deliveroo.”

The CMA has put out a call for views on its provisional findings with the deadline for responses set for May 11.

A spokeswoman for Deliveroo said: “We are delighted the CMA has found that Amazon can invest in Deliveroo. This investment is a key part of Deliveroo’s plan to provide an even better service to customers, riders and restaurants and, as we’re a British company, this will be a boost to the UK economy.

“The unprecedented health crisis we all face has disrupted businesses across the country. This investment will help us to overcome immediate and long-term challenges, allow us to continue to improve our service for customers, enable us to develop new innovations and offer people even greater choice.

“Everyone at Deliveroo is excited that Amazon, the most customer-obsessed and innovative company in the world, has chosen to invest in Deliveroo’s future.”