At first glance, the attitude of US and European regulators toward mergers and acquisitions appears downright hostile. Deals large and small—from Microsoft’s attempted buyout of videogame giant Activision, to proposed business combinations in the biopharmaceutical and mortgage sectors—have run into friction as regulators strive to preserve competition and protect consumers.
Overall, is it truly harder than ever to close deals? On a recent Double Take podcast, we put the question to Rani Habash, an attorney at prominent antitrust firm Dechert LLP. Habash helped develop the Dechert Antitrust Merger Investigation Timing Tracker (DAMITT), which annually tracks ‘significant investigations’ from antitrust agencies like the US Federal Trade Commission (FTC) and enforcers of the EU Merger Regulation (EUMR). Significant investigations are typically defined as deals worth $200 million or more.
What the data is telling us is that even though there are a lot more headlines about the agencies becoming more aggressive, what we’re actually seeing is that the total number of what we call significant investigations is actually down. But what we are seeing is that there is a change in the outcomes of those significant investigations.
Rani Habash, partner at Dechert LLP
In the past, Habash explained, merger investigators were more inclined to set out conditions of approval in consent orders, such as an acquirer agreeing to divest certain assets as part of the deal. Today, regulators are more apt to go straight to court to file lawsuits to block deals, especially big ones.
What we are seeing is more complaints and those…tend to be, at least in the recent couple years…against mergers that are sort of your largest, highest profile deals, whereas in the past we might’ve seen a bigger mix of large and small and well-known companies, lesser-known companies…Whereas in the past they used to go after deals of all sizes, we may be starting to see a focus on some of these larger ones that are just a little bit splashier and potentially could have a larger impact in the world if they are better-known names.
Rani Habash
According to Habash, regulators are becoming increasingly concerned with the future pipelines of merging parties and whether those pipelines overlap. Regulators are less concerned with whether a deal would restrict competition in the present; instead, they are more focussed on whether it would obstruct competition in the future, as both parties develop competing products as planned.
The idea behind potential competition is that today there may not be a competitive concern to be worried about, but when you look at the pipeline of products or technologies that are in the works someday down the road—and it’s a key issue of how far down the road—those smaller companies that are being bought by potentially a larger company may be able to potentially grow in the future to become disruptive and innovative. And the theory would be that by selling to these companies today that there is some future competition down the road being lost. And it’s a very speculative theory. And I think that’s why, at least in one case, we did see the FTC lose fairly handily on that theory.
Rani Habash
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Authors
Jack Encarnacao
Research analyst, investigative, Specialist Research team
Raphael J. Lewis
Head of specialist research
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