The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are working on new horizontal merger guidelines, which may be ready by the end of the year, that could include significant changes to the way regulators approach merger analysis.
The new rules governing mergers and the enforcement actions that FTC and DOJ are implementing, according to legal experts, create uncertainty among lawyers, and their clients, about how the substantial analysis in a merger will be carried out. Despite this uncertainty and other challenges, Gary Zanfagna, chair of the antitrust group at Paul Hastings, told PYMNTS in an interview that the important thing is to focus on what you are trying to get and put aside all the noise to get the deal through.
Companies will always try to get bigger, either organically or via mergers and acquisitions (M&A), and this is a natural and positive thing, Zanfagna argues. If they choose to do it via M&A, they may face challenges, from a business perspective and from a regulatory perspective. The latter, according to Zanfagna, is the one that is causing more uncertainty, and it is delaying some transactions, but companies need to be ready and deal with it.
Regulators are in some instances adding hurdles, such as not providing early terminations notices or sending letters to companies saying that they can “close a deal but at their own peril,” which is a way to say that they are not happy with the deal, but they are not going to challenge it in court yet.
In the U.S., regulators need to go to court if they want to block a deal, and this means that the agency needs to provide evidence that the transaction will affect competition, and there is case law that needs to be followed. This analysis requires time and resources that sometimes agencies may not have.
In this regard, President Joe Biden signed an executive order in 2021 to promote competition in several industries and ordered federal agencies to step up their enforcement actions. He also promised more resources to deal with this increase in enforcement, “but if they’re putting all their money on big tech maybe they can put their money on other things,” Zanfagna said.
But perhaps the biggest change in this administration, Zanfagna added, is the perception about M&As and the impact these have on the market and on consumers.
Traditionally, M&A focused on efficiencies, and they were seen as positive, even in concentrated markets, because they brought benefits for consumers. Now, the view is that big is bad, or even worse, that any deal is bad. This may be particularly problematic for instance, for small tech guys who want to grow and perhaps be acquired by big firms, but in the current regulatory environment it is more difficult to happen.
“I am not in favor of the current way of things [in merger analysis]. I don’t think the current thinking is consistent with the antitrust enforcement developed in the sixties, seventies or even nineties. I really don’t. I don’t agree with the current thinking that big is bad.”
And this approach will be difficult to change, even to find a middle ground, Zanfagna noted. “Maybe there’s some coming back that needs to happen, but I don’t think it’s a pendulum to swing back to the way it was in the sixties and seventies.”
The consequence of this for clients is that they will need to think more about the risks. For instance, for a buyer, it may be to carefully choose what to buy to minimize antitrust risks. For a seller, it may be to prefer not to sell to the highest value if that brings regulatory headwinds.
Read more: DOJ Antitrust Chief Puts End to Laissez-Faire Merger Policy
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More