Senior Vice President, International Regulatory Affairs & Antitrust
March 22, 2022
Last year, the U.S. led in yet another key measure of economic strength: mergers and acquisitions. The combined value of those deals soared to $2.5 trillion in 2021, accounting for nearly half of the $5.8 trillion in deals globally and almost double the U.S. total from 2020.
While headlines often center around larger acquisitions, the lesser-known deals make up the vast majority of proposed transactions and are vital to our economic system as they provide entrepreneurs a way to grow their company or realize the value they built through hard work and ingenuity. After selling a company, entrepreneurs often turn around and start new companies.
Equally important, a vibrant mergers and acquisitions market reflects a dynamic overall U.S. economy and allows American companies to compete globally with China and many other markets now presenting formidable competitive challenges.
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The Myth of Overconcentration
Yet the administration is increasingly skeptical of the value mergers play. Last summer it issued an executive order built around the false premise that the U.S. economy is suffering from overconcentration despite unmistakable evidence to the contrary. And a few weeks ago, the Department of Justice and the Federal Trade Commission moved swiftly to withdrawal the agencies’ merger guidelines suggesting permissive merger review has resulted in “illegal mergers.”
Adding to the uncertainty, the Federal Trade Commission under Chair Lina Khan has blatantly blown past statutorily deadlines and issued warning letters to merging parties telling them that their transaction remains under review and that they should merge at their own risk. She has also used a “zombie” vote—vote cast by a former Commissioner before leaving office—to reinstate a defunct policy that requires merging parties to obtain prior approval on future deals.
Staff are being directed to ask questions of merging parties and gather information that is beyond the scope of merger law. Further, gamesmanship is being used to run out the clock on time-sensitive mergers by refusing to engage with the merging parties over what remedies might be acceptable. These tactics signal hostility towards proposed deals and create mass uncertainty – the mortal enemy of business and markets.
A Successful Track Record
But the facts around mergers are stubborn ones. Proposed mergers must be notified to the government and are presumed lawful. In a typical year, more than 2,000 transactions are notified for review. Of these, less than 3% trigger a more in-depth review, meaning most proposed mergers do not present any real concerns. In the last 20 years, the government has challenged 780 mergers and won 769 of these challenges. That means the government has a 98.5% success rate when challenging a proposed merger.
Given its successful track record, the Department of Justice and the Federal Trade Commission clearly enjoy the upper hand. When they decide to challenge a transaction, they have proven their ability to seek concessions or block the deal all together. However, instead of acknowledging a strong and bipartisan track record of enforcement, the agencies are now planning to overhaul merger guidelines to tilt the playing field further in the government’s favor.
Tough merger review that follows a predictable process and adheres to merger statutes and case law is one thing, but it is completely out of bounds to twist merger review to completely remake the U.S. economy, one transaction at a time.
Left unchecked, government overreach will slow innovation, deteriorate the dynamism of the American economy, and give American entrepreneurs fewer choices to start, grow, or sell their companies in a hyper-competitive global marketplace.
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