Director of Policy and Special Initiatives
November 10, 2021
- New antitrust legislation seeks to block companies above a certain size from acquisitions.
- Removing potential buyers could hurt the ability of entrepreneurs, startups, and other businesses to sell and devalue the entire market.
- New business creation and investment into new ideas that could benefit consumers, markets, and economic dynamism could end up being hampered as a result.
Jane started a small operation with four employees and revenue in the tens of thousands. Over the last five years, she grew it into a business with more than 100 employees that generates millions of dollars in revenue. Jane is a serial entrepreneur and has lots of job-creating business ideas she’d like to start in her lifetime. Keeping the business in the family by passing it down through the generations was never part of the plan. Today, Jane is free to sell her business, which allows her to get capital for her next idea while allowing her business to be part of the strategic growth plan of another business. But new antitrust legislation could block this type of buyout, as well as many others.
While antitrust conversations have been focused on big tech companies, the reality is Washington could end up making it harder for entrepreneurs like Jane to sell their business.
The legislation seeks to block large companies above a certain size from adding capabilities and value through acquisition, in turn making it more difficult for businesses to sell to them. Even if large companies black-listed by such legislation aren’t the ideal match for a business looking to sell itself, the effect would devalue the entire market for business sales by removing potential buyers, causing a chilling effect on innovation and the economy.
None of these changes are necessary. The government already has the power it needs to review and challenge the comparatively few acquisitions that raise actual competitive concerns. In fact, when the government chooses to intervene, it has a success rate of 98.5%. Over the past twenty years, the federal enforcement agencies have challenged approximately 780 mergers. In that same period, the merging parties have won in court only eleven times. In the remaining cases, the parties abandoned the transaction, settled with the government, typically via divestiture, or the government has won in court. There can be little dispute that the government already can protect competition.
The truth is acquisitions play a vital role within our competitive economy, often leading to lower prices for consumers, more innovation around new products and services, and greater capital appreciation for stakeholders—all without harming competition. Acquisitions also provide acquired companies and owners with critical financing, sometimes ensuring their survival.
Entrepreneurs have long been the fuel of America’s global competitiveness, and without the proper incentives, new startups that challenge existing firms and drive innovation could be severely limited. But the new antitrust proposals only serve as a deterrent to creating new businesses and investment into new ideas, which could work in opposition to the best interests of consumers, markets, and economic dynamism.