Mergers and acquisitions in the tech space have become a critical issue for regulators worldwide. Agencies probably feel that they have underenforced the law in the past. In an interview, Matthew Readings, global antitrust chair at Shearman & Sterling, told PYMNTS that agencies might be using their toolkit of powers to prevent the next big tech incumbent from developing under their watch.
Whether this is a good thing remains to be seen, but doing M&A deals will be much harder, Readings argued.
M&A is essential not only for big firms but also for startups, which may have an exit strategy or even have a reason to innovate in the first place, hoping to exit the market through an acquisition. “If you’re a startup, then often you can only take it so far. Partnering, collaborating, being bought by an established company can provide the investment, the expertise to take it to the next level.”
But antitrust agencies are extremely worried about “killer acquisitions.” This is a practice by which incumbents buy potential competitors who could, in theory, destabilize them and be more disruptive in the market. Thus, agencies are stepping up enforcement actions to deter this type of acquisition.
Readings argued that the main problem with the analysis that agencies need to carry out is that it is like looking at a crystal ball and guessing what will happen in five years.
Historically, regulators have been reluctant to make this type of prediction, and when they were not confident, they would step back from enforcement. But in Readings’ view, the needle has changed now because regulators are so bothered that they have missed cases in the past, that they are more confident, more aggressive, some would say more speculative about predicting what would happen, absent the deal and whether that’s a good or bad thing.
“I think a needle has moved towards pushing the incumbent tech companies to developing things themselves and almost reversing the burden to show there’s a real positive from them acquiring this company, which wouldn’t otherwise happen,” Readings added.
But then, regulators may be adopting a broader view of what’s good for consumers. For example, consumers can choose which service to use if they want to book a trip. They can go to Expedia or Google, so this is precisely the point of consumer choice from a competition perspective. In the classic antitrust approach, if consumers are happy with this, there wouldn’t be any reason to intervene. But with this new approach, regulators may be favoring the longer-term impact of specific measures to protect competitive market structures rather than looking at the shorter term upside for consumers.
“I think it’s just a broader debate as well, which is not just about the traditional consumer welfare standard; it is a bigger society issue that tech companies are taking too much control, getting too big, having too much influence on society. Antitrust is being used to try and address some of those issues.”
Then, there is the question of the agencies’ resources to implement this level of enforcement they are looking for. These are generally complex cases and require significant human resources to challenge specific deals. There are differences if you are in the U.S. or Europe. In the U.S., if the agency wants to block a deal, it needs to go to a judge, while in Europe, the regulator has the power to block the deal directly. In the U.S., the Federal Trade Commission or the Department of Justice are using other procedural tools to slow down or delay a transaction and chill M&A activity, like no early termination and long timing agreement. Still, overall, Readings explained that agencies will be challenged from a management perspective.
Readings concluded that all these changes and new approaches translate into uncertainty for clients about deal timetable and in some cases the outcomes, making their investment decisions much harder.
Read more: FTC, DOJ to Overhaul Merger Guidelines