﻿Is regulation making M&A harder? With more than $57 trillion worth of deals
already this century, M&A is big business. So why are governments so keen to control it?
Merger control has been around in the United States since the Hart-Scott-Rodino Act came
into force in the 1970s; and then the Europeans caught up in the 1990s.
The act was designed to ensure markets remained competitive - giving regulators the power to
block deals worth more than $110 million. But the nature of competition has changed.
The Dow DuPont decision of the European Commission back in 2017, was a strong signal of things
to come. Normally, in the past, competition authorities looked at product overlaps between
the merging parties or products in the pipeline that were close to market. But in this decision,
they went right back to basic research in the lab, in innovation spaces. And they also looked
at a third theme which was macroeconomic data that showed in the US, but also the EU increased levels
of market concentration across the economy. Regulators have pulled other deals under the
microscope with the use of this new definition. Larger tech companies buying revenue-free
start-ups would have flown under the radar in the 1990s but are now being dubbed killer acquisitions
allegedly designed to remove competition. We've got a progressive leadership in the US
antitrust agencies with the Biden administration saying that we have
to have a “whole-of-government” approach to combating high prices, to improving competition.
I think that means much closer scrutiny of mergers on both sides of the Atlantic.
As private equity M&A builds, they will need to learn to chart the regulatory landscape.
Private equity ownership is endemic across the economy and a lot of private equity deals they say
are either priced just below the Hart-Scott-Rodino merger thresholds, or they are structured in such
a way that private equity isn't taking a controlling interest in order to fall below
the radar and the US are looking at whether or not they should be more circumspect.
It isn’t just the US. There are now more than 180 countries with merger control laws and a growing
number that also subject deals to foreign investment scrutiny. Concerns are growing
that geopolitical interests are starting to shape their oversight in markets.
The recent developments with COVID and other things mean that countries are more concerned
to protect themselves and to make sure there is a focus and a protection of things that
are critical to them, whether it's tech, whether it's digital or food supply concerns
or generally supply chain protections. The American government has already introduced
a raft of measures designed to protect sensitive industries, and in 2022 the EU introduced a bold
policy change to a member state referral mechanism that effectively allows it to
assess any deal regardless of size, and even for a period after the deal has closed.
The European Commission can seek jurisdiction
by asking member state competition authorities to refer a transaction to it,
even if the transaction has not triggered the national merger control.
And then on top of that, we have a new EU regulation that's going to come into
force in October 2023. Many deals will have to be notified to the European Commission
for a third level of regulatory control, to ensure that any foreign subsidies that the
merging parties have benefited from, are not going to negatively impact competition
I would say start planning early, anticipate questions, deal with those questions upfront,
devote sufficient resources and most importantly, plan sufficient time between signing a
transaction and closing a transaction. At the end of the day, businesses say that their
aim in any transaction is to be pro competitive. I think if the aim is the same, then it's a way
of working towards the same objective. Once businesses have scanned the horizon of
their M&A deal, they need flexibility in deal terms, risks and contingencies. Time
is essential, and with enough preparation, companies can navigate the future of M&A.