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New merger guidelines, crackdown affect business strategies

The FTC and DOJ will be closely scrutinizing mergers and acquisitions heading into 2024 based on new merger guidelines released in December 2023.

A federal crackdown on mergers and acquisitions could result in businesses being more cautious and selective in proceeding with deals, and even considering new ways of competing in the market.

The Federal Trade Commission and Department of Justice (DOJ) began challenging mergers and acquisitions by big tech in earnest after the FTC filed a lawsuit in 2022 against Meta claiming that the company engaged in an anti-competitive business practice by buying out competitors. Since then, the FTC has challenged Meta's acquisition of virtual reality startup Within and Microsoft's acquisition of Activision Blizzard. The FTC also considered challenging Amazon's purchase of iRobot -- a deal the company dropped in January. The U.S. law enforcement agencies aren't the only ones cracking down, as competition authorities in the U.K. have also challenged such acquisitions.

The FTC and DOJ also released new merger guidelines in December 2023, reflecting the realities of the modern economy. The guidelines lay a framework for the FTC and DOJ to assess mergers and acquisitions for antitrust violations. One of the new guidelines for how mergers can violate the law is when companies eliminate competitive entrants into the market. It's a theory the FTC alleged in its lawsuit against Meta and the company's past acquisitions of Instagram and WhatsApp.

The volume of deals will spread out across a longer horizon.
Christopher GilchristAnalyst, Forrester Research

The new merger guidelines and greater scrutiny from the FTC and DOJ will cause a slowdown in deals activity, but shouldn't reduce it over the long term, Forrester Research analyst Christopher Gilchrist said.

"The volume of deals will spread out across a longer horizon," Gilchrist said. "I think the average value of a deal isn't going to drop. If anything, because of the added guidelines, or the extra things that have to be demonstrated, I could argue that the average deal value might go up just because of the due diligence required to adhere to those new guidelines."

Regulatory crackdown affects business strategy

Businesses will be more cautious regarding merger and acquisition activity going forward because they know they could be facing a lengthy review under the new merger guidelines, said Joseph Coniglio, director of antitrust and innovation policy at the Information Technology and Innovation Foundation.

Amazon's termination of the iRobot deal is one example of the impact of heightened regulatory scrutiny, Coniglio said.

"That was a deal where it had a year-and-a-half review and it ultimately collapsed based on what I think were very frail theories of harm," Coniglio said. "Just the threat of an [FTC challenge] was enough to scuttle the deal."

Gilchrist said the new merger guidelines will affect how businesses approach future deals.

The regulatory crackdown is fostering a sense of cooperation among businesses that won't draw the ire of federal law enforcement agencies, he said. In the entertainment industry, for example, Gilchrist pointed to Fox, Warner Bros. and ESPN coming together to offer a new product, a sports streaming service, choosing cooperation over competition through mergers and acquisitions.

Gilchrist said such a move directly indicates that companies are "preempting where regulation is going to head." It also underscores technology's importance, meaning companies don't have to be large to be significant as long as they have the tech and know-how to be relevant, he said.

Business perspectives are changing to consider how cooperation within and across industries can make products more viable and sustainable, Gilchrist said.

"It's not about trying to own and control your own capability to dominate the market," he said. "It's now much more of, 'How can we be competitors, but also cooperate in certain instances where being too big is going to be a problem long-term for a company's strategy?'"

The impact trickles down to enterprise businesses as well, including when the exit strategy is to be bought. Business strategies will need to focus on complementing the new merger guidelines. Gilchrist said companies that want to be acquired will have to demonstrate regulatory competency.

Buyers will also be more calculated in when they want to acquire and what that looks like, including a greater focus on cooperation over competition, Gilchrist said.

New guidelines demonstrate FTC, DOJ focus on big tech

The new merger guidelines indicate a focus on platform companies, meaning law enforcement agencies will be paying particular attention to that market heading into 2024, Coniglio said.

Coniglio noted that approach differs from the previous 2010 merger guidelines, which he described as general and industry agnostic. The new merger guidelines' focus on mergers that eliminate competitive entrants also points to the FTC and DOJ's focus on the big tech industry, he said.

"That's definitely a big change," Coniglio said. "Clearly the FTC is continuing unabated in its attempts to rein in big tech."

Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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