Antitrust will remain in the spotlight heading into 2022. It has become increasingly clear that the evolving regulatory climate in the United States and Europe requires companies and dealmakers evaluating M&A and strategic plans to consider seriously the potential antitrust implications.
Calls for increased antitrust scrutiny mean that even transactions that historically would have seemed straightforward from a competition law perspective require careful planning today. This is especially true for deals in sectors that have drawn increased regulatory focus in recent years, including agriculture, consumer finance, healthcare, technology, and transportation.
President Biden has directed the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to enforce the antitrust laws with “vigor” and has appointed new agency leadership committed to reinvigorating antitrust enforcement. We have already witnessed important changes to how the antitrust authorities are reviewing transactions, including an increase in in-depth merger reviews that investigate a much broader range of competition issues. Against this backdrop, however, we also are seeing record levels of M&A activity and HSR filings to the DOJ and FTC, and transactions that continue to be completed with the right preparation and planning. To successfully navigate the challenges of the new regulatory landscape, boards should focus on three areas.
- Plan for longer timelines and non-traditional questions in merger review
The new DOJ and FTC have signaled they will scrutinize transactions more closely and evaluate a broader range of competitive harms from M&A. Investigations may include questions seeking to test non-traditional antitrust concerns, including, for example, a transaction’s impact on labor markets or data privacy as an aspect of competition. Boards and dealmakers should anticipate that the antitrust authorities are more likely to initiate in-depth investigations that will take longer to complete given the range of issues subject to review.
The risk of longer reviews is compounded by the fact that the US agencies are seeing a record number of merger filings and face internal staff and other resource constraints. Companies should account for lengthier antitrust review periods when calculating the overall deal timeline and be prepared to quickly address issues that do not fall squarely within traditional theories of antitrust harm.
- Consider resolving competition concerns prior to starting the regulatory process
Heightened antitrust scrutiny also increases the risk that companies and the antitrust authorities will be unable to agree on an acceptable remedy to resolve competition issues. The antitrust authorities, and in particular the FTC, have signaled that past remedies often did not adequately address antitrust concerns and that a higher bar must be applied when evaluating remedy proposals and potential divestiture buyers. The FTC also recently announced that it will include conditions as part of certain settlements that would give the agency increased authority to prohibit future transactions by the companies in the same or related industries.
The prior approval requirement also would extend to divestiture buyers in future transactions. Together these changes may make the cost of settlements higher and less attractive. Boards and dealmakers should consider whether it makes sense strategically to proactively resolve obvious competition issues before entering into the regulatory process to narrow the scope of disputes with the regulators about competitive impact.
- Maintain a credible litigation threat throughout the merger review process
A key feature of the M&A review process in the United States is that the DOJ and FTC cannot unilaterally block a transaction based on their own determination about its competitive implications. Instead, the antitrust authorities must challenge the transaction in federal district court to obtain an injunction preventing closing. As the DOJ and FTC scrutinize transactions more closely, conduct longer investigations, and consider novel theories of harm that have limited or no precedent in the case law, it will be increasingly important for companies to signal that they have the time and the resources to successfully litigate a merger challenge. Doing so may make the regulators think twice about pursuing a case at the margins of the antitrust laws.
Key takeaways for boards
- New leadership at the DOJ and FTC have promised to increase their scrutiny of transactions while at the same time the agencies are receiving a record number of pre-merger filings and are facing significant staff and resource constraints. Boards and dealmakers should allow for longer review periods and be prepared for non-traditional questions and theories of harm from the antitrust authorities.
The changing regulatory landscape means that the antitrust authorities may place a higher bar on what remedies are sufficient to address their concerns. To narrow the scope of disputes with the DOJ or FTC, boards and dealmakers should consider proactively resolving obvious competition issues outside the regulatory process.
In light of calls by the DOJ and FTC to increase antitrust enforcement, boards and dealmakers should signal that they have the time and resources to successfully litigate a merger challenge. Maintaining a credible litigation threat will incentivize the DOJ and FTC to not unnecessarily prolong their investigations and to consider seriously remedy proposals.