Introduction
As the world emerges from the pandemic, the global merger and acquisition (M&A) market has not only rebounded from its initial collapse but has also thrived.[1] Initially, the pandemic brought life as we knew it to a halt, and the M&A market was no exception.[2] In the first quarter of 2020, M&A deals dropped to $253 billion, a more than 50% drop compared to 2019’s first quarter.[3] Multibillion-dollar deals were abandoned such as Xerox’s $34 billion offer for HP and SoftBank’s $3 billion offer for WeWork shares,[4] and there was general uncertainty about how the market would adapt to this new environment.[5] However, the combination of beneficial government support programs, low interest rates, a wealth of investment capital, and optimism around the vaccine not only helped company’s weather the storm but are now the drivers behind a record-breaking year in global M&A activity.[6]
At the moment, global M&A activity is on a record-breaking pace, and there appears to be no end in sight. So far in 2021, the value of pending and completed transactions ($3.6 trillion) have already surpassed the total value of transactions from 2020 ($3.59 trillion),[7] and 2021 is on schedule to be the most active year for global M&A.[8] Andrea Guerzoni, global vice chair at Ernst & Young remarked, “[t]he M&A momentum points to a fundamentally strong market looking ahead. This pace of dealmaking could continue for the next 18-24 months, with new financing solutions and sectors driving activity.”[9] A significant reason behind this $3.6 trillion value is the surge in billion-dollar deals where 479 such deals have been completed.[10] Within these billion-dollar deals, there has been particular growth in deals worth $5 billion or more—commonly known as “mega-deals.”[11] Examples of these mega-deals include the $43 billion merger between WarnerMedia and Discovery,[12] Canadian National Co.’s $30 billion acquisition of Kansas City Southern,[13] and Amazon’s acquisition of Metro-Goldwyn-Mayer Studios Inc. at $8.5 billion.[14] Another strong reason for this spike is that companies are engaging in both traditional M&A deals like consolidation plays and also non-traditional M&A deals like joint ventures, cross-sector alliances, co-investments with private equity, disruptive M&A’s and venture investments in sustainable assets.[15] “ESG is increasingly becoming an integral part of investment decisions,” remarked Ernst & Young’s Guerzoni.[16] Indeed, in the first half of 2021, ESG based transactions were valued at $96.5 billion whereas in the first half of 2020, ESG transactions were valued at only $35.7 billion.[17] Transactions like these indicate the growth of M&A in 2021 and why analysts expect this market to be the most active year in M&A history. However, although there is general confidence and optimism around the M&A market right now,[18] there are questions about how long this streak will last as governments around the world enact strict antitrust regulations.[19]
The Looming Shadow of an Antitrust Crackdown
The Clayton Antitrust Act of 1914 protects consumer welfare by ensuring that a merger or acquisition does not substantially reduce competition.[20] Upon taking office, President Biden emphasized his administrations commitment to enforce strict antitrust regulations.[21] On July 9, 2021, the President signed an executive order that reinforced his commitment to more stringent antitrust regulations.[22] The order tasks regulatory agencies like the Federal Trade Commission (FTC) to increase investigations into corporate tie-ups that cause only a few companies to dominate major sectors of the economy.[23] Michael Schaper, partner at Debevoise & Plimpton remarked, “[t]he order itself will be less likely to have a chilling effect on strategic M&A than the potential chilling effect of a significant increase in the number of prolonged investigations and merger challenges brought by the agencies.”[24] These increased scrutiny measures threaten to raise the cost of a merger or acquisition deal, which could cause companies to reconsider engaging in such transactions.[25] An example of the immediate effects of the order is Visa abandoning its planned acquisition of Plaid, a FinTech company, after increasing regulatory intervention.[26]
Another indicator that antitrust scrutiny on M&A deals will be aggressively pursued is the appointment of Lina Khan as the FTC Chair and Jonathan Kanter as the Assistant Attorney General for the Antitrust Division at the Department of Justice.[27] In the past, Khan advocated for blocking mergers as a method to protect labor markets from reduced compensation and unemployment.[28] So far in her tenure as FTC Chair, Khan has worked to expand the FTC’s authority by revoking the 2015 Policy Statement providing that the FTC would adhere to the consumer welfare standard when deciding which cases to pursue.[29] She is also working on reenacting and requiring “prior approval” obligations for future transactions in FTC consent orders in future merger settlements.[30] This will give the FTC greater authority to review and block any future transactions of companies that are subject to these settlements.[31] Kanter, on the other hand, is an outspoken critic of Big Tech and has represented multiple complainants against many leading technology companies before antitrust enforcers.[32] With Khan leading the FTC and Kanter leading the DOJ, it is very likely that more M&A deals will be given a closer look before receiving approval.
In light of the increased scrutiny that M&A transactions are likely to face in the future, firms need to plan accordingly to ensure a transaction’s success. Some steps firms can take include increasing due diligence, such as thoroughly reviewing all employee contracts, and carefully analyzing any no-poach agreements.[33] Firms should also consider establishing an antitrust compliance program, which can help identify and eliminate any potential antitrust violation in a transaction and can also buy good faith with regulators by indicating that the company wants to comply with the law.[34] Additionally, because agencies are requiring more time to complete any review of an M&A transactions, firms should anticipate that these reviews may take up to three months or longer, compared to the thirty days a review ordinarily takes.[35] Lastly, firms should prepare for the possibility that the FTC will investigate a closed deal because the agency recently announced that due to increased M&A activity, companies can close transactions at their own risk after thirty days.[36] This means that a deal could potentially receive clearance from the FTC, close, and still possibly be challenged in the future.[37] Firms that anticipate these challenges are more likely to adapt quicker to this new antitrust regime and experience greater success. Although there appears to be no end in sight in the immediate future to the record-breaking year M&A is currently experiencing, federal regulation and its strict enforcement may be a cause for concern and makes one wonder how the M&A market will adapt to these new challenges.
[1] See Andrei Vorobyov et al., 2020 Year in Review: The Surprising Resilience of M&A, Bain & Co. (Feb. 16, 2021), https://www.bain.com/insights/2020-year-in-review-the-surprising-resilience-m-and-a-report-2021/; see also Patturaja Murugaboopathy & Gaurav Dogra, Global M&A Volumes Hit New Record in 2021, Overtaking Last Year’s Haul, Reuters (Aug. 12, 2021, 12:08 PM), https://www.reuters.com/business/global-markets-ma-2021-08-12/.
[2] See Richard D. Harroch et al., The Impact of the Coronavirus on Mergers and Acquisitions, Forbes (Apr. 17, 2020, 06:00 AM), https://www.forbes.com/sites/allbusiness/2020/04/17/impact-of-coronavirus-crisis-on-mergers-and-acquisitions/?sh=46abedbd200a; see also Vorobyov, supra note 1.
[3] Harroch, supra note 2.
[4] Id.
[5] See id.; see also Amrish Shah et al., How COVID-19 has Impacted Global M&A Activity, Int’l. Tax Rev. (Jan. 28, 2021), https://www.internationaltaxreview.com/article/b1q8zg4dh6ck6z/how-covid19-has-impacted-global-mampa-activity.
[6] See D. Scott Anderson et al., M&A Trends in the Opportunity Economy, Nat’l. L. Rev. (Sept. 9, 2021), https://www.natlawreview.com/article/ma-trends-opportunity-economy; Steven Nigro, How the Covid-19 Pandemic Is Reshaping the Mergers and Acquisitions Space, Forbes (Feb. 3, 2021, 10:00 AM), https://www.forbes.com/sites/forbesbusinesscouncil/2021/02/03/how-the-covid-19-pandemic-is-reshaping-the-mergers-and-acquisitions-space/?sh=6f43c8137019; Shah, supra note 5; Ian Macmillan et al., M&A Emerges From Quarantine, Deloitte (Dec. 17, 2020), https://www2.deloitte.com/us/en/insights/topics/strategy/m-a-markets-post-pandemic-business.html.
[7] Patturaja Murugaboopathy & Gaurav Dogra, Global M&A Volumes Hit New Record in 2021, Overtaking Last Year’s Haul, Reuters (Aug. 12, 2021, 12:08 PM), https://www.reuters.com/business/global-markets-ma-2021-08-12/.
[8] David McLaughlin & Michelle F Davis, Record M&A Boom Risks Running Afoul of Biden’s Antitrust Cops, Bloomberg (Aug. 13, 2021, 05:30 PM), https://www.bloomberg.com/news/articles/2021-08-13/record-m-a-boom-collides-with-biden-s-get-tough-antitrust-stand.
[9] Murugaboopathy, supra note 7.
[10] Konstantinos Makrygiannis, Global M&A Hits Highest Value on Record as Post-pandemic Market Starts to Take Shape, Ernst & Young (July 1, 2021), https://www.ey.com/en_gl/news/2021/07/global-m-a-hits-highest-value-on-record-as-post-pandemic-market-starts-to-take-shape.
[11] Ian Macmillan et al., M&A Emerges from Quarantine, Deloitte (Dec. 17, 2020), https://www2.deloitte.com/us/en/insights/topics/strategy/m-a-markets-post-pandemic-business.html.
[12] Anne Sraders, M&A Activity Has Already Blown Past the $2 Trillion Mark in a Record-Breaking 2021, Fortune (June 2, 2021, 03:10 PM), https://fortune.com/2021/06/02/mergers-acquisitions-2021-m-and-a-record-year-spacs/.
[13] David McLaughlin & Michelle F Davis, Record M&A Boom Risks Running Afoul of Biden’s Antitrust Cops, Bloomberg (Aug. 13, 2021, 05:30 PM), https://www.bloomberg.com/news/articles/2021-08-13/record-m-a-boom-collides-with-biden-s-get-tough-antitrust-stand.
[14] Sraders, supra note 12.
[15] See Macmillan, supra note 6.
[16] Murugaboopathy, supra note 7.
[17] Konstantinos, supra note 10.
[18] See M&A in 2021: An Accelerating Rebound?, Morgan Stanley (Feb. 8, 2021), https://www.morganstanley.com/ideas/mergers-and-acquisitions-outlook-2021-rebound-acceleration; see also Macmillan, supra note 11; see also Makrygiannis, supra note 17.
[19] D. Scott Anderson et al., M&A Trends in the Opportunity Economy, Nat’l. L. Rev. (Sept. 9, 2021), https://www.natlawreview.com/article/ma-trends-opportunity-economy; Jennifer Huddlestone, Mergers and Acquisitions Amid Calls for Increasing Antitrust Enforcement, Am. Action F. (May 27, 2021), https://www.americanactionforum.org/insight/mergers-and-acquisitions-amidst-calls-for-increasing-antitrust-enforcement/.
[20] See Huddlestone, supra note 19.
[21] See Graham J. Hyman et al., Antitrust M&A Snapshot, Nat’l. L. Rev. (Aug. 5, 2021), https://www.natlawreview.com/article/antitrust-ma-snapshot-q2-2021.
[22] See Sheila Adams et al., President Biden’s Executive Order on Promoting Competition, Harv. L. Sch. F. on Corp. Governance (July 20, 2021), https://corpgov.law.harvard.edu/2021/07/20/president-bidens-executive-order-on-promoting-competition/.
[23] See David French & Sierra Jackson, Analysis: Dealmakers See M&A Rush, Then Chills, in Biden’s Antitrust Crackdown, Reuters (July 12, 2021, 08:26 AM), https://www.reuters.com/business/dealmakers-see-ma-rush-then-chills-bidens-antitrust-crackdown-2021-07-12/.
[24] Id.
[25] Huddlestone, supra note 19.
[26] Id.
[27] See Hyman, supra note 21; see also President Biden Announces Jonathan Kanter for Assistant Attorney General for Antitrust, White House Briefing Room (July 20, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/20/president-biden-announces-jonathan-kanter-for-assistant-attorney-general-for-antitrust/.
[28] See Hyman, supra note 21.
[29] See id.
[30] See id.
[31] See id.
[32] See id.
[33] See David B. Hamilton et al., Opportunity Economy: Risks in Antitrust Enforcement, Womble Bond Dickinson (Aug. 26, 2021), https://www.womblebonddickinson.com/us/insights/articles-and-briefings/opportunity-economy-risks-antitrust-enforcement.
[34] See id.
[35] Jamillia Ferris et al., Antitrust Enforcement in the Biden Administration: Assessing the M&A Risk, Wilson Sonsini Goodrich & Rosati (Aug. 24, 2021), https://www.wsgr.com/en/insights/antitrust-enforcement-in-the-biden-administration-assessing-the-manda-risk.html; see also David McLaughlin & Michelle F. Davis, Record M&A Boom Risks Running Afoul of Biden’s Antitrust Cops, Bloomberg (Aug. 13, 2021, 05:30 PM), https://www.bloomberg.com/news/articles/2021-08-13/record-m-a-boom-collides-with-biden-s-get-tough-antitrust-stand.
[36] See A. Douglas Melamed et al., Antitrust Law and Trade Regulation 24 (7th ed. Supp. 2021-2022).
[37] See Ferris, supra note 35.
