What began as a slow start for M&A in 2023 turned from bad to worse in March, as the number of applications for US antitrust merger reviews fell to the lowest level since the depths of the pandemic.
Filings required under The Hart-Scott-Rodino Act (HSR) totaled 122 last month, according to preliminary data compiled by the US Federal Trade Commission (FTC). Except for four months from April through July of 2020, it marked the fewest number of HSR filings since January 2016, agency figures show.
Less consolidation has been a stated goal of antitrust enforcers at the FTC and US Department of Justice Antitrust Division (DOJ).
While HSR filings – currently required for most transactions valued at USD 111.4m or more – mark a key first step in what has become an increasingly fraught merger review process, the recent decline likely has as much to do with macroeconomic headwinds, antitrust lawyers said.
“The FTC and DOJ have certainly been more aggressive but that alone is not causing this drop,” said Rebecca Farrington, a partner in the global antitrust practice of White & Case LLP.
Neither the FTC nor the DOJ responded to a request for comment.
While Dealogic data shows the number of all US transactions during the first quarter declined 21% year-on-year, those required to be filed under HSR dropped a steeper 34%. One explanation is that during today’s riskier environment of rising interest rates and economic uncertainty deals have tended to skew smaller anyway, Dealogic data shows.
To be sure, the agencies’ tough-on-mergers posture under the administration of President Joe Biden has become a prominent topic among companies, investors and merger advisors, who have cited a chilling effect on transactions.
During last month’s ABA Antitrust Section Spring Meeting, DOJ Antitrust Division Chief Jonathan Kanter spoke glowingly of that agency’s dramatic increase in enforcement actions and how it counts among its successes when parties abandon anticompetitive mergers.
Both the FTC and DOJ have cited success in winning abandonments and otherwise dissuading transactions amid threat of enforcement action, as has been reported. “We have had six public abandonments but I can tell you, there are many more nonpublic abandonments,” Kanter told the gathering of antitrust lawyers in Washington, DC.
When that has failed, enforcers have had no qualms about suing to block mergers.
Notable transactions currently embroiled in litigation include the DOJ’s suit to block the USD 3.8bn union of JetBlue Airways [NASDAQ:JBLU] and Spirit Airlines [NYSE:SAVE]; and the FTC’s suit this month to unwind Illumina’s [NASDAQ:ILMN] completed USD 7.1bn acquisition of GRAIL.
On Wednesday, the FTC’s effort to block Microsoft’s [NYSE:MSFT] USD 69bn acquisition of Activision Blizzard [NASDAQ:ATVI] got a significant boost when the UK’s Competition and Markets Authority announced it would block the deal.
“There’s an awareness that agencies – not just in the US, but globally – are focused on enforcement,” said Farrington, the White & Case attorney.
Terminating early termination
Most HSR filings, however, involve more pedestrian transactions that have no substantive competitive concerns and in such cases, the agencies could make life easier for companies by restoring early terminations of merger reviews, the antitrust lawyers said.
In the past, transactions with no competitive overlaps and a business need to close urgently, could win agency sign-off before the end of the 30-day waiting period.
A suspension of early terminations announced in February of 2021, due to COVID and the high volume of HSR applications, has outlived its usefulness and now adds unnecessary time and costs to the simplest deals, they said.
The practice suggests a willingness by the agencies “to do anything to slow M&A and deals,” said another private antitrust lawyer, who has current business before the agencies and asked not to be identified.
Perhaps more significant is the agencies’ current reluctance to grant conditional approvals with remedies to resolve anti-competitive concerns, several lawyers said. It is hoped that a highly anticipated update to the merger guidelines – expected any day – could help parties better structure deals that can pass US regulatory scrutiny.
Despite the dismal first quarter, antitrust advisors are still successfully shepherding many deals through the merger review process, White & Case’s Farrington said.
“Tough deals are still getting done,” she said.
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