In a recent webinar co-hosted by 4thly and Foley & Lardner LLP, attorneys Greg Neppl, Natasha Allen and Louis Lehot engaged in a thought-provoking discussion with 4thly’s Bret Waters. Together, they discussed the complexities of the current antitrust landscape, highlighting the challenges and uncertainties faced by companies navigating the ever-shifting merger and acquisition (M&A) landscape. Their conversation painted a picture of a regulatory environment in flux, driven by a more aggressive antitrust enforcement stance under the Biden administration and evolving standards that leave even seasoned legal professionals struggling for certainty
Key Takeaways:
- Rising Filing Threshold: As of March 6th, the transaction size test is set to $119.5 million, potentially triggering Hart-Scott-Rodino (HSR) notification obligations for more transactions.
- Silence Speaks Volumes: The 30-day review period remains, but if the government stays quiet, you’re generally free to close the deal. It’s the rare case where radio silence is golden.
- Early Termination: A Relic of the Past? While still technically an option, early termination requests to expedite review seem like a distant memory, particularly in the wake of the pandemic. Consider it a formality for now.
- Confidentiality Caveats: M&A filings remain confidential, but past practices of disclosing high-level details for granted early terminations are no more. Information, once shared, can quickly spread, shattering expectations of privacy.
- The Biden Effect: An Antitrust Revolution? Historically low rates of second requests (2-3%) haven’t budged, but sentiment has shifted dramatically. The Biden administration’s executive order urging aggressive enforcement and the appointment of Lina Khan, a staunch critic of traditional consumer welfare standards, signal a new era of antitrust scrutiny.
- Beyond Consumer Welfare: The focus is expanding beyond just price and quality impacts. Labor, racial equity, and wealth inequality are increasingly factoring into antitrust evaluations, even if the legal framework hasn’t fully caught up. This ambiguity creates challenges for navigating the regulatory landscape.
- Data Demands and Due Diligence Headaches: The FTC’s recent request for M&A data from Big Tech, even for deals below the filing threshold, raises eyebrows. While compliance might be unavoidable, it adds another layer of complexity to the M&A process.
- Startups Feeling the Squeeze: Limited exit opportunities through M&A can stifle innovation and impact investors who rely on “singles and base hits” (smaller deals) to achieve desired returns. The current climate pushes them towards riskier “home runs” (IPOs) to make the numbers work.
- Legal Certainty Takes a Hit: With shifting standards and an unpredictable regulatory environment, lawyers are finding it increasingly difficult to offer confident guidance on deal outcomes. The high degree of certainty that once characterized M&A transactions is now a thing of the past.
- Contractual Chills and Deal Delays: The chilling effect on both buyers and sellers is undeniable. Sellers face uncertainty around deal timelines, while buyers brace themselves for an uphill battle to gain approval. This translates to more complex contracts with extensive stipulations and a general headache for all parties involved.
- New Merger Guidelines: A Mixed Bag: December’s issuance of new guidelines brought some clarity, but also introduced concerns about labor considerations. Notably absent were references to racial or wealth inequality. Additionally, the 30% market share threshold raises concerns about potentially blocking deals without a thorough economic analysis.
- AI: A Beacon of Hope (Sort Of): Compared to other sectors, AI presents a ray of sunshine. While diligence for AI-powered companies requires different approaches due to the technology’s evolving nature, at least the regulatory landscape here seems less volatile for now.
- The FTC and AI: The Wait Continues: The question of the FTC’s specific plans for regulating AI remains unanswered. Stay tuned for further developments in this space.
Conclusion:
The M&A landscape is undergoing a seismic shift, driven by a confluence of factors: a more aggressive antitrust stance, evolving standards, and the increasing role of data. While uncertainty reigns supreme, staying informed and adaptable will be crucial for companies navigating this complex terrain.