Changes to the Federal Trade Commission and the Impact on M&A Activity

The Federal Trade Commission recently adopted several policy changes focused on how companies handle the merger and acquisition process.

What are the policy changes?

It has announced that it is restoring its long-established practice of routinely restricting future acquisitions for merging parties that pursue anticompetitive mergers. The Prior Approval Policy Statement issued recently puts industry on notice that the FTC’s merger enforcement orders will once again require acquisitive firms to obtain prior approval from the agency before closing any future transaction affecting each relevant market for which a violation was alleged, for a minimum of ten years. This has been done so that the FTC does not have to waste valuable time and resources investigating clearly anticompetitive deals that should have died in the boardroom.

It will act as a deterrent and force acquisitive firms to think twice before going on a buying binge because the FTC can simply say no. FTC will only consider requests for any modifications of a second request after the party under investigation has provided “certain foundational information.” Parties must also provide information on the e-discovery tools they will be using, and the FTC is discontinuing the prior option of allowing parties to submit a partial privilege log. 

The FTC will also weigh a number of factors in determining the scope of a prior approval provision, including the nature of the transaction, the level of market concentration and degree to which the transaction increases market concentration, the degree of pre-merger market power, the parties’ history of acquisitiveness, and evidence of anticompetitive market dynamics.  And moreover, the Commission may seek prior approvals even when parties abandon a transaction.

The FTC has also indicated that the agency’s priorities and approaches in reviewing proposed M&A deals will differ from those in the past. Rather than viewing its work in two “silos” relating to antitrust and consumer protection, it will now be reviewing deals “holistically” and taking an “integrated approach” to the harms that “Americans are facing in their daily lives.” For example, that the agency will focus on whether there are “power asymmetries” leading to “harms across markets, including those directed at marginalized communities,” and whether the business models and structures used will “incentivize or enable” unlawful conduct. Further, given “the growing role of private equity and other investment vehicles,” the agency will “examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations,” particularly when “these abuses target marginalized communities.

What do these changes likely mean for your next M&A deal? 

First of all, more transactions will require HSR notifications. Secondly, more deals may receive scrutiny and the focus of investigations may be broader, including looking at areas beyond consumer welfare, such as the effect on labour markets. This may make the process of navigating any investigation by the FTC more time-consuming and costly. Finally, there will be a greater degree of uncertainty around the process.

These antitrust risks should be considered as part of deciding how, and perhaps even whether, to proceed with a transaction – including when crafting the antitrust-related terms in your transaction documents. And all of this Favors the engagement of antitrust counsel early in the transaction process.