How New Proposed Antitrust Regs May Make Things Tougher for M&A

Federal regulators want merging companies to disclose more data, which has provoked criticism that the proposed mergers and acquisitions rules will add burdensome, time-consuming tasks to the M&A process.

For asset allocators, which invest in assets from M&A-dependent private equity firms, there’s broader reason for concern here: The proposed rules, issued Tuesday, are a sign of the Biden Administration’s stepped-up antitrust enforcement, which threatens to squelch lucrative transactions.

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The Biden Administration has been tough on M&A deals, as witness its opposition to Microsoft’s bid to acquire video game company Activision Blizzard. President Joe Biden in 2021 signed an executive order to strengthen antitrust efforts.

Dealmaking is down this year, mostly due to recession fears and higher interest rates. But the U.S. government’s antitrust stance surely has not helped. The U.S. Department of Justice and the Federal Trade Commission have “a strong preference for challenging transactions in court instead of pursuing settled remedies, suggesting an increased appetite for litigation,” wrote White & Case, a law firm active in mergers, in an analysis.

Holland & Knight, another law firm specializing in M&A, has warned PE firms that even tougher antitrust activity likely is on the way, and their deal flow may be harmed. A commentary early this year in the firm’s newsletter told PE operators that regulators are out to combat “perceived or imagined impacts on competition from the acquisition by private equity companies.” And regulators’ added scrutiny has helped lead to lower deal volume, it opined.

Under the disclosure plan, unveiled by the DOJ and the FTC, companies involved in a merger must divulge details about other acquisitions over the past 10 years, information on officers and directors, and data on their workforces.

The proposal also requires merger partners to report loans or other financial support from hostile governments such as those of China and Russia—in keeping with a law Congress passed last year to compel the DOJ and FTC to require these disclosures.

The new strictures will not go into effect right away. Next comes a 60-day comment period, then the agencies must publish a final version, which could take several months more.

From the regulators’ viewpoint, the extra disclosures are needed because transactions are more complex nowadays, involving “new investment vehicles” and the intricacies of tech mergers. The FTC has admitted that the increased disclosure requirements would add more than 100 hours to complete federal filings, up from 37 now, according to Bloomberg.

The disclosures to the agencies are mandated under what’s called the Hart-Scott-Rodino filing process, which has not been updated in 45 years—thus underscoring the need for an overhaul, the agencies contend.