Antitrust Enforcement: What Does it Mean for Aerospace and Defense M&A?
Congress has set its sights on tech antitrust enforcement. The primary goal is targeting the big tech companies like Google and Amazon, but no matter how large your business is, tech antitrust enforcement could have major reverberations, especially for M&A. In the world of govcon, the number of competitors is decreasing rapidly, and many mergers may draw the attention of federal regulators.
The Federal Trade Commission on June 30, 2020 issued new guidelines it would use to evaluate mergers and acquisitions. While targeted to tech businesses, all companies must be mindful of the sorts of transactions that may come under the purview of the Vertical Merger Guidelines and Commentary.
Antitrust Considerations During M&A
Buyers must consider the target’s business, and whether it is likely to gain antitrust scrutiny. Ecommerce, social media, search, and online advertising are particularly likely to get the attention of the FTC.
Some triggers for increased oversight include:
- a transaction that merges horizontal competitors
- a transaction that combines businesses in a vendee-vendor relationship
- transactions bringing together companies in a diagonal relationship
The key consideration is whether the transaction will give greater market power, which usually means the ability to greatly raise prices for a long period of time. FTC guidelines specifically note that most mergers between competitors do not create this kind of market power. That extends to the aerospace industry.
How the FTC Might Get Involved
One recent Antitrust Division inspection involved the 2020 merger of Plaid with Visa. The Department of Justice alleged that Visa has a monopoly among online debit service providers, with market share of about 70%. Plaid was the first direct competitor to emerge in many years, and the DOJ alleged that Visa intended to corner the market by taking over plaid. It also cited an unprecedented multiple of more than 50 as evidence that Visa intended to create a monopoly. Ultimately, the parties abandoned the merger. We are increasingly seeing regulators who either outright prohibit such mergers, or who create such significant barriers that the parties voluntarily abandon the contract. While this was in a different sector, it’s easy to see how similar concerns might arise in A&D.
What Are the Hallmarks of an Illegal Merger?
While many different types of mergers can trigger increased FTC scrutiny, regulators tend to focus on certain classes of mergers. If yours falls into one of these categories, you may end up having to answer more questions, or even abandon or modify the merger:
- Prevents or deters competitors from entering the market.
- Creates an anticompetitive environment.
- Reduces access to information, such as when two social media companies merge and control the flow of information.
- Discourages innovation, or removes innovative products or drugs from the market.
It doesn’t matter if your intent is not to reduce competition in the marketplace. The FTC is interested in the actual effects of the merger. Meeting with the right deal side team can help you anticipate potential challenges from the DOJ. It may also help you structure the deal in a way that reduces the likelihood of deal-slowing FTC involvement.