The U.S. is the largest market for merger and acquisition (“M&A”) activity, with nearly 7,900 transactions accounting for a record $2.6 trillion in value in 2021.[1]  The primary M&A enforcement agencies in the United States, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ), evaluate the potential antitrust risk of reported mergers, monitor remedies, and challenge deals deemed to reduce competition applying jointly published guidelines. The Biden administration appointed leaders to the FTC and DOJ who promised that traditional approaches to antitrust would not be followed and suggested changes to both substance and process to antitrust review of mergers. This leadership also promised new merger guidelines to replace existing guidelines, which are the basis for antitrust practice before the agencies and courts.[2] The popular narrative is that this rhetoric from enforcement leaders, and agency deviation from prior review practices, risks greater uncertainty for the U.S. M&A market, potentially reducing the volume of productive deals.

Our new surveys and corresponding paper examine the extent of this uncertainty by measuring perceptions of antitrust practitioners, attorneys, and consultants (economists or other) in their engagement with the Biden administration’s antitrust agenda.  In particular, we seek to better understand how this agenda has affected merger review, investments, decision making, and legal guidance.  Our review offers antitrust agencies an opportunity to think about the optimal design of the merger control system and various consequences of certain policy choices and institutional design changes.  It also provides practitioners insight into broader M&A market sentiment towards antitrust agencies so they may better advise their clients and facilitate productive M&A activity.

Survey Methods

We conducted a quantitative online survey of over 100 respondents across top antitrust law firms (52 percent of respondents), in-house counsel (10 percent of respondents), and consultants (38 percent of respondents) and augmented the data collection through qualitative interviews with practice group leadership.  The online survey was conducted over two months among U.S.-based practitioners and consisted of 38 questions related to respondents’ experiences, strategies, and perspectives on M&A, as well as five additional questions concerning the respondents’ backgrounds.  Following completion of the online survey, 36 practitioners – law firm partners and in-house counsel from across the country and different industries – participated in follow-up interviews.

The surveys were constructed to respond to four broad lines of inquiry:

(1) Whether the U.S. agencies’ current stance has generated regulatory uncertainty that is different from any usual uncertainty surrounding changes in administrations;

(2) If #1 is true, whether regulatory uncertainty has altered the type of counsel lawyers have been providing to their clients;

(3) If #2 is true, whether parties and lawyers are reluctant to invest the time and capital necessary to pursue certain mergers; and

(4) Whether the methodologies, tools, and theories applied by the agencies are likely to be correlated with the relevant industry, with select industries facing differential scrutiny and novel theories of competitive harm.

Results

The quantitative survey provides interesting insights into the current perceptions of the DOJ and FTC.  The survey also shows large differences in practitioners’ experience with the agencies relative to two years ago.  In particular, the online survey reported:

• 35 percent of respondents perceive the DOJ’s enforcement to be efficiency-degrading compared with 66 percent of respondents with the same perception of the FTC.
• 48 percent of respondents observe a divergence between the respective review processes of the DOJ and FTC. This divergence is observed in speed of review, stringency and depth of analysis, and the steps needed to have staff and front office reach a decision.
• 60 percent of respondents state that the DOJ has addressed traditional non-price effects over the past two years. However, 78 percent of respondents state that the DOJ rarely or never provided guidance on its methodology to address traditional non-price effects.  82 percent of respondents state that the FTC has addressed traditional non-price effects over the past two years, and 79 percent indicated that the FTC rarely or never provided guidance on its methodology to address traditional non-price effects.
• 48 percent of respondents perceive that the DOJ’s consideration of efficiency gains has been reduced or eliminated as compared with two years ago, while 58 percent perceive the same about the FTC.
• Compared with two years ago, the DOJ is perceived as more aggressive on vertical mergers by 48 percent of respondents and on diagonal or adjacent mergers by 39 percent of respondents. The FTC is perceived as more aggressive on vertical mergers by 68 percent of respondents and on diagonal or adjacent mergers by 56 percent of respondents.
• 48 percent of respondents (but only 8 percent of economists) indicate that the counsel offered to clients has changed considerably over the past two years, with 85 percent observing increased regulatory scrutiny. The greater scrutiny is seen to have increased the amount of time and costs related to merger completion.

Next, we conducted semi-structured interviews with dozens of leading attorneys in the field.  These interviews were designed to gain deeper insight into whether there is increased uncertainty during merger review, the industries or sectors which have been affected by the uncertainty, agency resources, changes to client counseling, and how specific actions by the FTC and DOJ have affected or are expected to affect potential mergers.

Many practitioners observe a divergence between the agencies’ rhetoric and their actions toward the industries facing increased scrutiny.  While agency leaders have made strong statements concerning enforcement in the technology, agriculture, pharmaceutical, and healthcare industries, practitioners have not observed any substantive change in industry focus relative to recent years.  Yet, practitioners have seen a heightened focus on transactions with vertical market combinations, potential implications for labor, and private equity deals.

There is also a greater degree of regulatory uncertainty as the agencies depart from prior processes to explore non-traditional theories of harm. These departures include refusals to accept consent decrees or remedies and a willingness to scrutinize deals cleared by the other agency.  Additionally, some practitioners have observed a willingness for the agencies to either engage in “strategic gaming” with third party complaints or, at the very least, take an increasingly sympathetic view of competitor complaints.  A decline in transparency and observed differences between the opinions of staff and agency leadership contributes to the increased uncertainty.  This uncertainty has led practitioners to warn their clients of a costlier and more time-consuming merger process.  Many have prepared their clients for litigation from the onset of deals.

Notably, perceptions of the impact of this uncertainty on the degree of M&A activity are mixed.  While some practitioners observed deals terminating before completion, others suggest there may be an increase in deal flow overall as the agencies focus more staff time on resource-intensive investigations and less on other deals.  Generally, however, practitioners agree that deals on the margin of intense scrutiny are being abandoned, particularly in cases where parties fear the need for prior FTC approval provisions before closing.

Our interviews also reveal that practitioners view the DOJ and FTC differently in terms of the degree of politicization and the effectiveness of leadership.  Contrary to historical perceptions, the FTC has been seen as increasingly political relative to the DOJ in recent years.  Moreover, practitioners are particularly critical of the FTC’s leadership as it appears to overrule staff economists and offer little explanation for theories of harm.  In these interviews, attorneys expressed that the FTC’s pursuit of high-profile merger reviews has resulted in some deals that merit scrutiny clearing without a Second Request.  In contrast, practitioners perceive the DOJ as more consistent with staffing and less guarded in communications with merging parties.  While apparently willing to make concessions with parties, the DOJ has refrained from openly discussing acceptable remedies, which further increases perceived uncertainty.  Both agencies are seen as increasingly “adversarial” and less “fair” in their investigations.

Together, the two surveys we conducted show that antitrust practitioners are more critical of the FTC and DOJ in this administration than in prior administrations.  In particular, respondents perceive the agencies as less transparent and more willing to depart from regulatory precedent.  The enforcement process is largely perceived as more demanding and time consuming than in the past.  These attitudes have implications for how attorneys counsel their clients and affects the number of M&A deals that are perceived to be at the margin of regulatory scrutiny.

We look forward to expanding this research into a longitudinal study.  Collecting data yearly will allow us to continuously identify newly implemented changes in policy or enforcement and evaluate the reactions by in-house counsel, outside counsel, and outside consultants (including economists) to such changes.

ENDNOTES

[1] Record breaker: US M&A 2021, WHITE & CASE 1, 1(2022), https://www.whitecase.com/sites/default/files/2022-02/white-case-record-breaker-us-ma-2021-web-v17.pdf.

[2] Federal Trade Commission and Justice Department Seek to Strengthen Enforcement Against Illegal Mergers, FEDERAL TRADE COMMISSION, January 18, 2022, https://www.ftc.gov/news-events/news/pressreleases/2022/01/federal-trade-commission-justice-department-seek-strengthen-enforcement-against-illegalmergers. Jonathan Kanter, Assistant Attorney General Jonathan Kanter of the Antitrust Division Testifies Before the Senate Judiciary Committee Hearing on Competition Policy, Antitrust, and Consumer Rights, U.S. DEPARTMENT OF JUSTICE, September 20, 2022, https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanterantitrust-division-testifies-senate-judiciary. Lina Khan, Prepared Statement of the Federal Trade Commission Before the United States Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights “Oversight of the Enforcement of the Antitrust Laws,” 7 (2022).

This post comes to us from D. Daniel Sokol at USC Gould School of Law and Marissa Ginn, Robert J. Calzaretta, Jr., and Marcello Santana at Analysis Group Inc. It is based on their recent article, “Antitrust Mergers and Regulatory Uncertainty,” available here.