The revival of anti-trust enforcement seems to be an inevitable policy response as corporate mergers have reached new heights and scale.
As if corporate dealmakers aren’t facing enough headwinds lately, with political and economic turbulence rippling around the globe, a new obstacle to mega-mergers has emerged recently with the spectre of more vigorous enforcement of anti-trust law by U.S. regulators.
The revival of anti-trust enforcement seems to be an inevitable policy response as corporate mergers have reached new heights and scale, including pending mega-deals such as the proposed tie up between Anheuser-Busch InBev and SABMiller which would create a company that would account for about half the profit and almost a third of all beer sold worldwide.
In the case of the proposed InBev – SABMiller merger, dealmakers took the standard approach of proposing to divest holdings in certain assets in order to prevent an increased concentration of ownership within the U.S. market. But notwithstanding the proposed asset sales, the antitrust division of the U.S. Justice Department recently pressed ahead with a second round of information requests, signalling that the regulators are looking at the proposal with a heightened level of scrutiny.
Already this year, M&A deals with a combined value of $400 billion have collapsed in the U.S. market. According to Dealogic, this far exceeds last year’s full-year total of $231 billion in withdrawn deals and the 5-year average full-year total of $243 billion.
Not all of these deals fell apart as a result of increased antitrust enforcement. In fact, the biggest busted deal so far this year was the proposed tie up of Pfizer and Allergan, which was scuttled by the actions of the U.S. Treasury Department in moving to tighten tax regulations related to corporate inversions. But antitrust enforcement has been responsible for several other notable busted deals, including the recently withdrawn merger of Halliburton and BakerHughes, as well as the proposed combination of Staples and Office Depot.
In total, eight mergers were abandoned in 2015 after the U.S. Department of Justice objected to them on antitrust grounds, the most since 2012, according to the department’s data. So far this year, there have been three antitrust deal fatalities, with a growing list of pending deals, such as InBev-SABMiller, facing the prospect of protracted review and heightened scrutiny.
“We have had 25 years of pretty lax antitrust enforcement,” as Diana Moss, the head of the American Antitrust Institute, recently told a reporter from CBS. “We’ve gotten to the point in many markets where they’re so highly concentrated that any merger is going to raise red flags.”
While these red flags are being raised with increasing frequency in response to the latest round of mega-mergers, it may be one more reason why the focus and energy of dealmakers continues to shift in the direction of middle market transactions, where we see an expanded range of opportunity and much lower execution risk when it comes to antitrust scrutiny.