M&A Deterrent Effect From Khan, Kanter Felt Beyond Antitrust Stat Sheet

In December, the agencies touted historic enforcement activity for fiscal 2022 in their annual Hart-Scott-Rodino Report (see 2312210057). But experts point to statistics on the agencies’ second requests as a good gauge for the level of M&A scrutiny. Companies receive second requests when regulators want to investigate a merger or acquisition. The agencies issued second requests on 1.6% of the 3,029 deals reported in 2022. That’s the lowest percentage for any year dating back to 2013, with amounts ranging from 1.9% in 2021 to 3.7% in 2013.

Antitrust attorneys have counseled clients about increased potential for second requests based on rhetoric from this administration, said Dentons antitrust co-chair Ausra Deluard. The 1.6% second-request rate for 2022 is "pretty shocking because I would expect that number to be higher than average,” Deluard said. “It doesn’t paint the picture of all the noise we’ve seen the Biden administration making.”

A key detail missing from the report is the growing trend of mergers ending in injunctions, abandonments or restructurings, said Diana Moss, Progressive Policy Institute competition policy director. This trend dates back to the Obama administration, but the rate of injunctions, abandonments and restructurings (IAR) has quickly increased under the leadership of Khan and Kanter. The Obama administration recorded an IAR rate of 7.4% from 2009 to 2016, according to statistics from Moss, calculated as a percentage of total clearances to both agencies. The Trump administration recorded an IAR rate of 8.4% in 2017-2020, and the Biden administration increased the rate to 9.4% in 2021-2022. However, the agencies recorded a 12% rate for 2022 under the leadership of Khan and Kanter.

This “more vigorous enforcement” isn’t seen in second requests and challenges but through how transactions are resolved, said Moss. It’s not surprising given Kanter’s “unwillingness” to settle mergers and increased scrutiny from Khan’s FTC, she said.

The deterrent effect is real, said former FTC General Counsel Alden Abbott, now a researcher at George Mason University's Mercatus Center. It’s true that it doesn't necessarily show up on paper because companies are walking away from potential transactions to avoid litigation with this administration, he said. Many antitrust practitioners say the agencies are successfully “killing” deals through increased paperwork and staff scrutiny, said Abbott: That's reflective of a general desire from Khan and Kanter to move toward a European style of antitrust regulation.

"The antitrust risks effectively discourage corporate boards from pursuing mergers that do not even come to fruition," said Aurelien Portuese, competition law research professor at George Washington University. "The assessment of the assertiveness of a merger policy should prioritize this unseen but crucial metric."

Shahid Naeem, senior policy analyst at the American Economic Liberties Project, agreed the annual HSR report doesn’t account for the deterrent effect. One good example of a company avoiding litigation with this administration is Adobe, he said: Abode in 2023 abandoned its $20 billion purchase of Figma, opting to pay a $1 billion breakup fee instead of litigating.

Agency resource constraints also could be driving the low number of second requests, said American Antitrust Institute acting President Kathleen Bradish: Enforcers aren’t going to bring action without the proper staff support, she said. Deluard agreed, saying the agencies have to be “judicious” about where to spend staff resources.

The second request rate also suggests corporate executives could be exaggerating how tough Khan and Kanter have made the environment for M&A activity, said Naeem. The 47 second requests in 2022 might have been issued to scrutinize larger, headline-grabbing deals, where executives publicly lament the M&A environment, he said: But the numbers show the “vast majority” of transactions aren’t necessarily getting a second look.