Diagnosing “Killer” Acquisitions: FTC Market Study to Review Past M&A Deals in Big Tech
The Federal Trade Commission (FTC) launched a rare market study to investigate whether non-reportable past acquisitions by the major tech companies included “killer” acquisitions of nascent competitors. The study is intended to determine if changes to merger control rules are appropriate to cast a broader net and ensure that potentially problematic deals are reviewed proactively. The initial focus of the review is on the tech sector, but it potentially has much broader implications for the merger rules across industries. And the FTC may turn next to healthcare and other innovative sectors.
Merger reportability rules in the spotlight
The FTC has sent information requests to five large tech companies (Alphabet / Google, Amazon, Apple, Facebook and Microsoft). These requests reportedly ask the recipients to document their acquisition strategies and outline the details of the transactions they completed over the past decade. In addition to focusing on potential “killer acquisitions” that fell short of the notification thresholds, the requests also target other arrangements, including voting and board appointment agreements and agreements to hire key personnel. Consistent with the FTC’s parallel focus on employment-related issues, the requests also call for information on related post-employment non-competes for key employees.
The FTC has special authority to conduct studies separate from its law enforcement authority. Under this process, the FTC can issue legally-binding orders to companies to obtain information and documents. Typically, the outcome of such studies results in a report summarizing findings, and sometimes including recommendations for further actions. Based on this study, the FTC could explore possible measures to expand reportability requirements or introduce notification rules, without needing congressional involvement, and with implications beyond the tech sector.
Broader implications for Big Tech and beyond
The study could form a basis for enforcement actions against the companies involved. The FTC has set up a new Technology Enforcement Division in 2019 that will be closely involved in this initiative and has repeatedly signaled a focus on consummated transactions as a primary feature of its broad investigation into the sector. There is no statute of limitations for the FTC to review anticompetitive acquisitions. In addition to potentially reviewing specific transactions, the agency has also signaled it may focus on broader patterns of past acquisitions as a form of monopolistic conduct. This could set up potential conflicts with the DOJ, who is conducting their own reviews of past transactions in the sector.
More generally, the study fits into the global trend of enforcing broader merger reportability rules to target “killer” acquisitions in tech and other innovative industries. For example, Germany and Austria have introduced “size-of-transaction” tests to supplement traditional turnover-based thresholds for merger control filings, giving these authorities jurisdiction for the first time to review high-value M&A deals where targets have minimal local revenue. The UK Competition and Markets Authority is also showing its willingness to test acquisitions of nascent competitors who lack local sales or presence. Despite having a voluntary merger control regime, the Australian Competition and Consumer Commission has gone even further in proposing mandatory advanced notice of acquisitions by large digital platforms as part of the final report on its own Digital Platforms Inquiry.
The FTC’s approach is also likely to have spillover effects beyond the existing focus on large technology companies, particularly in the healthcare sector. Any amendments to reportability rules will probably more broadly impact similar transactions in the biotech sector and other innovative industries, where concerns arise over potential killer acquisitions. FTC Commissioners Christine Wilson and Rohit Chopra have issued a joint bipartisan statement urging the FTC to next conduct a similar study on non-reportable transactions in the healthcare industry. The statement mentions for example patterns of “stealth consolidation”, including references to series of acquisitions that resulted in concentrated markets for dialysis centers, hospitals, and certain pharmaceuticals.
Antitrust enforcement posture toward innovative industries is evolving and cannot always be predicted easily. Do not hesitate to reach out to our Linklaters team for further insights.