Mergers & Acquisitions

Caution, Sharp Bend Ahead: U.S. Merger Guideline Revisions to Map Evolving Approach to Tech Deals

Written by John Eichlin and Anna Gooding

As global antitrust authorities have ramped up scrutiny of tech markets over the last few years, merger control has been a particular area of focus. Enforcers have been pivoting to address criticism that they have been too deferential as traditional rules have not kept up with market changes, often with uncertain results for companies navigating longer and more unpredictable reviews.

Against this background, the US antitrust enforcers have recently announced plans to update existing Merger Guidelines this year to better reflect their current enforcement approach. The analysis of digital markets will be a key feature of their public consultation and can be expected to feature heavily in the new guidelines. While practitioners welcome further clarity on the agencies’ evolving analytical framework, the revisions are expected to stake out an ambitious enforcement position with threat of greater scrutiny for deals in the sector.

Modernizing Merger Guidelines for digital markets

The Merger Guidelines are jointly issued by the US Department of Justice and Federal Trade Commission to provide a framework for their assessment during their merger reviews. Updated periodically, these guidelines have traditionally been split between “horizontal” deals between direct competitors and “vertical” deals involving licensing or supply relationships. 

The agencies’ initiative aims to “modernize” the Merger Guidelines for today’s market complexity, including the increasing importance of digital markets. Consistent with the goals of the Biden administration’s recent executive order on competition, the agencies are seeking to correct their perception of historical underenforcement in merger control in the tech sector and other innovative industries. The result is to expand potential theories of harm and shift more burden to merging parties. There is a suggestion that the agencies may combine the existing Vertical and Horizontal Merger Guidelines in the next iteration as the line between the analysis of these two types of deals becomes more blurred. 

The new Merger Guidelines will likely formalize some more novel factors that we have seen emerging already in recent merger reviews in the sector.

Key issues highlighted for digital markets

The agencies have announced a 60-day consultation period on the topics they identified, with an ambitious target to publish the new Merger Guidelines later this year. The public consultation asks for views on several aspects including:

  • how to assess the potential competitive effect of nascent or potential competitors, including companies that are active only in “adjacent” markets (see for example Visa / Plaid);
  • the economics of “zero-price” products and multi-sided markets, including platforms with free services supported by advertising revenues that may be deemed to be competing "for attention" (see for example Sabre / Farelogix);
  • how to weigh non-price competition factors, such as competition over service offerings, data privacy protections, and product innovation (see for example the recent enforcement targeting online platforms);
  • the role of data in strategic transactions, including the competitive effect of data aggregation across services that do not compete directly (see for example Google / Fitbit).

The agencies have also proposed expanding existing presumptions that transactions are anticompetitive based on market concentration. While acquisitions involving small increments in market share fall outside of existing presumptions, the revisions could expand the assessment to target a broader range of future acquisitions by entities with market power or expand the criteria giving rise to such presumptions. 

These revisions would complement proposed legislation that seeks to create formal legal presumptions that shift the burden of proof to large platform operators to show that their transactions wouldnot harm competition (see for example the Competition and Antitrust Law Enforcement Act (CALERA) bill pending in the Senate).

Closer scrutiny of tech investments

In general, practitioners welcome further guidance to increase transparency of review factors in an area where the agencies’ practices have already been shifting. However, the agencies are expected to adopt a robust approach to the new Merger Guidelines, which FTC Chair Lina Khan has suggested are intended to have a deterrent effect on potentially anticompetitive transactions. The Merger Guidelines are therefore expected to leave open broader enforcement approaches.

At a minimum, the revised Merger Guidelines will likely reaffirm that strategic transactions in the tech sector will be subject to close scrutiny with the potential for more extended reviews, since exploring broader theories of harm de facto extends the agencies’ review time. A deal that might have previously been subject to an abbreviated merger review could take twice as long under current trends. 

The authorities may also take aim at a broader set of deals that have not traditionally been subject to scrutiny, including deals with targets active only in adjacent markets.

Broader implications for enforcement 

Ultimately, the Merger Guidelines are a policy statement without binding legal effect. The Merger Guidelines are still just guidelines for the agencies' own review processes. Absent further legislation, the agencies will need to make their case in court for any transactions they wish to block under existing legal precedent which can impose substantial burdens of proof. 

As a result, we can also expect further collaboration between the U.S. agencies and other competition authorities on cases that may go to litigation (such as the UK’s CMA or the EU Commission), where there are perceived to be lower substantive thresholds or procedural restrictions for transactions to be blocked as anticompetitive.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Linklaters

Linklaters is a leading global law firm, with 31 offices in 21 countries, supporting and investing in the future of their clients wherever they do business. The firm combines legal expertise with a collaborative and innovative approach to help clients navigate constantly evolving markets and regulatory environments, pursuing opportunities and managing risk worldwide.

Read Linklaters' Bio