2015 was a record year for mergers and acquisitions activity, with over $4.7 trillion in transactions announced. This record volume has kept U.S. antitrust authorities fully engaged.
Federal antitrust agencies reviewing more M&A transactions. Increased M&A activity in 2015 kept U.S. antitrust agencies busy. The number of transactions reported under the Hart-Scott-Rodino Act increased by 25 percent from FY2013 to FY2014, and the upward trend appeared to continue, although official statistics are not yet available.
The antitrust cops are on the beat. Implementing their “litigation readiness” focus, the U.S. antitrust agencies brought many merger challenges in 2015. Combined, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) sued to block over 25 mergers, including Staples/Office Depot, Sysco/US Foods, Electrolux/General Electric appliances business, Dollar Tree/Family Dollar and more.
But merger challenges have not increased significantly as a percentage of reported transactions. Despite the perception that the Obama administration has more vigorously enforced the antitrust laws than prior administrations, as a percentage of reported transactions the number of significant merger investigations (defined as investigations in which a “Second Request” is issued) and the number of challenges have held fairly constant between administrations, even accounting for the significant number of private equity transactions (which produce disproportionally fewer antitrust issues) in the final years of the Bush administration.
Perhaps driving the public perception of more vigorous antitrust enforcement is the revival of the “mega-merger.” The FTC and DOJ reported that in FY2014 approximately one-third of reported transactions were valued at more than $500 million, up from approximately one-fourth of reported transactions in FY2012. Challenges to mega-mergers like Pfizer/Hospira and others are more likely to receive national press coverage than smaller transactions.
Merger review taking longer, costing more. The federal antitrust agencies are taking longer to close merger investigations by clearing the transaction, entering a consent decree or suing to block the deal. Recent studies suggest that the average time for significant merger reviews is 10 months—up from approximately eight months in 2014 and seven months in earlier years. This delay results in significant business uncertainty and costs for merging parties and other stakeholders, including customers, suppliers and others.
Third parties continue to be pulled into merger challenges. Two merger challenges in 2015—the FTC’s challenge of Sysco/US Foods and the DOJ’s challenge of the proposed acquisition of General Electric’s appliances business by Electrolux—highlight the role of third parties. In both matters, third-party customers, suppliers and competitors received document and data subpoenas in connection with the agencies’ initial investigations and then received additional document, data and deposition discovery requests and subpoenas to appear as trial witnesses. Notably, involvement was not dictated by the third party’s views on the merger—third parties were involved with the case whether their views of the merger were positive, neutral or negative, simply because of the third parties’ roles in the industry at issue. Companies in industries ripe for consolidation must be cognizant of this fact and should consider engaging antitrust counsel early if contacted in connection with a third-party merger.