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FTC presents results of small tech merger study

FTC appointed commissioner Lina M. Khan testifies during a confirmation hearing of the Senate Commerce, Science and Transportation Committee on Capitol Hill in Washington, DC on April 21, 2021.

Graeme Jennings | AFP | Getty Images

The Federal Trade Commission signaled a further examination of gaps in merger and non-compete reporting requirements at its public meeting on Wednesday.

The agency released the results of its study into unreported mergers of five major tech companies: Alphabet Amazon, owner of Google, Apple, Facebook and Microsoft.

Companies are only required to report transactions worth more than $ 92 million under the Hart-Scott-Rodino Act (although this threshold has been lower in the past).

The study was conducted by the FTC’s Office of Policy Planning and was not an enforcement survey.

Here are some key findings from the overall report presented by FTC staff:

  • The five tech companies made 616 non-reportable transactions over $ 1 million between early 2010 and late 2019.
  • In addition, the companies disclosed other events such as patent acquisitions, transactions under $ 1 million, hiring events and other financial investments. The FTC found that the most common undeclared transactions within this group were majority voting acquisitions and asset acquisitions.
  • The FTC found that 94 transactions exceeded the HSR threshold at the time they were made, likely due to a variety of possible reporting exemptions, according to staff.
  • In addition, nine other transactions would have exceeded the HSR threshold at the time of their completion if they had included deferred or conditional compensation in their purchase price. The FTC found that more than 79% of the deals studied included such deals for the founders or key employees of the target.
  • In 36% of the transactions studied, the acquiring company assumed a debt or a liability of its target.
  • In at least 39% of transactions where the target’s business was available, the acquired business was less than five years old at the time of completion.
  • Over 75% of transactions included non-compete clauses for founders or key employees of target companies.

Following the presentation, FTC President Lina Khan presented three takeaways from the report.

The first is that the FTC should identify potential loopholes in TGV reporting requirements that allow certain transactions to “go under the radar,” she said.

Second, the FTC should learn from its international peers, since about a third of the transactions studied involved foreign targets.

And third, Khan said the FTC needs to take a closer look at the use of non-compete agreements in merger transactions.

“Exploring how companies in digital markets can use acquisitions to attract talent alongside key assets will be a worthy area of ​​study,” said Khan.

Khan added that she hopes the report will be useful to lawmakers and that they consider amending antitrust laws.

“While existing law uses deal size as a rough proxy for the potential competitive importance of an acquisition, digital markets in particular reveal how vigilant even smaller deals are,” said Khan.

Several commissioners have called for similar studies in the future for other industries.

While the public report only reveals overall conclusions, Democratic Commissioner Rebecca Kelly Slaughter said the trends revealed by the report are what really matter.

“I see serial acquisitions as a Pac-Man strategy,” she said. “Each individual merger, considered independently, may not appear to have a significant impact. But the collective impact of hundreds of smaller acquisitions can lead to a monopoly juggernaut.”

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