The markets can’t be fully trusted.
Close business partnerships, including mergers and acquisitions, must be regulated to prevent disaster: a downgrade in the quality of goods/services, harm to consumers, rampant monopolies and a deterioration of overall market competition.
At least, that’s the story that is sold to us by the competition authorities.
Think the European Commission in the EU, the FTC in the US and the CMA in the UK. All of whom hold powers to intervene in proposed business dealings between companies in the private sector. This includes blocking initial mergers (potentially for years, as in the case of the Microsoft-Activision merger), fines for breaking competition law, and forced sales of companies post-merger.
Now, you might be reading all this and thinking “okay, these regulatory authorities are being annoying, but aren’t they always? Who cares? The markets will adjust!”
If only the situation was as simple as that. Instead, there are real, negative consequences of these actions by competition authorities.
For one, mergers and acquisitions are often pursued in an effort to inject much needed capital into companies. When these deals are blocked or significantly hindered by constant competition regulations and approvals, companies end up having to spend hefty amounts to hire lawyers and create in-house regulation clearance teams. Even then, they may still have to cough up a termination fee upon failure of a deal. Such fees can even cost a company billions (Adobe recently paid $1 billion to Figma post-failure of their deal).
But the cost of abandoned or hindered M&A deals goes beyond financial losses. Especially for cash-stripped companies, who are further forced to make difficult decisions in effort to cut costs and keep the company afloat.This is where the very real human cost hits home. After the Amazon & iRobot deal fell through, the latter company announced it would be laying off 31 per cent of its staff and replacing its long term CEO of over 25 years.
This human cost further extends all the way to customers. Given that M&A deals tend to lower costs and increase the quality of services/products for consumers, through a variety of mechanisms. By integrating a company, supply chains can be streamlined and new innovative solutions can be accessed. Be it market-leading talent, patent protected softwares, or local market share. By operating on a bigger scale, economies of scale can occur in which prices are ultimately driven down as costs are spread over a large number of goods and operations become more efficient. Blocking those deals means consumers are deprived of these advantages as a result.
A good example of this is the ultimately abandoned Adobe-Figma acquisition. Figma, a design company for mobile and web apps, creating collaborative multiplayer workflows and developer ecosystems, is already being used by Big Tech firms like Uber, Zoom, and Google. It would’ve made sense for Adobe (a much bigger corporation whose business is selling content-creation, design and promotion softwares) to acquire Figma in order to boost its current portfolio of services.
So high were the regulatory hoops to jump through, that despite the regulatory authorities suggesting a selling off of competing products to save the deal, the CEO of Figma said both companies no longer saw “a path toward regulatory approval.”
It’s gotten to a point where even business partnerships – non M&A dealings – are no longer safe from regulatory overreach. Both the CMA and FTC have announced investigations into relationships between major technology firms and AI firms, such as between Microsoft and OpenAI.
It’s already been a difficult period for businesses. Investors have become increasingly risk-averse, withholding investments in reflection to unstable global politics, high interest rates and inflation. The M&A market in particular has been hit hard with companies finding it difficult to finance their M&A deals due to higher borrowing costs. According to the PwC, global deal volumes in the M&A market fell by 17 per cent and global deal values halved from just 2021 to 2023.
It is a miracle that we still have fluttering M&A activity within certain sectors.
The last thing these businesses need is a competition authority in its way, rubbing salt into the wounds.