The FTC plays a major role in overseeing mergers and acquisitions, but recent policy changes have altered its responsibilities and powers in this area. Here’s how and what it means to you.
Key Takeaways
The Federal Trade Commission (FTC) plays a critical role in ensuring proper business practices and adherence to competition laws
The FTC also makes a significant contribution when it comes to enforcing antitrust issues during mergers and acquisitions
With changing economic and financial landscape, such as the recent surge in M&A deals, the FTC updates its policy to suit the economic environment
Failure to keep updated with these policy changes can land you in hot water if you breach anti-competition or antitrust laws
The M&A professionals at SF&P are experts on all FTC policy changes, so you don’t have to be
Competition is one of the main pillars upon which the US economy is built. It not only keeps the prices of essential items low, but it also ensures that only high-quality goods and services are circulating. The Federal Trade Commission (FTC) is one of the two agencies tasked with ensuring the markets are open and free.
But competition is not the only thing that concerns the FTC. This federal agency also challenges anticompetitive mergers and business practices to ensure companies only compete on merit.
Recently, with the uptick in mergers and acquisitions, the FTC has updated its role in these deals. Here’s what you need to know to make sure your merger or acquisition stays clear of FTC trouble.
The FTC’s new role in mergers and acquisitions
So, you may be wondering what all the fuss is about the FTC. Well, the Federal Trade Commission has recently made four policy changes that will likely affect your next M&A deal. Here are some of the changes that all business owners should now keep in mind.
1. The prior approval and prior notice provisions are back in force
One of the most important updates by the Federal Trade Commission in recent times is the reinstatement of the prior approvals and prior notice provisions. Before 1995, these prior approval and prior notice provisions applied if the merging parties planned to do anything that would be likely to result in an enforcement action.
A policy statement made in 1995 limited the number of times that the FTC was allowed to issue these prior approval and prior notice provisions. In turn, many policy violators did not have the burden of seeking approval from the FTC before engaging in an M&A deal.
In July 2021, the FTC repealed the policy statement that limited FTC involvement in potential violations. This means the Federal Trade Commission can now issue prior approval and prior notice provision on repeat players. This is set to reduce the number of violations and deter business owners from deals that could violate anti-competition laws. The FTC maintains that it does not have the time and resources to investigate deals that should have been killed in the boardroom.
2. Vertical Merger Guidelines (VMGs) were revoked
On September 15, 2021, the vertical merger guidelines that had been jointly issued by the FTC and the Department of Justice a year before were rescinded. These guidelines set by the two enforcing agencies were to determine how they would evaluate vertical mergers. The guidelines were equally important to business owners, as they helped the business community figure out how to structure vertical merger deals.
A vertical merger is simply a merger between two or more companies that are in different stages of the supply chain. For example, a refrigeration manufacturer merging with a supplier to increase their synergies.
Both the Department of Justice and the FTC are evaluating the guidelines but will continue to use them while they do this. There may also be plans to review the horizontal merger guidelines, which will show the FTC an updated role in mergers and acquisitions.
3. Streamlining the second request process
The recent surge in merger filings has prompted the Federal Trade Commission to change how it offers its services. Under the Hart-Scott-Rodino Act, merging companies should furnish both the DOJ and the FTC with notices if any deal reaches a certain financial threshold.
When either the DOJ or the FTC requires more information pending an investigation, the law forbids merging partners from completing the transaction. Companies should comply with the second request and any additional investigatory requests before the deal is concluded. On September 28, 2021, the FTC promised to be more vigilant with Second Request compliance. For example, they will use electronic discovery tools so companies won’t have to provide privilege logs.
4. Launch of the EU-US Joint Technology Competition Policy Dialogue
The EU-US Joint Technology Competition Policy dialogue was launched on December 7, 2021. This dialogue is intended to help create policies and other cooperation efforts to promote fair competition among businesses on each side of the Atlantic.
Launched by the Federal Trade Commission and the European Union, the dialogue seeks to offer well-functioning and competitive markets in the United States and the EU. Business owners may see a set of different guidelines in the coming future thanks to the dialogue between the two sides.
The dialogue focuses on the ever-changing technological landscape that has brought about the growth of the digital economy. It will also look at the role of big data and interoperability in digital investigations, which prompts enforcement agencies in both regions to adapt to the new changes.
Let SF&P Advisors help you with your next deal
With the Federal Trade Commission issuing updates now and then, you can easily get into trouble with the regulator during a merger. It may be difficult to keep abreast with all the policy changes of the FTC and other regulators. Luckily, you can get the services of professional advisors like SF&P Advisors, who will ensure that your next M&A deal sails smoothly. Just contact us today for a quick consultation.