Regulatory scrutiny slows market for megamergers

Tougher year for deals ahead due to increased scrutiny by regulators.

Regulatory scrutiny slows market for megamergers

Blizzard's headquarters in Irvine, California will be open on May 21, 2022. The increased scrutiny of regulators indicates a more difficult year for a market that was already slowing down. Note from the Editor: Your subscription to Finance & Commerce includes business content from The New York Times. British antitrust regulators blocked Microsoft's $69 Billion bid to purchase gaming giant Activision Blizzard on Wednesday, threatening the deal to be killed off completely. The decision raises the question of how often deals fail after they are signed.

Just 33 of the 3,347 bids made to purchase an American company this year have been withdrawn. Some deals were signed earlier, such as the Activision acquisition announced last year. In 2022, almost 12,000 deals totaling $170 billion were announced. 142 of them were withdrawn.

The failure of a transaction can be due to a variety of factors, but regulators are usually concerned that the merger will have a negative impact on the consumers or the nation as a whole. Regulators are increasingly making their case. The number of transactions pulled last year was the highest in 20-years, though this may be partly because 2021 saw a record number deals.

Dealmakers claim that increased regulatory scrutiny has a chilling effect on dealmaking. The value of announced deals in 2022 fell by nearly 60% compared to the previous year, despite 2021 being a notable high-level of activity.

Dealmakers report that it is becoming increasingly difficult to predict when authorities will decide to approve or block a transaction. This uncertainty is especially high for companies that are looking to purchase emerging technologies like cloud gaming.

There have been several headline-grabbing deals in the United States that have been successfully blocked by regulators under President Joe Biden. These include Penguin Random House’s plans to purchase Simon & Schuster and the merger between insurance giants Aon & Willis Towers Watson last year.

Even when it comes to deals that involve companies with headquarters outside of their own borders, global regulators are stepping up, like the British did in the case of Microsoft and Activision. Last year, the European Union's Competition Authority blocked Illumina's purchase of Grail despite Illumina's claim that Grail had no business in Europe.

Deals can also fall apart due to national security concerns. Broadcom's purchase of Qualcomm, its rival chipmaker fell through after a U.S. Government panel claimed the deal would give a competitive advantage to Chinese companies such as Huawei.

Some companies seem willing to bet on deals that pass a thorough inspection. Justice Department sued to stop JetBlue from acquiring Spirit Airlines. This was widely expected, given the consolidation of the airline industry. Both airlines are defending their merger and pushing for a similar outcome to UnitedHealth Groups purchase of Change Healthcare after they convinced a U.S. District Court Judge to overrule the Justice Department's suit to block it.

Many merger agreements include some form of protection. For example, one party may pay a fee to the other in the event that regulators decide to break up the deal. In an effort to combat possible regulatory pushback, companies have built in longer deadlines for closing their deals.

The move by Britain to block Microsoft's acquisition of Activision is a response to the pressures facing big technology companies and the current economic climate, which has made it more difficult to finance deals. This could indicate that the already slow market for deal-making will get even more difficult in 2013.

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The New York Times