Where Business And Law Come Together

New federal merger rules could lead to more scrutiny

On Behalf of | Jan 3, 2024 | Business Transactions

Business mergers have existed for as long as separate companies have. They allow existing companies to expand rapidly and to combine their resources to better cater to consumers. Mergers can be beneficial for organizations but are also sometimes problematic for the public. Therefore, federal antitrust laws sometimes limit mergers. Regulatory agencies may challenge planned mergers based on the possibility that they would eliminate competition or create a monopoly.

A recent update of federal policies about business mergers could mean that companies planning mergers will face more scrutiny in the future.

Federal agencies may be watching more carefully

With the creation of large technology corporations and the increased digitization of daily life has come the dominance of new companies in certain marketplaces. Sometimes, these companies merge with one another or purchase start-ups to gain access to new concepts or patents. Doing so has enabled a few businesses to play an outsized role in the average person’s digital life.

New federal guidelines require scrutiny of any sizable pending mergers. The Justice Department announced in December 2023 that it had updated merger guidelines for the first time since 2010. These updates include a thorough definition of concentrated markets, like those offering digital services. The Justice Department and the Federal Trade Commission may review proposed mergers more carefully when they may affect highly concentrated markets.

Although the guidelines do not reference specific mergers and acquisitions by name, it is clear that certain big tech transactions laid the groundwork for these new policies. Companies in the technology sector can therefore anticipate likely facing more pushback when they announce an intent to sell to a bigger company or to merge with a competitor.

In some cases, regulatory agencies may require certain changes to planned acquisitions or mergers before they would allow the transactions. Other times, regulatory authorities may ultimately decide that the merger cannot occur because it would violate federal antitrust standards.

Companies often invest tens of thousands of dollars or more when preparing for mergers and acquisitions, which means that a failed transaction would likely be a large loss for a company. Tracking changes to federal policy can help organizations better prepare for large transactions that could change the market and potentially trigger federal scrutiny.