FTC Commissioner nominee Lina M. Khan testifies during a Senate Committee on Commerce, Science, and Transportation confirmation hearing on Capitol Hill in Washington, DC, April 21, 2021.
Graeme Jennings | AFP | Getty Images
The Federal Trade Commission signaled greater scrutiny of merger reporting requirement loopholes and non-competes at its open meeting Wednesday.
Companies are only required to report transactions exceeding $92 million in value under the Hart-Scott-Rodino Act (though that threshold has been lower in the past), so the FTC sought to understand patterns in how Big Tech companies acquire smaller businesses.
The study was led by the FTC’s Office of Policy Planning and was not an enforcement inquiry.
Here are some key findings from the aggregate report presented by FTC staff:
- The five tech firms made 616 non-reportable transactions of more than $1 million between the beginning of 2010 and end of 2019.
- In addition, the companies disclosed other events like acquisitions of patents, transactions under $1 million, hiring events and other financial investments. The FTC found the most common unreported transactions among this group were majority acquisitions of voting securities and asset acquisitions.
- The FTC found 94 transactions were above the HSR threshold at the time that they were completed, likely due to a variety of possible reporting exemptions, according to staff.
- In addition, nine more transactions would have exceeded the HSR threshold at the time of their consummation had they included deferred or contingent compensation into their purchase price. The FTC found that more than 79% of transactions studied included such agreements for the target’s founders or key employees.
- In 36% of transactions studied, the acquiring company assumed some debt or liability from its target.
- In at least 39% of transactions where the target’s firm was available, the acquired firm was less than five years old at the time of consummation.
- More than 75% of the transactions included non-compete clauses for founders or key employees of the target companies.
Following the presentation, FTC Chair Lina Khan outlined three takeaways from the report.
The first is that the FTC should identify potential loopholes in HSR reporting requirements that allow some transactions to “fly under the radar,” she said.
Second, the FTC should learn from international peers, since about a third of the transactions studied involved foreign targets.
And third, Khan said the FTC must further scrutinize the use of non-compete agreements in merger transactions.
“Exploring how firms in digital markets may be using acquisitions to lock up talent alongside key assets will be a worthy area of study,” Khan said.
Khan added she hopes the report will be useful to lawmakers as well as they consider changes to antitrust statutes.
“While the existing law uses deal size as a rough proxy for the potential competitive significance of an acquisition, digital markets in particular reveal how even smaller transactions invite vigilance,” Khan said.
Several commissioners called for similar studies in the future for other industries.
While the public report only reveals aggregate findings, Democratic Commissioner Rebecca Kelly Slaughter said the patterns revealed by the report are what’s really important.
“I think of serial acquisitions as a Pac-Man strategy,” she said. “Each individual merger, viewed independently, may not seem to have significant impact. But the collective impact of hundreds of smaller acquisitions can lead to a monopolistic behemoth.”