In the US, the Federal Trade Commission, run by competition hawk Lina Khan, has set a precedent designed to slow the pace of M&A. It struck an agreement with a dialysis firm DaVita under which the buyer can acquire some additional clinics only if it gives the FTC the right to veto any future acquisitions in certain markets. If that becomes the norm, it could put some serial acquirers on the back foot each time they contemplate a new deal.
The FTC is not alone: China’s State Administration for Market Regulation and the European Commission are also ramping up scrutiny of technology and healthcare deals. The latter on Friday told cancer diagnostics company Grail to prepare for the “possible scenario” that its $8 billion sale to gene sequencing leader Illumina will be unwound.
Boon for buyout barons
This presents a dilemma for sellers. Companies with actual industrial overlap, where there’s scope to cut costs or increase revenue, can usually afford to pay more than purely financial buyers. But getting deals across the line is becoming harder, and taking much longer, especially for high-tech mergers. Cisco Systems’ $4.5 billion purchase of Acacia Communications, for instance, took 20 months to close. Cisco had to increase its offer by 60 per cent to keep Acacia on the hook.
One option is for bidders to offer more. Enterprising lawyers are also finding schemes to defuse the risk of deals getting blocked. Chip kingpin Qualcomm’s $4.5 billion purchase of Sweden’s Veoneer will see private equity firm SSW Partners acquire the target first, before selling part of the business on to Qualcomm. This structure means the deal won’t trigger an automatic review in Europe or China.
The simpler way forward for many sellers might be to deal preferentially with private equity firms. Buyout barons don’t have the problem of businesses that overlap with their targets, giving regulators little reason for heartburn. So in trying to slow down acquisitive company bosses like Facebook’s Mark Zuckerberg, the regulator might hand a victory to Blackstone’s Steve Schwarzman instead.