FTC presents findings from the study of small technology mergers

The Federal Trade Commission noted greater control of gaps and non-competencies of merger reporting requirements at Wednesday’s open meeting.

The agency released the findings of its study on non-reported mergers of five Big Tech companies: Alphabet, which owns Google, Amazon, Apple, Facebook and Microsoft.

Companies only need to report transactions in excess of $ 92 million under the Hart-Scott-Rodino Act (although this threshold has been lower in the past), so the FTC tried to understand the patterns. of how Big Tech companies acquire smaller companies.

The study was led by the FTC’s Office of Policy Planning and was not a compliance investigation.

The following are some key findings from the global report presented by FTC staff:

• The five technology companies made 616 non-reportable transactions worth more than $ 1 million between early 2010 and late 2019.
• In addition, the companies disclosed other events such as patent acquisitions, transactions under one million dollars, hiring events and other financial investments. The FTC found that the most common non-reported transactions between this group were majority acquisitions of voting securities and asset acquisitions.
• The FTC found that 94 transactions were above the HSR threshold at the time 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 if they had included deferred or contingent compensation in their purchase price. The FTC found that more than 79% of the transactions studied included agreements for key founders or employees of the target.
• In 36% of the transactions studied, the acquiring company assumed some debt or liability of its target.
• In at least 39% of the transactions where the target company was available, the acquired company was less than five years old at the time of consummation.
• More than 75% of transactions included non-compete clauses for key founders or employees of target companies.

Following the presentation, FTC President Lina Khan outlined three recommendations of 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,” he said. Second, the FTC should learn from international peers, as approximately one-third of the transactions studied involved foreign targets. And third, Khan said the FTC should further examine the use of non-compete agreements in merger transactions.

“Exploring how companies in digital markets can use acquisitions to close talent alongside key assets will be a worthy area of ​​study,” Khan said.

Khan added that he hopes the report will be useful to lawmakers and consider changes to antitrust statutes.

“While the existing law uses the size of the agreement as a rough approximation of the potential competitive importance of an acquisition, digital markets reveal in particular how even the smallest transactions invite surveillance,” he said. Khan.

Several commissioners called for similar studies in the future for other industries.

While the public report only reveals aggregate conclusions, Democratic Commissioner Rebecca Kelly Slaughter said the patterns revealed by the report are what really matter.

“I think serial acquisitions are a Pac-Man strategy,” he said. “Each individual merger, viewed independently, may not appear to have a significant impact. But the collective impact of hundreds of smaller acquisitions can lead to a giant monopolist.”

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