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Scrutiny of tech deals remains a priority with PE and labour markets in the spotlight

Digital/tech transactions remain high on the enforcement agenda. Last year brought high-profile tech cases and progression of new digital rules. Overall, however, antitrust intervention focused on life sciences, energy and industrial and manufacturing deals. Private equity and labour markets were also under scrutiny.

Similarly to 2021, our data suggests that the level of antitrust intervention in the tech sector (7%) was actually comparatively lower than the proportion of global M&A accounted for by tech deals (22%).

Having said this, there were a number of key tech merger control decisions in 2022.

Antitrust concerns in the U.S., EU and UK led to the abandonment of Nvidia/ARM. In the UK, the Competition and Markets Authority (CMA) decided again to prohibit Meta’s acquisition of Giphy on remittal. The European Commission (EC) cleared Meta/Kustomer subject to access remedies. In China, the State Administration for Market Regulation (SAMR) accepted conditions in three tech transactions – GlobalWafers/Siltronic, AMD/Xilinx (both semiconductor deals) and II-VI/Coherent.

Several important merger control reviews in the tech sector are ongoing. Microsoft’s acquisition of Activision Blizzard, for example, is facing hurdles in a number of jurisdictions, including the EU, UK, U.S. and Japan.

With antitrust intervention in digital/tech deals lagging behind other sectors, it is unsurprising that antitrust authorities keep pushing forward with new digital rules that will give them greater powers of review. We discuss some of these in chapter 4 on below-threshold merger reviews. In addition:

  • EU: the Digital Markets Act (DMA) was adopted last year and will start to take effect in the coming months. It requires firms designated as “digital gatekeepers” to inform the EC of all transactions involving services in the digital sector or that enable the collection of data. This obligation will start to apply six months after designation, at the latest by 6 March 2024.
  • UK: proposed new rules will (similarly to the DMA) introduce a requirement for firms with “strategic market status” to inform the CMA before completion of certain transactions. This will give the authority earlier visibility of mergers most likely to lead to antitrust concerns.
  • China: a new filing threshold designed to tackle “killer acquisitions” has been proposed (alongside increases to the general turnover thresholds).
  • Australia: a tailored merger control regime is being considered for large digital platforms that meet pre-defined criteria based on their market power and strategic position.
  • Turkey: the concept of “technology undertakings” was incorporated into merger control rules and made subject to lower notification thresholds in May 2022.

As these new provisions continue to crystallise, digital and tech firms should prepare for their deal making to face additional obstacles.

Life sciences, energy and industrial/manufacturing deals saw greatest intervention

Life sciences deals represented 15% of total deals subject to antitrust intervention in 2022, but only 9% of global M&A.

At EU level, the EC blocked Illumina/GRAIL. In the U.S., a number of healthcare deals were frustrated or subjected to remedies. Federal Trade Commission (FTC) head Lina Khan made a statement to the Senate that the agency is committed to preventing further consolidation in the hospital sector. Shortly after, the FTC challenged two hospital mergers. We expect further FTC activity in this area in 2023.

Antitrust intervention in energy transactions (10%) was nearly double the proportion of global M&A in the sector (6%). Like 2021, remedy cases accounted for the majority of this intervention, spanning a number of jurisdictions.

For industrial and manufacturing, the figure was 22% of antitrust enforcement, compared to only 8% of global M&A (a drop from 16% of global M&A in 2021, most likely due to economic and geopolitical uncertainty).

Antitrust authorities are generally keen to take a close look at deals in this sector, particularly where they take place in concentrated markets. In 2022, ten industrial and manufacturing transactions were frustrated (four prohibited and six abandoned) and a further 18 required remedies.

Spotlight on PE-funded acquisitions

Both the U.S. agencies and the UK CMA have paid particular attention to private equity deals in the past year and we expect this scrutiny to intensify.

The U.S. Department of Justice (DOJ) is looking closely at the potential adverse impact of PE activity, particularly in healthcare M&A and deals relating to technology stacks. The agency is concerned that investments may chill competition on the merits, eg by reducing incentives of the target to innovate or act as a maverick, or causing the target to focus only on short-term financial gains. In certain litigated cases, the DOJ has also expressed scepticism as to whether PE firms can be effective as purchasers of a divestment business. 

The DOJ’s renewed focus on interlocking directorates (ie the same individual serving as an officer/director of two or more competing companies) may also have an impact on PE investment. In April, the agency announced that it would be expanding its enforcement efforts in this area. In November, it made good on this promise, with seven directors resigning from the boards of five companies in response to DOJ investigations. Further action seems likely.

Meanwhile, the FTC is concerned about private equity “roll-ups”, particularly in already concentrated markets. It imposed onerous “prior approval” remedies on PE firm JAB Consumer Partners in relation to its acquisitions of veterinary clinics (see chapter 2 for more on the revival of prior approval).

In the UK, the CMA scrutinised several PE-backed acquisitions. Like the FTC, the vet sector was in its sights. When raising concerns over CVS Group’s completed purchase of The Vet, the CMA noted that many independent veterinary practices were being acquired by corporate groups. CVS ultimately committed to selling off the whole of the target, effectively amounting to a prohibition of the deal.

Remedies were required to gain CMA clearances in other PE deals in 2022, including another vet clinic purchase, as well as transactions in the dentist and student accommodation sectors.

Labour market issues gain increasing importance

There is a rapidly growing focus on the potential impact of M&A on labour markets.

The U.S. antitrust agencies now consider labour issues as part of all merger control reviews. This is resulting in enforcement action.

Towards the end of 2022, the DOJ obtained a permanent injunction from the U.S. District court to block Penguin Random House’s proposed purchase of publishing rival Simon & Schuster. It argued that the merger was likely to impact authors, who could face lower advances and less favourable contract terms. DOJ Antitrust Division head Jonathan Kanter heralded the case as “a victory for workers more broadly”.

Across the Atlantic, European antitrust authorities have not paid as much attention to labour issues in their merger assessments. However, last summer the head of the Dutch antitrust authority urged authorities to look at transactions that give the merged entity the power to suppress wages or degrade working conditions.

In China, recent amendments to the Anti-Monopoly Law emphasise that the review of deals in key sectors, including those concerning “people’s livelihood”, should be strengthened. A guiding opinion of the State Council also calls for enhanced scrutiny of transactions in “labour-intensive” industries, among others.

Parties to deals with possible impacts on workers or labour markets should expect heightened scrutiny.

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