In recent years, dealmakers have been faced with increasing pressures and scrutiny from competition regulators around the world. It’s not uncommon to see a big-ticket M&A deal get stifled after a deal announcement. While the issue has been intensifying over the past decade, in July the Biden administration proposed new merger guidelines to further protect competition.
Both Duffy Lorenz and Creighton Macy of Baker & McKenzie LLP have extensive experience navigating competition complexities in their respective legal practices. Lorenz advises clients on complex cross-border transactions, and Macy focuses on antitrust regulation of such transactions.
While Lorenz said the Department of Justice and Federal Trade Commission’s draft guidelines are relevant and will have an impact on M&A deals, advisers at Baker McKenzie have been feeling the effect of increased regulatory scrutiny for some time, not just in the U.S., but around the world. Both say that increasing M&A headwinds requires dealmakers — across different parts of the deal process — to start planning the competition strategy in the early stages of deal discussions.
Amidst various regulatory pressures, Macy said Baker McKenzie is also keeping abreast of proposed changes to the Hart-Scott-Rodino form — the federal pre-merger notification form — which could have material cost and time implications for a merger filing. Additional considerations include how the DOJ and FTC are evaluating transactions including consent decrees, remedy acceptance and merger challenges, Macy said. Baker McKenzie partners take these relevant “data points” to calculate a risk profile for a proposed transaction and often proceed with a “fix it first” approach — essentially working with the client to address a potential competition issue (i.e. carve-outs or divestitures) before entering a merger agreement.
Lorenz said that while the “fix it first” strategy aims to simplify a deal process, it can also make M&A deals more complex, with multiple processes running in parallel. Things can become particularly complicated if the deal crosses different jurisdictions or involves a company in a highly regulated industry, she added. With all of these complexities, both Lorenz and Macy stressed that it is important to ensure all key stakeholders are on the same page in regards to a comprehensive strategy and timing considerations.
While many industry observers assume regulators are now focused on tech and pharmaceutical deals, Macy said that while there is definitely heightened scrutiny among these sectors, Baker McKenzie makes no assumptions when trying to preempt the DOJ and FTC evaluations. “The DOJ and FTC are trying to be vigorous in their evaluation and enforcement of mergers in every sector,” Macy said.
Looking ahead, Lorenz said that given the current macroeconomic environment, increased national security concerns and geopolitical situation, complexities are likely to intensify across the M&A world. The key to moving forward with clients is the fundamentals of planning and preparation. “An hour upfront at the beginning of a transaction is worth 100 [hours] once the deal process has started,” Lorenz said.
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Editor’s Note: This podcast was sponsored by Baker McKenzie.