Over the past year, the Department of Justice and Federal Trade Commission have challenged several high-profile deals based on their impact on salaries or consumer prices. As the government gets to work after the midterm elections, five areas in M&A are expected to be a focus for the agencies in 2023.
Tougher antitrust rules
As we reported last week, federal merger guidelines are expected to be updated within the first quarter to “accurately reflect modern market realities and equip us to forcefully enforce the law against unlawful deals,” according to a joint statement issued by the FTC and DOJ. Translation: a tougher antitrust stance by the government on proposed mergers. If enacted, this could be the first major update to the guidelines since 2010.
Pricier filing fees
Meanwhile, the Merger Filing Fee Modernization Act will update fees on merger filings. The changes impact deals of all sizes, but are acutely focused on mega-mergers. Deals worth $5 billion or more could see a potential jump in maximum filing fees from $280,000 to $2.25 million. All fees are also being linked to inflation through the Consumer Price Index. This is the first change to M&A regulatory fees in 20 years.
Cross-border screening
The administration is also looking into how deals impact national security. The Consolidated Appropriations Act for fiscal year 2023 includes $20 million to fund a potential outbound investment screening mechanism if an executive order is passed for its creation.
“There have been bipartisan efforts to create a committee to review outbound investments for national security purposes, similar to how CFIUS reviews certain inbound investments into the United States,” says Dean G. Zioze, chair of the mergers & acquisitions practice at Mintz. “It’s too soon to tell whether an outbound review committee will be established by legislation or executive order, but it bears watching as it could create another potential hurdle to completing cross-border transactions.”
Non-Compete Bans
Another new regulation on Zioze’s radar concerns anti-compete clauses. “The FTC has proposed largely banning non-compete agreements in the United States,” he says. “While the proposed rules include a narrow exception for the use of non-competes in the context of a sale of a business, it’s not clear what the final rules will provide so this too bears watching.
“If the FTC does adopt a ban on non-competes, expect challenges through the courts as many experts believe that the FTC lacks authority to impose such a ban,” he says.
Prohibiting interlocking directorates
The administration isn’t just introducing new regulations but also enforcing existing regulations with increased fervor. Section 8 of the Clayton Antitrust Act of 1914 prohibits “interlocking directorates” or the ability of an individual to serve as director of two or more corporations that could be seen as competitors. This niche rule was often overlooked or ignored but the DOJ has expressed renewed interest in enforcing it. In October 2022, seven directors resigned after the Justice Department raised concerns about interlocking directorates.
“This announcement is the first in a broader review of potentially unlawful interlocking directorates,” the DOJ said in a press release.
Altogether, these emerging policy initiatives could have a noticeable impact on M&A activity through 2023.
–Vishesh Raisinghani
