U.S. adopts new merger guidelines

In August 2023, we previewed the draft of new Merger Guidelines (the guidelines) published jointly by the Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ) (the agencies). Following the public’s opportunity to comment on the draft, the new guidelines have now been adopted, fulfilling President Biden’s call to do so in his July 2021 Executive Order on Promoting Competition in the American Economy. The guidelines are poised to dramatically change how the agencies consider the impact of mergers and acquisitions on competition by presuming that more transactions are anti-competitive, evaluating the cumulative effects of a buyer’s previous acquisitions, and taking into account the anticipated consequences that a merger may have on the markets of the parties’ employees, suppliers and distributors.

What you need to know

• Despite receiving more than 30,000 comments from academics, consumers, lawyers and other interested persons across various sectors of the U.S. economy, the final version of the guidelines largely reflects the proposed draft.
• The guidelines lower the benchmarks used by the agencies to assess whether a business combination may substantially lessen competition. Business leaders and their lawyers will need to keep the new parameters in mind when contemplating a new deal.
• The guidelines confirm that the agencies will analyze not just a single proposed transaction but evaluate the competitive impact of a series of mergers in the aggregate. Accordingly, private equity firms should expect that “roll-up strategies” will continue to be scrutinized.
• On the heels of releasing the guidelines, the FTC recently announced that the 30-day period under the Hart-Scott-Rodino Act to determine whether a transaction warrants close investigation is outdated and inadequate, calling on Congress to extend the timeline.

The new guidelines are the culmination of a deliberate process

Nearly two years ago, the FTC and DOJ first announced their intention to re-assess the 2010 Horizontal Merger Guidelines and the recently adopted 2020 Vertical Merger Guidelines. The agencies solicited input from a variety of stakeholders. The agencies say those comments highlighted excessive market consolidation across industries and overwhelmingly urged the FTC and DOJ to strengthen their approach to merger enforcement. Those initial steps resulted in the publication of the draft guidelines earlier this year, discussed in our August 2023 article. As with the prior guidelines they replace, the guidelines are not legally binding but provide valuable insight into the agencies’ decision-making process and enforcement considerations.

Key changes from the proposed draft

Although the substance of the final guidelines is materially the same as presented in the proposal from last year, there are a few key differences:

The structure of the guidelines has changed. The first six guidelines address the circumstances from which the agencies can infer that a merger may substantially lessen competition or tend to create a monopoly. The five additional guidelines explain how the agencies will analyze a transaction in several specific settings, including when an individual transaction is part of a firm’s pattern or strategy of multiple acquisitions and the cumulative effect of that pattern or strategy.

For M&A involving competing buyers, the agencies will analyze the impacts on several stakeholders. While the draft guidelines introduced the agencies’ concern with the anti-competitive effects of mergers on labor markets, the final version widens the scope to also consider the impacts of transactions on “creators, suppliers and service providers.”

The final guidelines do not expressly address vertical transactions. The draft guidelines would have presumed as illegal certain vertical transactions, which involve merging firms operating at different levels of the same supply or distribution chain. The agencies have eliminated the presumption in the final guidelines. Instead, they will evaluate whether a merged firm may substantially lessen competition by limiting access to a product, service or route to market that its rivals may use to compete.

What’s next?

The last two iterations of the agencies’ merger guidelines were each in place for more than a decade, so anyone with a vested interest in U.S. dealmaking should be prepared to contend with these guidelines for many years to come. In the near term, proposed changes to the process by which the agencies review M&A transactions may be on their way this year, and the agencies have called on Congress to give them more time to conduct those reviews.