Startup entrepreneurs generally view acquisitions by larger firms as a quick route to success and seek them out. These acquisitions have propelled the U.S. economy and benefited consumers by merging groundbreaking products with the resources of established companies. While current U.S. government guidelines and filing requirements for mergers already pose challenges to small businesses, some recent changes have been proposed that, unless significantly improved, would create a whole host of problems for our small business members.
Earlier this fall, members of ACT | The App Association came together to share concerns with the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) on proposals that would have significant impacts on how small businesses approach mergers and acquisitions (specifically, comments on proposed rules from the FTC on premerger filing requirements and comments on proposed updates to FTC-DOJ merger guidelines). Below, we’ve outlined our members’ feedback as well as what these rules could mean for the U.S. position as a global leader if they go into effect.
FTC Premerger Filings
Complying with FTC premerger filing requirements is already burdensome, particularly for small businesses. FTC’s new proposed changes to premerger filing requirements under the Hart-Scott-Rodino (HSR) Act would increase those burdens immensely by expanding initial HSR filing requirements in a range of ways, discouraging pro-competitive transactions. Although less than 2 percent of transactions reach the review phase, the proposed shift of information requirements to the initial phase could discourage potential mergers. This also doesn’t seem to align with Congress’ original goals in passing the HSR Act of minimizing burdens on filers while protecting the public interest.
FTC-DOJ Merger Guidelines
For many startups, acquisition by a larger company can be a preferable pathway to success, often more so than going public via an initial public offering (IPO). The FTC and DOJ provide essential merger guidelines that businesses, especially small ones with tight budgets, depend on. Any changes to these guidelines must be made with caution. While our small business innovator community shares the goal of the FTC and DOJ to protect competition through U.S. merger policy, it also has significant concerns with updates to the merger guidelines that FTC-DOJ are proposing which, unless drastically changed, will prevent beneficial mergers that are essential for small business success.
Simply put, the changes to the merger guidelines that FTC-DOJ have proposed are drastic, sweeping, ignore modern court decisions, and would downgrade the importance of economic analysis during merger reviews. Unless these rules are substantially improved, they will only discourage pro-competitive mergers across segments of the economy, closing off a key pathway to success for our members without any public benefit.
What’s Next?
Merger policies and requirements are important levers to protect competition across the U.S. economy. We’re continuing to raise the voice of the small businesses that drive innovation across countless consumer and enterprise use cases to ensure that U.S. competition authorities base their policy changes in this space on the practical effects on our community. It’s vital that both FTC and DOJ consult with our community before moving forward, and carefully reconsider their proposed changes to policies and requirements that so deeply impact small businesses, particularly those that are creating new markets and driving job creation across the country.
Your voice is needed to ensure that regulatory hurdles don’t remove mergers and acquisitions as potential pathways to success for small businesses. If you would like to join our advocacy efforts around these issues, please email Brad Simonich here.