Speaker 1: Is regulation making M&A harder? With more than $57 trillion worth of deals already this century, M&A is big business. So why are governments so keen to control it?

Speaker 2: Merger control has been around in the United States since the Hart-Scott-Rodino Act came into force in the 1970s, and then the Europeans caught up in the 1990s.

Speaker 1: The act was designed to ensure markets remained competitive, giving regulators the power to block deals worth more than $110 million. But the nature of competition has changed.

Speaker 2: The Daude-Dupont decision of the European Commission back in 2017 was a strong signal of things to come. Normally, in the past, competition authorities looked at product overlaps between the merging parties or products in the pipeline that were close to market. But in this decision, they went right back to basic research in the lab, in innovation spaces, and they also looked at a third theme, which was macroeconomic data that showed in the U.S., but also the EU, increased levels of market concentration across the economy.

Speaker 1: Regulators have pulled other deals under the microscope with the use of this new definition. Larger tech companies buying revenue-free startups would have flown under the radar in the 1990s, but are now being dubbed killer acquisitions, allegedly designed to remove competition.

Speaker 2: And we've got a progressive leadership in the U.S. antitrust agencies with the Biden administration saying that we have to have a whole-of-government approach to combating high prices, to improving competition. I think that means much closer scrutiny of mergers on both sides of the Atlantic. As private equity M&A builds, they will need to learn to chart the regulatory landscape. Private equity ownership is endemic across the economy, and a lot of private equity deals, they say, are either priced just below the Hart-Scott-Rodin merger threshold, or they are structured in such a way that private equity isn't taking a controlling interest in order to fall below the radar. And the U.S. are looking at whether or not they should be more circumspect.

Speaker 1: It isn't just the U.S. There are now more than 180 countries with merger control laws, and a growing number that also subject deals to foreign investment scrutiny. Concerns are growing that geopolitical interests are starting to shape their oversight in markets.

Speaker 3: The recent developments with COVID and other things mean that countries are more concerned to protect themselves and to make sure there is a focus and a protection of things that are critical to them, whether it's tech, whether it's digital or food supply concerns, or generally supply chain protections.

Speaker 1: The American government has already introduced a raft of measures designed to protect sensitive industries. And in 2022, the EU introduced a bold policy change to a member-state referral mechanism that effectively allows it to assess any deal regardless of size, and even for a period after the deal has closed.

Speaker 2: The European Commission can seek jurisdiction by asking member-state competition authorities to refer a transaction to it, even if the transaction has not triggered the national merger control. And then on top of that, we have a new EU regulation that's going to come into force in October. As of October 2023, many deals will have to be notified to the European Commission for a third level of regulatory control to ensure that any foreign subsidies that the merging parties have benefited from are not going to negatively impact competition.

Speaker 3: I would say start planning early, anticipate questions, deal with those questions up front, devote sufficient resources, and most importantly, plan sufficient time between signing a transaction and closing a transaction. At the end of the day, businesses, their aim in any transaction is to be pro-competitive. I think if the aim is the same, then it's a way of working towards the same objective.

Speaker 1: Once businesses have scanned the horizon of their M&A deal, they need flexibility in deal terms, risks, and contingencies. Time is essential, and with enough preparation, companies can navigate the future of M&A.