By Janelle M. Lewis, Attorney, Business & Legal Strategic Consultant
This week, The Federal Trade Commission (FTC) issued a special order requiring Alphabet, Inc., (including Google), Amazon.com, Inc., Apple Inc., Facebook, Inc., and Microsoft Corp to provide information on acquisitions made between January 1, 2010 and December 31, 2019 that were not reported to the FTC and antitrust agencies under the HSR Act because they fell under the reporting threshold. The five big tech companies must submit information and documentation on:
- The terms, scope, structure, and purpose of the acquisitions during the ten year period;
- Their corporate acquisition strategies;
- Voting and board appointment agreements;
- Agreements to hire key personnel from other companies;
- Post-employment covenants not to compete;
- Post-acquisition product development and pricing, including acquired asset integration; and
- How acquired data has been treated.
Why does the FTC want to exam this information?
The FTC is issuing a special order for the submission of such information from these five big tech companies because they want to learn and understand three things:
- the acquisition activity of large tech companies and how they report these transactions to the federal antitrust agencies;
- whether the acquisition activities of these big tech companies involving emerging or potential competitors were potentially anticompetitive but were not reported to antitrust agencies because they fell below the reporting threshold; and
- whether the federal agencies are getting adequate notice of transactions that might harm competition, and if not, how then to keep tech markets open and competitive, for the benefit of consumers.
Future Implications of the FTC’s Finding for business strategic growth
While the examination itself by the FTC does not have current implications for business strategic growth, it can in the future depending upon the FTC’s findings.
Acquisitions are one of the most used means of strategic business growth. As a strategic growth tool, acquisitions are often used as: 1) a part of a consolidation strategy; 2) to overcome barriers to entry in a specific market segments/industries; 3) to acquire intangible assets; or 4) as a part of a diversification strategy. Their costs, however, are high, while the rate of success is low. Companies will often pursue this strategic route (or should pursue it) when the value created exceeds the costs associated with the acquisition.
On the regulatory end, the FTC has a statutory right under the HSR Act to review mergers and acquisitions that are over a certain size before they are completed. The objective of these reviews is to prevent anticompetitive behavior in the market that adversely affects consumers. While the examination itself by the FTC does not have current implications for business strategic growth, it can in the future depending upon the FTC’s findings. As the FTC seeks to understand the tech market, if it finds that it should expand its oversight role by requiring review of smaller acquisitions involving big tech, this could increase acquisition costs making them a less attractive strategic growth tool. This could adversely affect smaller firms in the tech industry who tend to use acquisitions as a strategic growth tool to overcome barriers to market entry.
As the FTC seeks to understand the tech market, if it finds that it should expand its oversight role by requiring review of smaller acquisitions involving big tech, this could increase acquisition costs making them a less attractive strategic growth tool.