Failed Deals Climb as Antitrust Enforcers Push Aggressive Agenda

Firms attracting antitrust scrutiny are abandoning deals at their highest clip in years, as the Biden administration’s enforcers appear to make good on a policy pushing for more lawsuits and fewer settlements.

Six significant merger inquiries during the first half of 2024 ended with the Federal Trade Commission or Department of Justice saying the parties nixed a proposed transaction, a figure that exceeds yearly totals from the previous decade, according to a report from the law firm Dechert LLP.

The surge in abandonments coincides with a decline in settlements and negotiated fixes, once a hallmark of antitrust enforcement. While the number of deals facing investigations and challenges remains a tiny fraction of overall M&A, certain transactions are facing increased stakes.

WillScot Holdings Corp. and McGrath RentCorp, two of the largest modular and portable storage rental companies in the US, on Sept. 18 became the latest parties to call off a planned merger as it faced a potential challenge.

“For those deals that get a hard look, you’re going to get more of an all-or-nothing,” said Mike Keeley, head of Axinn, Veltrop & Harkrider’s antitrust practice in Washington. That is “going to lead to more abandonments.”

The Biden administration has touted these trends. Jonathan Kanter, the DOJ’s antitrust head, said in a Sept. 12 speech at the Fordham Competition Law Institute’s conference that more than 20 potential deals have been abandoned in response to the division’s inquiries. Now, “fewer problematic deals come in front of us,” he said.

Kanter and FTC Chair Lina Khan have also expressed skepticism that settlements or consent decrees can effectively shore up a merger’s competition concerns. The two agencies have announced just three since 2023, compared to an annual average of 20.4 from 2016-20, according to Dechert, whose data only accounts for public announcements.

“There’s nothing wrong with a consent decree” said Gwendolyn Cooley, a former Wisconsin assistant attorney general for antitrust. But there is a “legitimate concern” that structural remedies for anticompetitive deals don’t work, she said.

Dealmakers now are often factoring in the possibility of a lengthy review process and litigation in contract terms. But lawyers say macroeconomic factors, such as high interest rates and volatile capital markets, are having a greater impact on the appetite for deals. Deal volumes have dropped across the globe, dipping 19% in 2023 compared to the previous year in the US and more than 25% in Europe.

The impact of regulatory changes is “part of an aggregate effect,” said Michael Murray, co-chair of the antitrust and competition practice at Paul Hastings in Washington.

“There’s a lot the Biden administration has done,” said Bruce Hoffman, a Cleary Gottlieb Steen & Hamilton partner in Washington and former director of the FTC bureau of competition. “But what you don’t see is data showing that there’s been a statistically significant effect on mergers.”

Big Deals in Crosshairs

US antitrust enforcers’ reluctance to settle has paired with an enforcement approach scrutinizing areas that previously gained little attention, such as labor, potential competition, and vertical mergers—when companies buy firms at different points in the supply chain.

The push has yielded a mixed scorecard, with some important legal fights ongoing. The FTC is pursuing three merger challenges, including one over Kroger Co.'s $24.6 billion purchase of Albertsons Cos. Inc. The DOJ is also in court trying to force Live Nation Entertainment Inc. to sell off Ticketmaster, the ticketing giant it purchased in 2010 after reaching a consent decree with the Obama administration.

The pro-litigation stance has generally left parties with a black-and-white choice: “They can get sued and litigate or they decide to abandon the merger,” said James Fishkin, a Dechert antitrust partner in Washington who wrote the firm’s report.

Amazon.com Inc. dropped its proposed $1.4 billion acquisition of Roomba maker iRobot Corp. earlier this year, after FTC staff informed the tech giant they were recommending a lawsuit.

Others included Qualcomm Inc. abandoning its purchase of semiconductor firm AutoTalks Ltd. and Novant Health Inc. dropping a hospital purchase in North Carolina after a federal appeals court entered an injunction temporarily blocking the deal.

In previous administrations, companies could “fight like hell” before making concessions, said Barry Barnett, an antitrust litigator at Susman Godfrey in Houston and New York. The agencies now “are not going to come up with a way for it to work for you.”

“Getting to a point where you can negotiate a remedy is very difficult these days,” said George Paul, a White & Case deals partner in Washington. “Sometimes you think you’ve figured out a remedy and the agencies just don’t want to play ball.”

To be sure, the antitrust enforcers are still negotiating proposed fixes. A high-profile settlement came in the FTC’s lawsuit over Amgen Inc.'s $28 billion takeover of Horizon Theraputics Plc, which went through after an agreement that Amgen wouldn’t bundle together two of Horizon’s blockbuster drugs.

The DOJ also in 2023 reached an agreement mid-trial with Assa Abloy AB, a Swedish lock manufacturer, requiring the firm to divest certain assets as part of a $4.3 billion acquisition of a US lockmaker.

Companies approaching the DOJ with their possible deal “fixes” have also found some success, Paul said.

Firms are increasingly approaching regulators, sometimes before filing, with potential solutions, Paul Hastings’ Murray said.

The DOJ declined to comment.

‘Chilling Effect’

The Biden administration formalized its enforcement approach in December 2023 merger guidelines focused on consolidation and potential antitrust harms.

The agencies’ efforts to make those expansive guidelines stick could run into some hurdles, however, if they’re not precise about which cases to bring and which ones to settle, said William Kovacic, a George Washington University law professor and former Federal Trade Commission chair.

“If you always seek to bring lawsuits, you will be in court all the time,” Kovacic said, calling it a tax on resources and something that can lead to swinging at pitches “outside the strike zone.”

Critics of the heavy enforcement also argue that it’s created an environment in which only the biggest players have the resources to manage protracted reviews or litigation.

“This is one of the big ironies of the current enforcement approach,” Jesse Solomon, a Davis Polk & Wardwell antitrust partner in Washington, said. “The chilling effect is largely on the non-blockbuster deals that are getting in-depth reviews but cannot sustain the costs of those reviews.”

The DOJ and the FTC have conversely argued that the old approach—which included offering a path for tie-ups on the condition of certain remedies—largely failed to resolve competition concerns. Kanter and Khan have instead focused on expanding their litigation teams, which they say are reinvigorating competition law across the US.

The presidential election could carry important consequences for that agenda, but M&A lawyers acknowledge that Biden’s enforcers have effectively changed the conversation around antitrust.

“The main effect,” Barnett said, “is that it makes the companies thinking about merging think twice about it.”