FTC reports crackdown on loopholes protecting undeclared Big Tech acquisitions

The Federal Trade Commission has indicated that it will take action to close loopholes that allow large technology companies to avoid reporting small business acquisitions.

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On Wednesday, the agency’s policy planning office released the results of a study of more than 600 unreported acquisitions by Alphabet, Amazon, Apple, Facebook and Microsoft between January 1, 2010 and December 31, 2019.

The review found that, out of 616 acquisitions worth $ 1 million or more, 94 deals exceeded the Hart-Scott-Rodino (HSR) transaction size threshold. By law, companies are required to report transactions worth more than $ 92 million. About 65% of the 616 transactions were between $ 1 million and $ 25 million.

“While the Commission’s enforcement actions have already focused on how digital platforms can compete, this study highlights the systemic nature of their acquisition strategies,” said FTC President , Lina Khan, in a statement. “This shows how far these companies have devoted enormous resources to acquiring start-ups, patent portfolios and entire teams of technologists – and how they have been able to do so largely outside of our scope. of competence. “

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About 36% of transactions involved the acquirer assuming a certain amount of debt or liabilities, while over 79% involved “deferred or conditional compensation to founders and key employees” and over 75% included covenants. -competition for founders and key employees of the acquired company. entities.

In addition to the 94 transactions that were found to exceed the HSR transaction size threshold, FTC staff noted that three more transactions would have exceeded the threshold when adding debts and liabilities to the overall purchase price. and that nine additional transactions would have exceeded the threshold. when adding deferred or conditional compensation to their purchase price.

Asset and control transactions, including voting control transactions and non-corporate interest control transactions, were the most common undeclared acquisitions found by the FTC. At least 39% of transactions for which the target company age was available showed that the acquired company was under five years old at the time of completion.

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FTC Commissioner Rebecca Kelly Slaughter said the publication of the study will allow officials to “understand the big picture among the biggest tech platforms” and help the agency better target its efforts to ‘application.

“I see serial acquisitions as a ‘Pac-Man’ strategy,” Slaughter said. “Each individual merger, considered independently, may not appear to have a significant impact, but the collective impact of hundreds of smaller acquisitions can lead to a monopoly juggernaut.”

According to Khan, the results underscore the need for the FTC to take a close look at the reporting requirements of the HSR Act and identify areas where the agency “may have created loopholes that unjustifiably allow deals to pass. unnoticed “.

She also stressed the importance of working closely with her international counterparts, citing reports finding that less than two-thirds of unreported acquisitions involved the acquisition of domestic assets or businesses. In addition, Khan called for further consideration of non-compete clauses in merger transactions.

“While the Commission must ensure that we use these findings to fill gaps in our existing work, I hope this study will also prove useful to lawmakers as they consider reforms to antitrust laws,” added Khan.