FTC signals a focus on non-competes and reporting loopholes after study of tech mergers

6 days ago

FTC Commissioner nominee Lina M. Khan testifies during a Senate Committee connected Commerce, Science, and Transportation confirmation proceeding connected Capitol Hill successful Washington, DC, April 21, 2021.

Graeme Jennings | AFP | Getty Images

The Federal Trade Commission signaled greater scrutiny of merger reporting request loopholes and non-competes astatine its unfastened gathering Wednesday.

The bureau released findings from its study of unreported mergers by 5 Big Tech companies: Google-owner Alphabet Amazon, Apple, Facebook and Microsoft.

Companies are lone required to study transactions exceeding $92 cardinal successful worth nether the Hart-Scott-Rodino Act (though that threshold has been little successful the past), truthful the FTC sought to recognize patterns successful however Big Tech companies get smaller businesses.

The survey was led by the FTC's Office of Policy Planning and was not an enforcement inquiry.

Here are immoderate cardinal findings from the aggregate study presented by FTC staff:

  • The 5 tech firms made 616 non-reportable transactions of much than $1 cardinal betwixt the opening of 2010 and extremity of 2019.
  • In addition, the companies disclosed different events similar acquisitions of patents, transactions nether $1 million, hiring events and different fiscal investments. The FTC recovered the astir communal unreported transactions among this radical were bulk acquisitions of voting securities and plus acquisitions.
  • The FTC recovered 94 transactions were supra the HSR threshold astatine the clip that they were completed, apt owed to a assortment of imaginable reporting exemptions, according to staff.
  • In addition, 9 much transactions would person exceeded the HSR threshold astatine the clip of their consummation had they included deferred oregon contingent compensation into their acquisition price. The FTC recovered that much than 79% of transactions studied included specified agreements for the target's founders oregon cardinal employees.
  • In 36% of transactions studied, the acquiring institution assumed immoderate indebtedness oregon liability from its target.
  • In astatine slightest 39% of transactions wherever the target's steadfast was available, the acquired steadfast was little than 5 years aged astatine the clip of consummation.
  • More than 75% of the transactions included non-compete clauses for founders oregon cardinal employees of the people companies.

Following the presentation, FTC Chair Lina Khan outlined 3 takeaways from the report.

The archetypal is that the FTC should place imaginable loopholes successful HSR reporting requirements that let immoderate transactions to "fly nether the radar," she said.

Second, the FTC should larn from planetary peers, since astir a 3rd of the transactions studied progressive overseas targets.

And third, Khan said the FTC indispensable further scrutinize the usage of non-compete agreements successful merger transactions.

"Exploring however firms successful integer markets whitethorn beryllium utilizing acquisitions to fastener up endowment alongside cardinal assets volition beryllium a worthy country of study," Khan said.

Khan added she hopes the study volition beryllium utile to lawmakers arsenic good arsenic they see changes to antitrust statutes.

"While the existing instrumentality uses woody size arsenic a unsmooth proxy for the imaginable competitory value of an acquisition, integer markets successful peculiar uncover however adjacent smaller transactions invitation vigilance," Khan said.

Several commissioners called for akin studies successful the aboriginal for different industries.

While the nationalist study lone reveals aggregate findings, Democratic Commissioner Rebecca Kelly Slaughter said the patterns revealed by the study are what's truly important.

"I deliberation of serial acquisitions arsenic a Pac-Man strategy," she said. "Each idiosyncratic merger, viewed independently, whitethorn not look to person important impact. But the corporate interaction of hundreds of smaller acquisitions tin pb to a monopolistic behemoth."

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