A merger ban? Really?

The M&A world is getting prepared for the opportunities and readjustments that may arise as valuations and economic outlooks are becoming more volatile and some companies are becoming cash constraint. This is an environment where one would expect speed to be of the essence. And indeed, speed is often a KPI for those who manage transactions.  

But it is not for most competition authorities these days, at least not when it comes to merger review.  On the contrary. There have been loud voices worrying about concentration levels and cross shareholdings even before the crisis.  The stakes are increasing exponentially as the recovery from the biggest crisis since WW2 is seen to shape economies for the years and decades to come.  Who would be surprised that responsible decision makers are increasingly stressed about the risk of getting it wrong?

Pausing and taking a deep breath is good advice to those who need to make big decisions under pressure.  Some competition authorities and regulators seem to be taking this to the institutional level.  

As lockdowns slowed investigations down, many authorities refused to accept filings for a while. The EU Commissioner recommended member states to buy stakes in companies to prevent opportunistic foreign takeovers in the current environment. Lawmakers in the US and elsewhere have advocated merger bans during the pandemic. Earlier this week, the European Commission's chief economist said that a merger ban might help to manage constrained resources during the crisis.

This reflex to press pause reveals a mindset that is not new.  The focus is on the risks associated with mergers and less on the opportunity.  The approach is not one of balancing value creation, synergies and harm.  Rather, the focus is on the harm.  The default is no change if there is significant risk.  The system is not really open to considering the risks and downsides of a no change scenario, hence the reflex to press pause.  

General merger bans are unlikely to happen at EU level.  Legislation moves too slowly for that.  But the fact that such measures are openly considered reveals a mindset that will affect merger control and foreign investment processes.  In case of doubt, regulators may well press pause. Parties are well advised to invest in gathering evidence to effectively dispel such doubts if they are keen to get quick decisions.  Making more nervous authorities comfortable with deals will require trust building through transparency, facts and evidence.  Attempts to rush processes through shortcuts are increasingly likely to trigger pause buttons and additional delays.