A New Antitrust Era is Coming. Here’s How You Weather the Storm…
We have arrived at the dawn of a new antitrust era.
Washington, D.C.’s attitudes towards corporate dealmaking are rapidly evolving — and not in a way that will please the financial markets. Any firm considering a merger or acquisition of any size needs a serious strategy to navigate this new reality. Executives can no longer afford not to invest in public affairs campaigns to mitigate political risk.
From the late 1970s, the Chicago School of Economics more or less dominated the Washington consensus. Policymakers on both sides of the aisle — and the judges they appointed and confirmed — took a laissez faire approach to most mergers and acquisitions. The government rarely challenged combinations, even among direct competitors, unless there was clear cartel-like behavior. The result has been a multi-generational boon for capital markets and the growth of entire industries designed to facilitate dealmaking. Now, for the first time since the Carter Administration, there is a serious challenge to the antitrust consensus — and it is coming from both sides of the aisle. Corporations looking to make deals of any consequence in 2023 or 2024 must be mindful of legislative, regulatory, and reputational threats, just as they seek to manage all other forms of downside risk.
We are in the midst of a realignment between the Republican Party and corporate America. The consequences of this schism will be profound. Asset managers embracing social change movements and incorporating environmental, social, and governance factors into their investment calculations have roiled nearly all segments of the American right. Republicans of all stripes, from former President Donald Trump to Senate Minority Leader Mitch McConnell, are reimagining the party’s traditional attitude towards everything from free trade to antitrust policy.
Trends are no more encouraging on the political left, where corporate dealmaking in general is under attack. Progressive think tanks have long sought to plant the seeds for a new antitrust movement and their day is finally arriving. Lina Khan, a leader of the new “anti-monopolist” movement, is arguably the most consequential Chair of the Federal Trade Commission in a generation. She has fundamentally changed the culture and put the agency on a war footing. The FTC is challenging combinations that would not have raised an eyebrow during the Trump or Obama Administrations and they are employing novel tactics and dubious legal theories to do it.
Antitrust warriors are already racking up real wins. A federal judge recently blocked the merger of publishers Penguin Random House and Simon & Schuster. DOJ’s Antitrust Division secured the first criminal guilty plea for monopolization in 45 years. Washington state’s Attorney General won a national temporary restraining order to block a $4 billion special dividend payment as part of Cerberus and Apollo’s proposed combination of their Kroger and Albertsons supermarket chains.
The White House is reportedly planning an “ambitious” antitrust agenda in the coming months. The recent omnibus spending bill included a provision to allow state attorneys general to more aggressively pursue antitrust cases. It also hiked merger filing fees and significantly increased the budgets for both the FTC and the Department of Justice’s Antitrust Division. Democrats believe that populist, anti-monopoly messaging was effective during the 2022 midterm elections and see political upside to doubling down on such rhetoric as we approach the 2024 campaign cycle.
All of this is not to say you should forget about your next roll-up. But firms can no longer take public support for granted, particularly at the local level. Every deal should include a public affairs component designed to demonstrate value to all stakeholders, not just consumer benefit in the abstract. Effective campaigns must include hyperlocal activations in relevant media markets. These fights are not won in Washington, D.C. alone. Creative grassroots strategies are necessary to build local support and earn genuine community buy-in: the most valuable currency to policymakers.
Companies of all shapes and sizes need to rethink public affairs in light of the new antitrust paradigm. Dealmakers are very accustomed to spending money to insure against downside risk, whether that’s macroeconomic conditions, currency volatility, or even the weather. They must now view political risk the same way. A modest investment into a public affairs campaign might mean the difference between a deal being celebrated by the local community or blocked by regulators.
David Pasch is Executive Vice President of Targeted Victory
