• Fred Silberstein

The Effect of Anti-Bigness Laws on the M&A Environment

What are anti-bigness laws, and will they affect your merger?

Key Takeaways

  • There is growing momentum in the anti-bigness movement

  • Angi-bigness refers to anti-trust laws designed to prevent companies from getting too big

  • In July 2021, President Biden issued an executive order with the intent of creating anti-bigness reform

  • The order addresses concepts from hearing aids to FTC reviews of corporate mergers

  • The effect of the order will be minimal or delayed by years

  • Most proposed M&A legislation doesn't affect the middle market

You may have heard the buzz phrase "anti-bigness" in the media and wondered about its effect on the mergers and acquisitions (M&A) environment. Right now, there appears to be growing momentum in the anti-bigness movement, but at the time of writing, there are few significant laws or proposals that would hamper anyone but the largest companies from pursuing a merger or acquisition.


However, to give you some insight into the conversation, this guide looks at the concept of anti-bigness, the history of this philosophy, and some anti-bigness executive orders and proposed legislation. Finally, we’ll explain how all this could affect mergers and acquisitions in 2022.


What does anti-bigness mean?

This phrase is essentially a synonym for anti-trust laws. It refers to the "bigness" of companies. At their essence, anti-bigness laws want to prevent companies from getting so big that they have excessive influence on the entire market. They want to preserve competition and prevent monopolies.


People who support anti-bigness reforms can fall into several different places on the political spectrum. But the majority are people who want to foster more competition within a capitalist economy.


The term bigness has been used in anti-trust conversations for nearly a century, but the phrase gained newfound attention when used as the title of Columbia professor Tim Wu's 2018 book, "The Curse of Bigness." Wu also helped draft a series of executive orders signed by President Joe Biden in July 2021.


Intentions of the anti-bigness executive order

The President claimed the executive order was designed to lower prices, increase wages, and get closer to an economy that works for everybody. He also said there would be no more "bad mergers" that cause mass layoffs, increase prices, and reduce options for consumers.


To achieve these goals, the executive order contains 72 directives to the Federal Trade Commission (FTC), the Department of Defense (DoD), and over a dozen other federal agencies. The directives span a wide range of topics.


For example, one requires the Secretary of Health and Human Services (HHS) to allow hearing aids to be sold over the counter. This is in response to the fact that only a handful of specialists write hearing aid prescriptions, making the product unaffordable for many people.


Another directive tells the Federal Trade Commission (FTC) to establish rules for how tech companies gather user data. Yet another directive restricts sales agreements that ban farmers from repairing their own equipment. As you can see, the ideas are wide-reaching and cover a range of industries. Realistically, however, the effects of this executive order may be minimal or may take years to feel.


The potential effect of this executive order

President Obama signed a similar executive order with anti-bigness elements before leaving office, and President Trump quickly reversed it. Similarly, Trump signed several executive orders, but most of them expired or were reversed by Biden. This new group of executive orders is likely to face a similar fate.


Some of these directives would require new legislation before they could take effect. Others such as changing FTC rules would have to go through a long process of public comment before they could be finalized. In other cases, the courts may not go along with the changes. In particular, the courts are not likely to go along with changing the rules for approving corporate mergers.


People who support these types of changes want the Federal Trade Commission and the Justice Department to bring cases against egregious monopolies. They also want these agencies to be proactive about creating rules for companies that have a significant amount of market power, such as tech platforms and broadband providers.

These ideas are not new. They have surfaced at many different times during the history of the country.


History of anti-bigness laws

Congress passed the first anti-bigness or anti-monopoly law in 1890, and since that time, multiple anti-bigness laws have passed. These included the Robinson-Patman Act that banned price discrimination by producers and chains and the Hart-Scott-Rodino Act that requires enforcers to review big mergers.


Over the years, the public's opinion of mergers has gone back and forth, and anti-trust laws have waxed and waned in their focus and severity. The current environment essentially allows any merger to go through, and this will remain the reality for most businesses.


The anti-bigness reforms that have been proposed by lawmakers seek to ban mergers based on company size and their power in their industries. These types of laws typically target industries with a very low number of competitors. For example, there are a series of anti-trust laws directed at Google, Facebook, Amazon, and Apple.


The current mergers and acquisitions environment

The mergers and acquisitions environment has been extremely active for the last two years. Globally, M&A activity hit a record high in 2021. Although not all the numbers are in yet, activity for 2021 is expected to have hit $6 trillion, beating the previous high of $4.8 trillion set in 2015 and significantly outperforming the $3.6 trillion of 2020.


There are many reasons for the increased activity. Many companies stockpiled cash during the pandemic and are now using mergers to increase market share. In some industries, businesses are seeing the value of consolidating instead of competing. This type of flurry of activity can draw the attention of people who are skeptical about the value of mergers.


Ultimately, proposed anti-bigness laws are unlikely to affect mergers and acquisitions of small and medium-sized businesses. But it's important to keep an eye on the landscape, especially if you're thinking about selling your business, investing in a new business, or merging with another company.


Contact SF&P Advisors to talk about M&A today

At SF&P Advisors, we stay abreast of the most significant news in the M&A environment so we can guide our clients as effectively as possible. We specialize in mergers and acquisitions in the HVAC and plumbing industry, and we would love to help with your next move.


To learn more or obtain a free valuation of your company, contact us today.