M&A 2019 Annual Review

8 ANTITRUST POPULISM AND SCRUTINY OF TECHNOLOGY DEALS LIKELY TO UUUI INTENSIFY IN 2020 Proponents of stricter antitrust enforcement are clamoring for antitrust agencies to include an assessment of whether a transaction is likely to harm jobs, employee wages, privacy rights, or the ability of smaller businesses and entrepreneurs to compete. The calls for more stringent standards and aggressive enforcement have focused particularly on “Big Tech” and “Big Pharma” companies, as well as firms in other industries, where patent-protected innovations, platform-based business models, and data-driven insights provide significant competitive advantages or may generate “winner-take-all” network effects. U.S. and European enforcement agencies have taken notice of the policy debate. For example: • New Technology Enforcement Division – The U.S. Federal Trade Commission (FTC) announced that it would establish a new Technology Enforcement Division to focus on potentially anticompetitive mergers or practices in “markets for online advertising, social networking, mobile operating systems and apps, and platform businesses.” • “Killer Acquisitions” and “Nascent” Competition – According to press reports, the FTC is investigating whether several of Facebook’s long-ago consummated deals, such as Instagram (acquired in 2012) or WhatsApp (acquired in 2014), were so-called “killer acquisitions” aimed at eliminating potential future rivals or “nascent” competitors before they could become a threat. Similarly, concerns about preventing future potential competition were present in the FTC’s challenge of Illumina’s proposed $1.2 billion takeover of PacBio to prevent Illumina from “extinguishing PacBio as a nascent competitive threat” even though their current market activities were largely in different markets. The FTC was also concerned that the transaction would reduce the combined firm’s incentive to innovate and develop new products. Illumina and PacBio abandoned their transaction shortly after the FTC filed its complaint. Similarly, the U.S. Department of Justice (DOJ) recently challenged Sabre Corp.’s planned $360 million acquisition of airline booking company Farelogix Inc based on concerns that the transaction was designed “to take out a disruptive competitor that has been an important source of competition and innovation.” • Online Platforms – The DOJ announced that it would review whether market-leading online platforms, such as Google and other tech firms, have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers (for example, by using data gathered from customers to block rivals from competing). • Actions in Europe – The EC published Competition Policy for the Digital Era , 16 an advisory report on merger enforcement examining (i) the role that data accumulation plays in creating entry barriers and (ii) whether the EU should amend its notification thresholds to require filings to preserve the EC’s ability to review “killer acquisitions” of nascent competitors. The EC’s Chief Competition Economist has advocated for reversing the burden of proof for these acquisitions to force merging parties to prove the efficiencies arising from their transaction. 9 PRIVATE EQUITY: MORE MONEY, MORE COMPETITION, MORE CREATIVITY 2019 saw roughly $450 billion of private equity deals, a modest decrease from 2018. In addition to traditional buyouts of public and more mature companies with relatively strong cash flows, private equity firms bought younger firms and engaged in growth equity, joint ventures and other majority or minority investments with greater frequency in 2019. Terms and interest rates remained favorable throughout 2019 for borrowers in leveraged deals, adding to the competitiveness to deploy capital, but creating opportunities for positive-return exits. Exits fell moderately, with secondary buyouts accounting for an increasing proportion of overall exits. “The calls for more stringent standards and aggressive enforcement have focused particularly on ‘Big Tech’ and ‘Big Pharma’ companies.” 7 MORRISON & FOERSTER 2019 M&A ANNUAL REVIEW