The Federal Trade Commission this week announced another set of probes to add onto the heaping mound of antitrust investigations the nation’s biggest tech firms now face. This time around, they’re digging into a decade’s worth of acquisitions that were small enough to escape scrutiny the first time around but may have proven to have big consequences after the fact.
The review will cover acquisitions made by Alphabet (Google), Amazon, Apple, Facebook, and Microsoft between 2010 and 2019, the FTC said. The probe is not a criminal investigation but rather a “wide-ranging study” to help regulators better understand what trillion-dollar companies are doing when they gobble up little startups and their staffs.
The smaller transactions escaped scrutiny the first time around thanks to the Hart-Scott-Rodino Act—the same law that mandates a look at bigger transactions. Under HSR, plans for mergers and acquisitions above a certain dollar threshold must be submitted to the FTC and Department of Justice in advance. The process is called, fittingly, premerger notification. Once a company has submitted its premerger filing, regulators have 30 days to take a look at the proposal and determine whether to probe deeper. If the waiting period expires or the FTC grants it early termination, the companies can move forward.
Most transactions pass easily through the FTC in that 30-day window. Extremely high-value deals, such as Disney’s $71 billion acquisition of Fox, or more recently T-Mobile’s $26 billion deal to buy Sprint, get kicked over to the Justice Department for much deeper review. If the DOJ determines aspects of the deal would be anticompetitive, it can reach a settlement with the companies mandating divestments to mitigate the harm. Or, if there is no way of structuring the deal to prevent it harming competition, the DOJ can sue to block it altogether. (That usually—but definitely not always—ends the deal.)
Mergers and acquisitions valued under the specified threshold, though, can simply happen without any antitrust scrutiny. Essentially, the law considers these deals to be too small to harm competition by default. The limit gets adjusted every year, based on the change in gross national product. In 2010, that threshold was $63.4 million; by 2019, it was up to $90 million. (For the curious, it’s increasing to $94 million this year.)
The billion-dollar transactions certainly generate most of the headlines. Take Facebook, for example: the company paid $1 billion for Instagram in 2012, $19 billion for WhatsApp in 2014, and $2 billion for Oculus less than a month later. All of those transactions were deeply probed and widely reported.
But Facebook has made more than 80 acquisitions in its time. Many of those were valued over $100 million and went through the HSR process. Dozens of others, however, slipped under regulatory radar. Perhaps one small drone startup here and one small newsfeed-algorithm designer there, on their own, don’t look like much. But put together, a dozen unregarded startups can add up to a formidable internal force.
All of the tech firms included in the study have also, at one point or another, been accused of using their market clout to strong-arm smaller companies into deals they may not necessarily have wanted to pursue, rather than waiting for those startups to become viable competitors.
While the review is primarily to determine if and how the premerger review process should change going forward, FTC Chairman Joseph Simons said in a press conference that if the agency does find evidence of anticompetitive behavior, that “definitely could inform enforcement.”
“If during this study we see that there are transactions that turn out were problematic, all of our options are on the table,” Simons added.