By Nathan Lindfors, Policy Director, Engine Advocacy
The incoming administration has a chance to change course on merger policy in a way that keeps America — and U.S. startups — innovating. Over the past week, President-elect Trump announced his selections for top antitrust posts, naming Gail Slater Assistant Attorney General and elevating FTC Commissioner Andrew Ferguson to Chair. It’s critical they avoid the pitfalls of the Biden Administration’s top enforcers Lina Khan and Jonathan Kanter, who have worked to oppose acquisition activity at every turn, undermining U.S. economic dynamism and innovation. Acquisitions of startups return capital to founders, employees, and investors, and the incoming administration has the opportunity to support competition in the U.S. tech sector by recognizing these realities.
The incoming Congress — through the Congressional Review Act — or legal challenges to Biden rules could offer opportunities to walk back their misadventure, including the rewrite of the premerger notification process. That rule, set to take effect in February, would drastically increase the cost and time to prepare merger filings, amounting to an additional tax on merger activity. It will have the knock-on effect of discouraging deals, including those involving startups. Ultimately, it flips the process on its head and seeks to make us more like Europe, where unelected bureaucrats have broad sway over private dealmaking. Commissioner Ferguson ultimately voted for the rule after negotiating needed improvements but said he would have written it differently, if in charge.
The premerger notification rule update is just one of many steps Khan and Kanter have pursued to curtail M&A. Earlier, they replaced the merger guidelines, jettisoning the commonsense consumer welfare standard and guidance that had been widely accepted by courts. They’ve brought challenges to deals involving startups with novel pleadings ultimately rejected in court. They’ve opposed other deals involving U.S. tech companies, sometimes seeing them quashed with the help of their European friends — applauding, even though the failed deals led Americans to lose their jobs. And their antimerger stance has meant many deals — potential startup exits — don’t make it out of the boardroom at all. Unsurprisingly, deals are down.
The upcoming change in administration offers an opportunity to set things back on the right track. Far-left Khan-Kanter supporters and those with personal axes to grind against larger competitors are hopeful that Trump nominees will continue the Biden agenda. But their policy preferences are based in government control, not the choices of private market actors. Looking at the data or talking to startup founders themselves demonstrates they should be free to pursue the exits they want.
In the startup ecosystem, M&A is good. Acquisitions of startups represent the vast majority of successful exits — north of 90 percent in the largest ecosystems. That share moves nearer to 100 as you look at smaller ecosystems in the middle of the country. These transactions promote the building of knowledge, recycling of talent, and flow of capital through the ecosystem. Each of those components are key to building new startups and stimulating the investment needed to grow them to scale. Curtailing acquisitions will harm the startup ecosystem and hamper the innovation it produces.
As even the enforcement agencies’ own data shows, the vast majority of merger activity is not problematic. The new rule would unnecessarily burden these deals with additional costs and delays, and creating additional government paperwork seems misplaced amid a renewed focus on government efficiency. Litigation or Congress can force the agency to restart the rulemaking process, adding to the new administration’s opportunity to pursue a more innovation-friendly agenda.
Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.
