Antitrust Threats Dampen Startup and Entrepreneurial Growth Opportunities Via M&A

By at 22 April, 2021, 11:16 am



In the crusade against “Big Tech” politicians and regulators will reduce opportunities for entrepreneurs in technology sectors. Some efforts in the Congress threaten all sectors.

Mergers and acquisitions often are central to an entrepreneurial firm’s plan or path for innovation, profitability and growth. Indeed, that is far from unusual in an assortment of industries. Yet, M&A is portrayed as being intrinsically problematic in terms of entrepreneurship and competition by anti-“Big Tech” and pro-antitrust-regulation crusaders.

For example, in the House Subcommittee on Antitrust, Commercial and Administrative Law’s “Final Report on Investigation of Competition in Digital Markets,” it actually was stated:

“Since startups can be an important source of potential and nascent competition, the antitrust laws should also look unfavorably upon incumbents purchasing innovative startups. One way that Congress could do so is by codifying a presumption against acquisitions of startups by dominant firms, particularly those that serve as direct competitors, as well as those operating in adjacent or related markets.”

If implemented, this obviously would be detrimental to entrepreneurship and investment. Even short of passing legislation and imposing more burdensome regulations, the mere fact that Congress is emphasizing and entertaining anti-M&A efforts means there can be a real impact in the marketplace.

The Fallout for Startups and Capital Formation and Access

Consider market developments highlighted in an report regarding the fallout of antitrust threats against Amazon, Apple, Facebook and Google:

● “No member of that quartet has put a blanket hold on M&A. But they’ve been noticeably sluggish, particularly given their heaving cash piles and near record-high stock prices.”

● “The last sizable purchase was five months ago, when Facebook agreed to pay $1 billion for Kustomer.”

● ‘They’re scared and are pretty much telling us that they’d rather not risk a long regulatory fight,’ says an M&A advisor who recently had a client’s tires kicked by one of the Big 4.”

The article concluded:

“Until legislators and regulators resolve what they want to do about Big Tech, beyond throwing rhetorical barbs, some of the largest potential acquirers are being relegated to the sidelines.”

That obviously has effects beyond these four large tech businesses. Regarding this proposal to limit or even stop larger firms from purchasing smaller businesses, SBE Council wrote in a recent analysis:

“A surefire way to cripple startups is to reduce or disincentivize investment in such ventures. This proposal seems designed specifically to undermine entrepreneurship. It is rather commonplace in an assortment of industries for a certain portion of startups to eventually be purchased and merged into larger businesses. Indeed, that possibility or option provides incentives for investing in such enterprises.”

Beyond “Big Tech”

Senator Josh Hawley’s (R-MO) “Trust-Busting” bill in the U.S. Senate explicitly targets M&A activity as well, and goes beyond “Big Tech.” In a media release announcing the legislation, Senator Hawley exclaims:

“While Big Tech, Big Banks, Big Telecom, and Big Pharma gobbled up more companies and more market share, they gobbled up our freedom and competition. American consumers and workers have paid the price. Woke corporations want to run this country and Washington is happy to let them. It’s time to bust up them up and restore competition.”

His legislation, as noted in the release, would among other steps “Ban all mergers and acquisitions by companies with market capitalization exceeding $100 billion” and “Clarify that ‘vertical’ mergers are not exempt from antitrust scrutiny.”

Sound economics and business realities, including for entrepreneurs and the investors who fuel entrepreneurial ventures, make clear that lawmakers should abandon their antitrust assault on leading U.S. technology firms, which includes micro-managing productive M&A activity.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.




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