SBE Council Comments to FTC/DOJ on Draft Merger Guidelines

By SBE Council at 18 September, 2023, 6:42 pm

RE: Comments to the Federal Trade Commission (FTC) and Department of Justice (DOJ) on Draft Merger Guidelines – FTC-2023-0043

The Small Business & Entrepreneurship Council (SBE Council) is pleased to provide comments to the FTC and DOJ on the Draft Merger guidelines. SBE Council is an advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. Since our founding 29 years ago, our work has focused on strengthening policies and programs that encourage startup activity, small business growth, economic opportunity and resiliency through entrepreneurship.

Much of our work concentrates on modernizing rules and laws, lowering barriers to entry, eliminating unnecessary red tape, promoting regulatory and tax fairness, advancing affordable choices in health coverage, protecting intellectual property, and improving policies that strengthen capital formation and access, investment, access to markets, and innovation.

With respect to the draft merger guidelines, SBE Council is bewildered as to why regulators would move to toss out a highly successful framework and system that has fueled U.S. innovation, investment and America’s world-renowned startup ecosystem. The draft merger guidelines are arbitrary, would create uncertainty and hinder positive economic activity that connects entrepreneurs and startups to the resources and capital they need to scale, compete with larger businesses, and bring their unique and innovative products and services to the wider marketplace.

The draft merger guidelines, according to the FTC and DOJ, offer “thirteen principles that the agencies may use when determining whether a merger is unlawfully anticompetitive under the antitrust laws.”

In presenting the draft merger guidelines, the FTC and DOJ cite the need to “reflect the realities of how firms do business in the modern economy” and “unchecked competition.” But this rationale does not actually reflect what is occurring in the marketplace. In fact, entrepreneurship and new business creation are flourishing, across all sectors, which means there is widespread disruptive activity that is currently being driven by entrepreneurs and startups.

If the current trend in new business applications continues this year, 2023 will be the second-highest total on record – 2021 set the record with 5.4 million business applications. In 2022, the number was under 5.1 million according to the Census Bureau. The business application surge remains broad-based across most industry sectors, with the strongest year-over-year growth in healthcare, retail, arts and entertainment, and accommodation & food services. High propensity (likely to hire employees) applications to start a new business increased by 7% in the first half of 2023 compared to the first half of 2022.

This is not an economy marked by “unchecked competition,” but one that is creating competitive opportunities for entrepreneurs because of their access to affordable digital tools and platforms, and other technologies that allow for extraordinary and easy access to consumers and marketplaces.

Millions of individuals and entrepreneurs are seeing opportunity in our economy, not the gloom and despair of a moribund and monopolistic economy, which seems to serve as the foundation for the draft merger guidelines.

Again, following a successful launch and market traction, many startups and innovative businesses often partner and merge with larger companies to connect with the capital, resources and talent they need to scale and bring their innovations to the mass marketplace. It is difficult to envision how most small businesses or startups will have the opportunity to merge or be acquired given the restrictive and arbitrary nature of the draft merger guidelines. This will be harmful for the U.S. economy and actually hurt competition.

Such arbitrary activism created under the draft merger guidelines would discourage and vastly restrict mergers that could benefit consumers and the economy. Due to the arbitrary and political assumptions of regulators enforcing the draft guidelines, investment would be disincentivized due to very real concerns about mergers and acquisitions being disallowed for any number of irresoluble reasons. Moreover, the FTC and DOJ draft merger guidelines actually fail to clarify the implementation of antitrust laws. Instead, they muddy the waters by making policy even more susceptible to the political preferences of individual regulators, rather than sound economics or what is actually occurring in the marketplace.

Investors, such as venture capitalists, consider M&A as a means for getting a return on their investments. Therefore, pushing M&A antitrust policymaking further away from sound economic and market considerations – toward a system more deeply immersed in political ideologies and special interest influences – means real ills for small, entrepreneurial firms that desperately need investors.

Yes, M&A opportunities are vital for investment in startups and smaller enterprises, and government reducing costs and obstacles to M&A is positive for entrepreneurship, investment and growth, while government increasing costs and uncertainties to M&A is negative for entrepreneurship, investment and growth.

Policymaking should be focused on incentivizing entrepreneurship and investing in entrepreneurial ventures. The FTC and DOJ merger guidelines undermine the startup ecosystem and entrepreneurship. Rather than creating more competition and dynamism in the U.S. economy, the draft merger guidelines would limit opportunities for entrepreneurs to launch and scale, and therefore favor market incumbents to the detriment of consumers and our economy.

SBE Council urges FTC and DOJ officials to directly engage with entrepreneurs and investors, before upending a positive system that has created the world’s leading startup ecosystem and economy.

Sincerely,

Karen Kerrigan, President & CEO