PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

FTC “Mob Boss” Strategy Hits Small Businesses

By at 25 June, 2024, 2:43 pm

SMALL BUSINESS INSIDER

By Karen Kerrigan –

Federal regulatory activity has received outsized attention from our team over the last three years. Why? Because that activity has significantly increased. President Biden’s cumulative regulatory tab just hit $1.64 trillion this week. Of course, the effects of excessive regulation are particularly costly and burdensome for small businesses.

Sadly, many federal agencies are not following regulatory-process rules that require them to consider the costs and impact of their proposals on small businesses. The disturbing pattern across agencies continues to fuel uncertainty and angst across business sectors. In response, business groups like SBE Council and advocates in the Congress have doggedly called out specific federal agencies; pushed for congressional oversight or an overturn of the rule where feasible; and taken legal action where warranted.

A recent House Small Business Committee report highlights various cases where federal agencies are not complying with their statutory duty to protect small business. The report demonstrates a clear pattern of disregarding the rules – namely, the Regulatory Flexibility Act (RFA) – that governs how federal agencies are supposed to make the rules and laws that small businesses must comply with.

Actions, Not Words

When the heads of certain federal agencies or departments are in the public spotlight they often feign support for small businesses. At the same time, and in many recent cases, the agencies they oversee may ignore their duties under the RFA or dismiss the effects of proposed regulations on small businesses.

In a recent appearance before a group of startup founders, as reported by Tech Crunch, Federal Trade Commission (FTC) Chair Lina Khan offered amazing spin on how her agency is sensitive to small businesses. She talked about the FTC’s strategy of going after “mob bosses” to deter monopolies – in this case the large tech companies – rather than “henchmen” (whoever they may be).

Khan referenced M&A filings to back up her point. That only 2% of the 3,000 merger filings submitted that notify the government of merger plans receive more scrutiny, while the rest go through. So, Khan appears to be taking credit for being pro-startup, pro-small business based on past merger review data and to support her assertion that only “mob bosses” get her attention. But Khan fails to mention how the current merger filing system would be upended through an FTC proposal that would very much burden small firms with new costs, and likely throw a wrench in many M&A plans.

Khan’s proposed merger filing system would make it more difficult and costly for startups and small businesses to participate in the M&A ecosystem. As I noted in a February 4, 2024 letter to Khan about the proposal, it appears the FTC did not meet its legal obligation to consider the regulatory costs of their proposed merger filing changes on small businesses, as required under the Regulatory Flexibility Act.  As I noted in my letter:

“In its proposal, the FTC certified that HSR amendments ‘will not have a significant economic impact on a substantial number of small entities’ given existing exemption thresholds. In SBE Council’s review of past HSR filings, based on a 2022 report the FTC and Department of Justice (DOJ) submitted to Congress, we found that 709 transactions were subject to pre-merger filings where the sales revenue of these acquired entities was less than $50 million. These deals likely involved the acquisition of a small business. The ‘less than’ $50 million transaction range was the highest category of HSR transactions at 23.4% out of 3029 total transactions. Moreover, it would not be surprising if a sizable number of the 513 transactions in the $50-$100 million range and 305 transactions in the $100-$150 million range involved the acquisition of a small business.”

Vastly increasing the scope and volume of information that filers are required to submit under the FTC’s proposal – the agency itself estimates a quadrupling of the costs – would significantly impact the many small firms that file.

It will come as no surprise that the FTC’s estimate is likely on the low end. A U.S. Chamber of Commerce report estimates that costs are “nearly seven times the Agencies’ estimate,” which means an average filing cost of $437,314 versus the FTC’s estimate of $66,240.

Those are eye-popping numbers for a resource constrained startup or small business.

Khan’s public statements versus what the FTC is actually doing from a regulatory perspective reminds me of timeless wisdom that applies to most circumstances: watch what is done, not what is said. Indeed, actions speak louder than words and are a big clue into the real intent of the individual delivering those words.

Thankfully in this case, small businesses have a federal law to protect them – the Regulatory Flexibility Act. The intent of this law is perfectly clear. And it will certainly be applied and deployed to protect the startup dreams of founders working to attain growth and success via merger or acquisition.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.

 

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