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Facebook and Giphy logos.
Aytak Onal | Anadolu Agency via Getty Images
In 2020, Summit meta The CEO explained that the company spent $315 million to acquire Giphy “because it’s a great service that needs a home.” Calling Giphy’s “incredible team” and “expressive” user base, Instagram head Adam Mosseri stressed that Giphy’s user data is “not the driver”.
Earlier this week, Meta Giphy sold to Clash For $53 million, which is a staggering 83% reduction. The sale was forced by the UK’s antitrust regulator, which ruled that the Meta takeover posed a risk to the social media and advertising markets.
It’s a pittance of money for most tech companies, but the prospect of regulators refusing to approve or unblock deals after they happen has helped cool an already frigid deal-making environment, experts told CNBC.
“You’re seeing deals closing for 20 or 30 cents on the dollar compared to what you could have been six or twelve months ago,” Sultan Megi, an advisor to America’s Frontier Fund and former head of innovation at the FDIC, told CNBC.
Regulators in Europe and the United States were eyeing huge deals like Microsoft $69 billion proposed acquisition Activisionand the smallest, like Amazon $1.7 billion acquisition of the vacuum maker iRobot.
President Joe Biden has given Jonathan Kanter, who heads the Justice Department’s antitrust unit, and Lena Khan, chair of the Federal Trade Commission, broad latitude from President Joe Biden to pursue potentially anti-competitive behavior. The federal government has filed cases or opened investigations into Amazon, GoogleAnd JetBlue AirwaysMeta and Microsoft.
Prior to his appointment to the Department of Justice, Kanter worked in private practice, advising managers and executives on potential deals and the attendant regulatory pitfalls. Khan made her name with a widely cited newspaper article about Amazon’s anti-competitive effects.
Brandon Van Grack, co-president of global risk and crisis management, Brandon L.
Van Graak, the former head of the Foreign Agents Registration Law Unit at the Department of Justice, noted that regulatory scrutiny had been mounting for years before the current administration.
However, senior advisers say boards are now giving more weight to regulatory concerns. Prominent actions have played a role, as has the increasing complexity and number of regulatory regimes.
From the FTC’s point of view, increased thinking is welcome. “There are still thousands of deals happening each year. But if mergers don’t get off the board because they violate antitrust laws, then that means we’re doing our job,” FTC spokesman Douglas Farrar told CNBC.
CFIUS factor
It’s not just FTC or DOJ concerns about slowing down deals, either. Publicly disclosed reviews of the powerful Committee on Foreign Investment in the United States have risen 50% since 2020, according to research From PricewaterhouseCoopers.
This number does not account for communication from CFIUS attorneys warning companies about deals, or for non-public CFIUS review letters. The committee generally operates in a highly secretive manner and, aside from public and lengthy review of TikTok parent ByteDance, is rarely in the public eye.
That’s because CFIUS is tasked with reviewing corporate acquisitions that, among other things, could have an impact on national security. Even a CFIUS probe proposal could neutralize a deal entirely or displace a favored bidder from the race.
For example, cryptocurrency exchange Binance has reached an agreement to acquire bankrupt crypto lending company Voyager Digital in late 2022. Binance’s bid was accepted after Voyager’s first agreement with allegedly fraudulent cryptocurrency exchange FTX fell through due to the latter’s bankruptcy filing in November 2022.
Shortly after the Binance-Voyager deal was announced, CFIUS filed a letter notifying Voyager that it would review the transaction.
Van Graak told CNBC that CFIUS is a powerful “tool” in the US government’s arsenal. Through CFIUS, the DOJ has been able to take “an increased role in reviewing and examining these transactions,” Van Grack said.
The international scope of most deals has complicated matters further. It is not just one regulator that can influence an acquisition or merger. Van Graak said the first question now should be “how many jurisdictions do we touch.”
Hence, alleviating regulatory concerns, whether for non-compete reasons or national security reasons, can mean divestment or dilution. It could also mean, as with the CMA in the Activision-Microsoft deal, that regulators are moving to block the entire deal.
Van Graak said as boards and CEOs weigh deals large and small, consultants are forced to grapple with a global array of competing organizational interests. It’s just (a) more complex web: ‘Are we going to get approved? How long will it take? Will there be mitigation and what would that mitigation look like? “
“These questions are becoming more and more difficult to answer,” he said.
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