Late last year, the Federal Trade Commission and the Justice Department (the “Agencies”) jointly issued the long-awaited, new Merger Guidelines (the “Guidelines”) which replace the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines.[1] These Guidelines, while not binding, provide the roadmap for how the Agencies may view a particular merger or acquisition and signal that the more stringent review of mergers and acquisitions under the Biden administration’s enhanced enforcement policies will continue.

What Are the Guidelines?

The eleven Guidelines set out analytical frameworks and factors that are used to help the Agencies identify those mergers that may tend to create a monopoly or decrease competition as well as describe the evidence that may be used to rebut such findings. The Guidelines do not serve as exhaustive lists of the theories or types of evidence that the Agencies can utilize to assess whether the effect of a merger may be to create a monopoly or decrease competition. The Guidelines are comprised of three parts: (1) the first six describing characteristics of mergers that may harm competition in violation of the U.S. antitrust laws; (2) the latter five setting forth how the Agencies apply Guidelines 1 - 6 to specific scenarios; and (3) commentary outlining rebuttal evidence which may be used to counteract these presumptions.

1. The First Six Guidelines and Presumptions of Illegality

The first six Guidelines expand the situations where the Agencies may find a presumption of illegality and lower the threshold for a highly concentrated market. They are:

• Guideline 1: “Mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market.” Lowering the threshold for what constitutes a “highly concentrated market,” this new Guideline 1 sets out a presumption that a horizontal merger is unlawful where the resulting entity would have a market share greater than 30% if (1) the change in the Herfindahl-Hirschman Index (“HHI") due to the merger is more than 100 or (2) if the post-merger entity has a HHI of more than 1,800 or the merger results in a change of more than 100 HHI points.[2] Previously, the threshold for a “highly concentrated market" was 2,500 HHI points.[3] Under Guideline 1, the Agencies “presume, unless sufficiently disproved or rebutted, that a merger between competitors that significantly increases concentration and creates or further consolidates a highly concentrated market may substantially lessen competition.”[4]
• Guideline 2: “Mergers can violate the law when they eliminate substantial competition between firms.”[5] This can be true regardless of the impact on the HHI. Multiple “indicators to identify substantial competition” include: (1) strategic deliberations or decisions; (2) prior merger, entry, and exit events; (3) customer substitution; (4) impact of competitive actions on rivals; (5) impact of eliminating competition between the firms; and (6) other additional evidence, tools, and metrics to evaluate the loss of competition between the firms based upon the specific circumstances.[6]
• Guideline 3: “Mergers can violate the law when they increase the risk of coordination.” To determine the risk of coordination posed by a merger, the Agencies review several factors. First, the Agencies may determine that “a merger materially increased the risk of coordination if any of the three primary factors are present,” with the factors being: (1) a highly concentrated market, (2) prior actual or attempted attempts to coordinate, and (3) elimination of a maverick. They then consider whether “secondary factors demonstrate that a merger may meaningfully increase the risk of coordination, even absent the primary risk factors.” It is not necessary for all secondary factors to be present, and these secondary factors are: (1) market concentration, (2) market observability, (3) competitive responses, (4) aligned incentives, (5) profitability or other advantages of coordination for rivals, and (5) rebuttal based on structural barriers to coordination unique to the industry.[7]
• Guideline 4: “Mergers can violate the law when they eliminate a potential entrant in a concentrated market.” Whether the merger raises this presumption of illegality depends upon a two-part analysis: “whether, in a concentrated market, a merger would (a) eliminate a potential entrant or (b) eliminate current competitive pressure from a perceived potential entrant.”[8] For the first prong, the Agencies evaluate (1) whether a merging firm or firms “had a reasonable probability of entering the relevant market other than through an anticompetitive merger” and (2) whether that entry would have provided “a substantial likelihood of ultimately providing reconcentration of the market or other significant procompetitive effects.”[9]
• Guideline 5: “Mergers can violate the law when they create a firm that may limit access to products or services that rivals use to compete.” Here, the Agencies “examine the extent to which the merger creates a risk that the merged firm will limit rivals’ access, gain or increase access to competitively sensitive information, or deter rivals from investing in the market.”[10]
• Guideline 6: “Mergers can violate the law when they entrench or extend a dominant position.” The Agencies seek to prevent mergers that would entrench or extend a dominant position through exclusionary conduct, weakened competitive constraints, or other harm to competition.[11]

2. The Remaining Five Guidelines & How Everything is Applied

The remaining five guidelines explain how the Agencies will analyze specific concerns. They are:

• Guideline 7: “When an industry undergoes a trend toward consolidation, the [A]gencies consider whether it increases the risk a merger may substantially lessen competition or tend to create a monopoly.”[12] This Guideline demonstrates the Agencies’ comprehensive approach to reviewing mergers. Rather than viewing a transaction on its own, the Agencies view the transaction within the context of trends within its industry.
• Guideline 8: “When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.”[13] Of particular interest to private equity firms engaged in roll-up transactions, the Agencies may evaluate whether the series of acquisitions are part of an anticompetitive pattern or strategy in violation of Section 7 of the Clayton Act.
• Guideline 9: “When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform or to displace a platform.” The Agencies noted: “Multi-sided platforms have characteristics that can exacerbate or accelerate competition problems.”[14]
• Guideline 10: “When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers, creators, suppliers or other providers.”[15]
• Guideline 11: “When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.”[16]

3. The Use of Rebuttal Evidence

Mergers are not necessarily “dead in the water” if they can establish credible rebuttal evidence. Section 3 of the Guidelines allows for rebuttal evidence to demonstrate no substantial lessening of competition is threatened by the merger. The analysis should consider “other pertinent factors” that may “mandate[] a conclusion that no substantial lessening of competition [is] threatened by the acquisition.”[17] “The factors pertinent to rebuttal depend on the nature of the threat to competition or tendency to create a monopoly resulting from the merger.”[18]

The failing firm defense “applies when the assets to be acquired would imminently cease paying a competitive role in the market even absent the merger.”[19] Entry and repositioning arguments allege that “a reduction in competition resulting from the merger would induce entry or repositioning into the relevant market, preventing the merger from substantially lessening competition or tending to create a monopoly in the first place.”[20] For this argument to be effective, the Agencies will consider the timeliness, likelihood and sufficiency of entry. Procompetitive efficiencies must be merger specific, verifiable, prevent a reduction in competition, and not anticompetitive.[21]

Conclusion

The Guidelines highlight the Agencies’ focus on “excessive market consolidation across industries” and continue their ramped-up approach to antitrust enforcement. They reflect the Agencies’ desire to curtail trends of market consolidation and indicate that deals may face more hurdles to close. While the Guidelines clearly forecast a challenging antitrust climate, merging parties should remember: (1) the presumptions are rebuttable; and (2) due to finite Agency resources, it is not realistic to expect that every merger that triggers the presumption will be investigated or challenged. That said, parties are well advised to engage in early planning and careful analysis to understand and reduce potential antitrust risks. Parties should consult antitrust counsel early in the process given the robust regulatory and enforcement environment.

The authors have expanded on this topic in an article addressing the impact of the Guidelines for the healthcare industry and make predictions for their significance for healthcare firms. Click here to read the article.