Bass, Berry & Sims attorneys Michael Dashefsky, Lucas Smith and Patrick Zinck authored an article for Middle Market Growth outlining how the new Merger Guidelines issued by the Federal Trade Commission (FTC) and Department of Justice (DOJ) may increase risks for private equity acquisitions in middle market deals. According to the authors, “The 2023 Merger Guidelines lower the bar for determining that a transaction is likely anti-competitive while also expanding the types of transactions that the DOJ and FTC will consider anti-competitive.” Since the guidelines were issued late in 2023, there have been several transactions investigated and challenged under the new standards.

In the article, the attorneys outline the following notable changes from the new Merger Guidelines:

  1. “Roll-Up” Strategies in the Crosshairs: The DOJ and FTC will now consider the total impact of a series of prior acquisitions or consolidation in the market generally, when examining a merger, including the strategy behind the series of transactions.
  2. Many More Mergers of Competitors Will Be Viewed as Presumptively Anticompetitive: The 2023 Merger Guidelines update numerical thresholds that have long been used to measure whether a merger of competitors is deemed anticompetitive.
  3. Skepticism Regarding Vertical Integration: Transactions involving vertical integration will face increased scrutiny from the DOJ and FTC under the new Merger Guidelines.
  4. Minority Acquisitions May Be Subject to Agency Review: The new Merger Guidelines make clear that the DOJ and FTC are not just interested in transactions that involve change of control; they also will review transactions where a buyer acquires some decision-making influence.

The authors conclude by saying, “The 2023 Merger Guidelines and the proposed HSR premerger notification rules indicate that the DOJ and FTC are expanding their enforcement priorities to focus more on middle-market and private equity deals while continuing to scrutinize large firms. Firms should anticipate that transactions will carry higher burdens, costs and risks. Firms also should not assume that a transaction will fly under the radar simply because of a relatively low value.”

The full article, “New Merger Guidelines Increase Risks for PE, Mid-Market Deals,” was published by Middle Market Growth on May 20 and is available online.