New DOJ FTC merger guidelines MSP

On Wednesday, July 19, the United States Department of Justice (DOJ) and Federal Trade Commission (FTC) released proposed additions and addendums for their joint Merger Guidelines to the general public.

These suggested updates are drafted for public comment and not yet finalized. In their current form, the 13 proposed guidelines aim to “identify potentially illegal mergers” based on a number of different criteria that account for how competition works in the modern economy.

Although these guidelines are designed to rein in all kinds of modern business models and monopolies, the document particularly emphasizes how the U.S. government plans to more strictly enforce antitrust policies against enterprising private equity firms, big tech companies, and managed service providers.

A Quick Look at the Draft Merger Guidelines

The Draft Merger Guidelines includes 13 different guidelines that expand on the types of mergers, acquisitions, and other market behaviors the DOJ and FTC will litigate against under antitrust legislation. The following guidelines are designed to give businesses the information they need to understand how mergers and acquisitions will be reviewed and evaluated by the federal government in the future.

Each of these guidelines is likely to impact tech companies and MSPs to some extent, though some guidelines more clearly discuss the regulation of tech companies and service providers. For easier reading and to contextualize our comments in the following section, we’ve bolded the guidelines that are most relevant to tech MSPs:

  • Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets.
  • Guideline 2: Mergers Should Not Eliminate Substantial Competition Between Firms.
  • Guideline 3: Mergers Should Not Increase the Risk of Coordination.
  • Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market.
  • Guideline 5: Mergers Should Not Substantially Lessen Competition by Creating a Firm That Controls Products or Services That Its Rivals May Use to Compete.
  • Guideline 6: Vertical Mergers Should Not Create Market Structures That Foreclose Competition.
  • Guideline 7: Mergers Should Not Entrench or Extend a Dominant Position.
  • Guideline 8: Mergers Should Not Further a Trend Toward Concentration.
  • Guideline 9: When a Merger Is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series.
  • Guideline 10: When a Merger Involves a Multi-Sided Platform, the Agencies Examine Competition Between Platforms, on a Platform, or to Displace a Platform.
  • Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers.
  • Guideline 12: When an Acquisition Involves Partial Ownership or Minority Interests, the Agencies Examine Its Impact on Competition.
  • Guideline 13: Mergers Should Not Otherwise Substantially Lessen Competition or Tend to Create a Monopoly.

How Proposed Guidelines Could Affect Technology Companies and Managed Service Providers

Some of the largest tech companies — like Google and Facebook, for example — have come under fire over the past few years for alleged anticompetitive behavior and privacy violations. With these sweeping changes to the Merger Guidelines, a number of other large tech companies and managed service providers may be just as vulnerable to future litigation of this sort.

To better understand the potential impact of these guidelines, we’ve excerpted and discussed two guidelines in relation to tech MSPs:

Guideline 7

Guideline 7 of the Merger Guidelines draft says the following: “Technological transitions can render existing entry barriers less relevant, and a dominant firm might seek to acquire firms to help it reinforce or recreate those entry barriers so that its dominance endures past the technological transition … The Agencies take particular care to preserve opportunities for deconcentration during technological shifts.”

The technological transitions discussed above are perhaps best illustrated by today’s artificial intelligence landscape. A number of AI and generative AI startups are entering the scene right now, offering their unique services directly to customers and establishing their own niches in the market. Instead of heavily investing in their own AI model development and infrastructure builds, many of the largest tech companies and MSPs are instead partnering with smaller AI service providers to extend generative AI functionality to their existing customers. 

This current business model neither poses a threat to AI startups nor indicates MSP noncompliance with antitrust laws. However, as the generative AI market matures and MSPs strategize about how to increase and solidify their profit share, it’s likely many of these larger tech companies and MSPs will move beyond partnership and seek out merger and acquisition opportunities with smaller AI firms. It’s unrealistic to think that artificial intelligence M&As will be completely prohibited by this guideline, but interested buyers will likely need to jump through much more significant hoops than they have in past tech acquisitions.

Guideline 9

According to Guideline 9 of the Merger Guidelines draft, “The Agencies may examine a pattern or strategy of growth through acquisition by examining both the firm’s history and current or future strategic incentives. Historical evidence focuses on the actual acquisition practices (consummated or not) of the firm, both in the markets at issue and in other markets, to reveal any overall strategic approach to serial acquisitions.”

This particular excerpt from Guideline 9 is both interesting and concerning for MSPs due to its ambiguity about what constitutes unlawful serial acquisitions. The following questions are mostly left unanswered:

  • How similar do the acquired companies’ products, services, and/or business lines need to be in order for them to be judged as a series of acquisitions?
  • How many similar acquisitions must be completed in order to comprise a series? Is this number an agreed-upon standard, or is it up to the discretion of the DOJ and/or FTC in each particular instance?
  • Will historical evidence from before the Merger Guideline’s release be allowed into the decision-making process, and if so, to what extent?
  • How much do serial, global mergers and acquisitions impact federal litigation in this area? Additionally, how are companies headquartered in other countries implicated if they participate in U.S.-based merger and acquisition series?

As the writing stands now, several of the biggest MSPs — such as IBM and Accenture — may face some litigation in the near future for their frequent habits of acquiring smaller cloud computing, infrastructure, and consulting firms.

A Response to President Biden’s 2021 Executive Order

In many ways, these merger guidelines and their underlying focus on big tech monopolies serve as a follow-up to President Biden’s 2021 Executive Order on Promoting Competition in the American Economy. In this order, he discussed the importance of more strictly enforcing existing antitrust laws while also establishing new policies to better regulate and limit monopolies in areas like the information technology sector.

Specifically in regards to big tech, President Biden explained that “[t]he American information technology sector has long been an engine of innovation and growth, but today a small number of dominant Internet platforms use their power to exclude market entrants, to extract monopoly profits, and to gather intimate personal information that they can exploit for their own advantage.” He went on to describe a number of ways in which these dominant IT companies have maintained their dominance, including through “serial mergers” and “the acquisition of nascent competitors.”

What’s Next for the Merger Guidelines

The Merger Guidelines draft will be open to public comment until September 18, 2023. Any interested individual or organizational representative can review the guidelines and comment through this government page. The DOJ and FTC will review these comments and evaluate their relevance as they finalize the new Merger Guidelines. While MSPs shouldn’t expect these agencies to do any significant overhauls of the current draft based on public commentary, it may be worth commenting and getting clarification on any existing language that jeopardizes or muddies the waters for existing MSP partnerships and upcoming deals.