The FTC vs. M&A

July 21, 2023 | Chad Sheaffer, CFA, CAIA, Senior Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Three-line chart showing M&A Volume. Chart subtitle: Completed M&A deal volumes have declined significantly under the current FTC, while pending deals continue to build amid increased regulatory scrutiny. Chart source: Source: Refinitiv as of June 30, 2023. Data includes all deals in North America, including net debt of the target company being acquired. Chart visual description: Data is quarterly, from 2Q13 through 2Q23. Y-axis is labeled “M&A Volume” and ranges from $0B to $700B. X-axis is labeled in Q1 YYYY format, in two-quarter increments from Q2 2013 to Q2 2023. Lina Khan FTC Regime is highlighted in light green on chart, from Q2 2021 to present. Completed Deals is plotted in blue line, Pending Deals is plotted in dotted purple line, and Withdrawn Deals is plotted in dark orange. Chart data description: Since Khan’s appointment, Completed Deals have plummeted and Pending Deals have increased. Withdrawn Deals generally have remained low compared to period shown. Please contact us for the full data set. End chart description. See disclosures at end of document.

Higher interest rates have broadly impacted capital markets, including M&A deal flow given the significant increase in financing costs. Along with that, elevated regulatory risk has been another headwind for the space.

Since her appointment as Chair of the Federal Trade Commission (FTC) in June 2021, Lina Khan has emerged as one of the most aggressive anti-trust leaders the U.S. and Wall Street have seen in some time. For large corporations seeking growth via M&A, the regulatory requirements for FTC approval have increased significantly. Deals that would likely have been approved with ease in prior administrations now face costly lawsuits, injunctions, and other challenges by the Commission. Coupled with higher financing costs, the FTC’s aggressive agenda has significantly prolonged the timeline for deals to close. In the second quarter of 2023, completed M&A deal volumes came in at mere $95 billion, just above the $83 billion of deals closed at the height of COVID in the second quarter 2022. At the same time, the volume of pending deals awaiting regulatory approval has substantially increased, reaching $183 billion in the second quarter.

The FTC’s actions have had a clear impact on the M&A environment, leading to significantly wider deal spreads in 2023 amid increased uncertainty. This is both an opportunity and a risk for hedge funds specializing in merger arbitrage. While deal spreads appear attractive, they come with heightened risks that require expertise to successfully navigate. For investors, selecting experienced managers with a proven track record of success across different regulatory regimes is critical to achieving favorable risk-adjusted returns.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Chad Sheaffer, CFA, CAIA
Senior Research Analyst

Get to Know Chad

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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