The sale of Facebook-Giphy shows how fear of regulators is slowing down the M&A market

The Facebook and Giphy logos.

Aytac Unal | Anadolu Agency via Getty Images

In 2020, a top goal The executive explained that the company spent $315 million acquiring Giphy “because it’s a great service that needed a home.” Instagram head Adam Mosseri praised Giphy’s “amazing team” and “expressive” user base, and stressed that Giphy’s user data “wasn’t the motivation”.

Earlier this week, Meta sold Giphy to Shutterstock for $53 million, an eye-watering 83% reduction. The sale was forced by the UK antitrust regulator, who determined that the acquisition of Meta posed a risk to the social media and advertising markets.

That’s a paltry sum of money for most tech companies, but the prospect of regulators refusing to approve deals or scrapping them after they’ve taken place has helped to cool an already frigid business environment, experts told CNBC.

“You’re seeing deals being done for 20, 30 cents compared to what it would have been six or 12 months ago,” America’s Frontier Fund consultant and former FDIC chief innovation officer Sultan Meghji told CNBC.

Regulators in Europe and the US are eyeing massive deals like Microsoftproposed $69 billion acquisition of activisionand the smaller ones, like from amazon Acquisition of vacuum manufacturer for $1.7 billion I steal.

Jonathan Kanter, who heads the Justice Department’s Antitrust Unit, and Lina Khan, chairman of the Federal Trade Commission, were given broad leeway by President Joe Biden to pursue potentially anticompetitive behavior. The federal government has filed lawsuits or opened inquiries in the Amazon, Google, jetblue airlinesMeta and Microsoft.

Prior to his DOJ posting, Kanter worked in private practice, advising directors and executives on potential deals and related regulatory pitfalls. Khan made his name with a widely quoted newspaper article about Amazon’s anti-competitive effects.

The Biden administration has “increased the scrutiny of business scrutiny and tightened enforcement,” Morrison Foerster’s global co-chair of risk and crisis management, Brandon L. Van Grack, told CNBC.

Van Grack, former head of the DOJ’s Foreign Agents Registration Law unit, noted that regulatory scrutiny was increasing in the years leading up to the current administration.

Still, top advisers say boardrooms are now giving more weight to regulatory concerns. High profile actions have played a role in this, as has the increasing complexity and number of regulatory regimes.

From the FTC’s perspective, the lofty thinking is welcome. “Thousands of deals still happen every year. But if mergers aren’t leaving the boardroom because they would violate antitrust laws, that means we’re doing our jobs,” FTC spokesman Douglas Farrar told CNBC.

The CFIUS factor

It’s not just FTC or DOJ concerns that are holding back deals. Publicly released reviews by the all-powerful Committee on Foreign Investment in the United States, or CFIUS, are up 50% since 2020, according to PwC research.

This number does not take into account contact from CFIUS attorneys alerting companies to non-public CFIUS business or review letters. The Committee generally operates in a highly secretive manner and, other than a lengthy public review by TikTok parent ByteDance, is rarely in public view.

That’s because CFIUS is tasked with reviewing corporate acquisitions that, among other things, could have an impact on national security. Even the suggestion of a CFIUS investigation can completely neutralize a deal or drive a favored bidder out of contention.

Cryptocurrency exchange Binance, for example, reached an agreement to acquire bankrupt lender Voyager Digital in late 2022. Binance’s offer was accepted after Voyager’s first deal with allegedly fraudulent cryptocurrency exchange FTX fell through for cause of its filing for bankruptcy in November 2022.

Shortly after the announcement of the Binance-Voyager deal, CFIUS filed a letter notifying Voyager that it would review the deal.

CFIUS is a powerful “tool” in the US government’s arsenal, Van Grack told CNBC. Through CFIUS, the Justice Department has been able to take on an “increasing role in reviewing and scrutinizing these transactions,” Van Grack said.

The international scope of most businesses further complicates matters. It’s not just one regulator that can weigh on an acquisition or merger. The first question now should be “how many jurisdictions do we touch,” Van Grack said.

From there, appeasing regulatory concerns, whether anticompetitive or national security, can mean divestment or mitigation. It could also mean, as with the CMA in the Activision-Microsoft deal, that regulators move to block a deal in its entirety.

As boards and executives weigh businesses large and small, consultants are forced to contend with a global panoply of competing regulatory interests, Van Grack said. “It’s just a more complex web: ‘Are we going to get approval? How long will it take? Will there be mitigation and what would that mitigation look like?'”

“These questions are becoming more difficult to answer,” he said.

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