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Serial Acquisitions and Industry Roll-ups –TZANAKI – December 2023 OECD discussion

This presentation by Anna TZANAKI, Lecturer in Law, University of Leeds, was made during the discussion “Serial Acquisitions and Industry Roll-ups” held at the 141st meeting of the OECD Competition Committee on 6 December 2023. More papers and presentations on the topic can be found out at oe.cd/sair. This presentation was uploaded with the author’s consent.

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Serial Acquisitions and Industry Roll-ups
Anna Tzanaki, Lecturer in Law (University of Leeds)
OECD, Paris, 6 December 2023
School of Law
School of Law
Serial Acquisitions – The phenomenon
• An umbrella term to describe different scenarios with similar characteristics
 Private equity & industry rollups
 Digital platforms & ecosystems
• Theoretical intersections
 Antitrust vs finance/ innovation
 Product market competition vs market for corporate control
• Competition law & policy
 Series of small but potentially harmful transactions
 Jurisdictional criteria & substantive assessment
School of Law
Serial Acquisitions – Strategies
• Private equity
 Leveraged buyouts (firm specific, carve outs/ divestitures)
 ‘Buy-and-build’ (industry specific, add ons & consolidation)
• Digital platforms
 ‘Killer’ acquisitions (horizontal overlaps, potential competitors)
 Ecosystem expansion (conglomerate mergers, platf. envelopment)
• Rationales
 Corporate/ managerial efficiency
 Ecosystem competition & innovation
 Market power, profit motive vs competition/ consumer harm
School of Law
Serial Acquisitions – Determinants
• Economic determinants
 Product market competition/ market power (market efficiency)
 Corporate & managerial performance (organisational efficiency)
• Institutional determinants
 Capital markets, market for corporate control
 Corporate ownership & control structures
 Innovation, start-up & VC ecosystem
• Legal determinants
 Competition law, antitrust & merger control
 Corporate law, fiduciary duties
School of Law
Serial Acquisitions – Industries
• Markets prone to exercise of market power/ consolidation
 Inelastic demand/ labour supply, regulated markets with weak price
competition, with geographic/ regulatory entry barriers
 Local markets at early stage of consolidation, with stable revenues
• Markets favourable to corporate control contests
 For corporate bidders: riskier industries with significant economies
of scale, growth opportunities requiring large infusions of equity
(comparative advantage public equity: risk bearing, synergies)
 For PE firms: industries with relatively stable cash flows, limited
growth opportunities, modest capital-raising requirements
(comparative advantage private equity: governance, incentives)
• But ‘convergence’ btw public + PE practices: PE more ‘strategic’, under
CO corporate buyers less synergies vs PE more organisational efficiency
School of Law
Competition Law – Comparative Analysis
• EU merger control
 Jurisdiction: ‘controlling’ acquisitions + above turnover thresholds
 Ad hoc review: Art. 22 EUMR referral regardless of thresholds
(+ Art. 14 DMA, reporting obligation for gatekeepers’ mergers)
 Ex post: Art.102 TFEU if no ex ante review (behavioural remedies,
proportionality), Art.101 for minority acqs (prior notice/ approval)
• US merger control
 HSR Act: reporting above size of transaction + persons thresholds
(‘control’ to determine reporting level/ ‘ultimate parent entity’),
‘solely for investment’ exemption (10% threshold) unlikely for PE
 Section 7 Clayton Act: substantive liability regardless of thresholds
 Ex post: Sec.2 Sherman Act, Sec.7 Clayton Act (divestitures)

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Serial Acquisitions and Industry Roll-ups –TZANAKI – December 2023 OECD discussion

  • 1. Serial Acquisitions and Industry Roll-ups Anna Tzanaki, Lecturer in Law (University of Leeds) OECD, Paris, 6 December 2023 School of Law
  • 2. School of Law Serial Acquisitions – The phenomenon • An umbrella term to describe different scenarios with similar characteristics  Private equity & industry rollups  Digital platforms & ecosystems • Theoretical intersections  Antitrust vs finance/ innovation  Product market competition vs market for corporate control • Competition law & policy  Series of small but potentially harmful transactions  Jurisdictional criteria & substantive assessment
  • 3. School of Law Serial Acquisitions – Strategies • Private equity  Leveraged buyouts (firm specific, carve outs/ divestitures)  ‘Buy-and-build’ (industry specific, add ons & consolidation) • Digital platforms  ‘Killer’ acquisitions (horizontal overlaps, potential competitors)  Ecosystem expansion (conglomerate mergers, platf. envelopment) • Rationales  Corporate/ managerial efficiency  Ecosystem competition & innovation  Market power, profit motive vs competition/ consumer harm
  • 4. School of Law Serial Acquisitions – Determinants • Economic determinants  Product market competition/ market power (market efficiency)  Corporate & managerial performance (organisational efficiency) • Institutional determinants  Capital markets, market for corporate control  Corporate ownership & control structures  Innovation, start-up & VC ecosystem • Legal determinants  Competition law, antitrust & merger control  Corporate law, fiduciary duties
  • 5. School of Law Serial Acquisitions – Industries • Markets prone to exercise of market power/ consolidation  Inelastic demand/ labour supply, regulated markets with weak price competition, with geographic/ regulatory entry barriers  Local markets at early stage of consolidation, with stable revenues • Markets favourable to corporate control contests  For corporate bidders: riskier industries with significant economies of scale, growth opportunities requiring large infusions of equity (comparative advantage public equity: risk bearing, synergies)  For PE firms: industries with relatively stable cash flows, limited growth opportunities, modest capital-raising requirements (comparative advantage private equity: governance, incentives) • But ‘convergence’ btw public + PE practices: PE more ‘strategic’, under CO corporate buyers less synergies vs PE more organisational efficiency
  • 6. School of Law Competition Law – Comparative Analysis • EU merger control  Jurisdiction: ‘controlling’ acquisitions + above turnover thresholds  Ad hoc review: Art. 22 EUMR referral regardless of thresholds (+ Art. 14 DMA, reporting obligation for gatekeepers’ mergers)  Ex post: Art.102 TFEU if no ex ante review (behavioural remedies, proportionality), Art.101 for minority acqs (prior notice/ approval) • US merger control  HSR Act: reporting above size of transaction + persons thresholds (‘control’ to determine reporting level/ ‘ultimate parent entity’), ‘solely for investment’ exemption (10% threshold) unlikely for PE  Section 7 Clayton Act: substantive liability regardless of thresholds  Ex post: Sec.2 Sherman Act, Sec.7 Clayton Act (divestitures)
  • 7. School of Law Competition Law - Enforcement Gaps • Below merger control jurisdictional thresholds  Size of transaction/ parties, change of control?  Small transactions/ targets  Acqs by multiple investment vehicles (managed by same PE firm)  Acqs of non-corporate entities (‘control’ test for reporting, US ≈ EU) • Challenges for substantive merger assessment  Merger specific harm/ efficiencies, standalone transactions?  Cumulative effects of serials acquisitions  Horizontal overlaps across different funds of PE group (common ownership, interlocking directorates) hard to track & assess  Appropriate type & time of remedy
  • 8. School of Law Competition Law – Recent Developments • EU merger control  Legislative reforms of EUMR (thresholds) moot  Digital Markets Act (sector specific), enhanced transparency  Case law developments (Illumina, Towercast), ad hoc solutions • US merger control  2020 Notice on HSR Act reforms (expanded reporting) expired o Definition of ‘person’ (common management vs control)  2023 Notice on HSR Act reforms (+ ad hoc orders), HMG o Business rationale, past acquisitions over 10 years, serial acqs  2021 Prior Approval & Notice Policy (case-by-case) rescinded o Prior approval for any future acquisitions (sales) for 10 years
  • 9. School of Law Competition Policy – Striking the Right Balance • Law (competition/ merger law) matters  Ad hoc solutions vs legal certainty, over-compliance  Asymmetric reporting vs privileged treatment/ regulatory burden (private equity, digital gatekeepers)  Expanded thresholds/ remedies vs distortions in corporate control market, ‘pro-manager’ antitrust enforcement  Effect on firm incentives to adopt anti- vs procompetitive strategies • Competition vs public policy  Efficiency vs overriding considerations in sensitive sectors (health), managerial discipline/ cost minimisation vs quality of service  Harm due to managerial incentives vs change in market structure  Product market competition vs ease of financing, pace of innovation