Facebook-Giphy sale shows how regulatory fears are slowing M&A market

In 2020, a senior Meta executive explained that the company spent $315 million to acquire Giphy “because it’s a great service that needs a home.” Instagram CEO Adam Mosseri touted Giphy’s “amazing team” and “expressive” user base, and emphasized that Giphy’s user data is “not motivation.”

Earlier this week, Meta sold Giphy to Shutterstock for $53 million, an 83% discount. The sale was forced by the UK’s antitrust regulator, which ruled that the Meta acquisition posed a threat to the social media and advertising markets.

That’s a pittance for most tech companies, but the ability for regulators to approve deals or cancel them once they’re done has helped chill an already chilly dealmaking environment, experts told CNBC.

“You’re seeing trades coming in at 20, 30 cents on the dollar compared to what they would have been even six or 12 months ago,” an adviser to America’s Frontier Fund and former chief innovation officer at the FDIC told CNBC. director Sultan Meghji.

In Europe and the US, regulators have taken notice of huge deals like Microsoft’s proposed $69 billion acquisition of Activision and smaller deals like Amazon’s $1.7 billion takeover of vacuum maker iRobot. achievement.

Jonathan Kanter, who heads the Justice Department’s antitrust division, and Lina Khan, the chairman of the Federal Trade Commission, have been given wide latitude by President Joe Biden to pursue potentially anticompetitive behavior. The federal government has filed cases or opened investigations against Amazon, Google, Jetblue Airlines, Meta and Microsoft.

Prior to joining the DOJ, Kanter was in private practice advising directors and CEOs on potential transactions and related regulatory pitfalls. Khan made his name with a widely cited journal article about Amazon’s anti-competitive effects.

The Biden administration has “strengthened transaction controls and strengthened enforcement,” Brandon Van Grack, co-chair of global risk and crisis management at Morrison Forster, told CNBC.

Van Grack, the former head of the DOJ’s Foreign Agents Registration Act unit, noted that regulatory scrutiny had been growing for years before the current administration.

However, top advisers say boardrooms are now adding to regulatory concerns. High-profile operations, as well as the increasing complexity and number of regulatory regimes, have played a role in this.

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

It’s not just the FTC or the DOJ that is concerned with slowing transactions. Publicly disclosed reviews of the all-powerful Committee on Foreign Investment in the US have increased by 50% since 2020, according to PwC research.

That number doesn’t take into account CFIUS attorneys’ warnings to companies to back out of deals or non-public CFIUS review letters. The committee generally operates in a highly secretive fashion and, aside from a public and lengthy review of TikTok parent ByteDance, is rarely in the public eye.

That’s because CFIUS is charged with reviewing corporate acquisitions that could have national security implications, among other things. Even a suggestion of a CFIUS investigation could derail the deal entirely or remove the preferred bidder from running.

Cryptocurrency exchange Binance, for example, reached an agreement to acquire bankrupt cryptolender Voyager Digital in late 2022. Binance’s bid comes after Voyager’s first deal with allegedly fraudulent crypto exchange FTX fell through after the latter filed for bankruptcy in November 2022.

Shortly after the Binance-Voyager deal was announced, CFIUS sent a letter informing 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 DOJ has been able to “take an increasing role in reviewing and scrutinizing these transactions,” Van Grack said.

The international scope of most transactions has further complicated matters. It’s not just one regulator that can affect an acquisition or merger. The first question now should be “how many jurisdictions are we touching,” Van Grack said.

Hence, mitigating regulatory concerns, whether on anti-competitive or national security grounds, can mean alienation or mitigation. It could also mean, as with the CMA in the Activision-Microsoft deal, that regulators move to block the deal entirely.

As boardrooms and executives weigh deals big and small, advisers are forced to contend with a global range of competing regulatory interests, Van Grack said. “That’s right [a] more complex network. “Are we going to get approved? How long will it take? Will there be mitigation, and what will that mitigation look like?’

“Answering those questions is becoming more difficult,” he said.