How Does M&A Help The Economy? Count The Ways
Mergers and acquisitions are a catalyst for economic activity and wellbeing in the U.S.—benefiting consumers, workers, and businesses. For consumers and workers, M&A protects jobs and leads to improved products and reduced costs. For businesses, M&A provides an exit strategy and incentive to innovate.
— Mergers and acquisitions spark innovation, leading to better and cheaper products for consumers.
— Companies look to mergers and acquisitions as a viable and desirable option to grow their business.
— The current antitrust framework is capable of regulating M&A activity and ensuring transactions are pro-competitive.
Mergers and acquisitions spark innovation, leading to better and cheaper products for consumers.
Acquisitions make innovations possible and viable, according to Dr. Mark Jamison, director of the Digital Markets Initiative. “[I]nnovation is more than just an idea: Innovation requires an idea, turning the idea into a real product, developing a viable business plan, and executing the business plan. Sometimes incumbents can do a better job with the last two steps than entrants, making an acquisition a good thing for all affected parties, including consumers.”
FTC Commissioner Noah Phillips explains how M&A allows companies and markets to operate more efficiently, ultimately benefiting both consumers and workers. “[M&A] helps allocate assets in an efficient manner, for example giving those with the wherewithal to operate resources (think companies, or plants) an opportunity that others may be unable to utilize. Consumers benefit if a merger leads to the delivery of products or services that one company could not efficiently provide on its own, and from the innovation and lower prices that better management and integration can provide. Workers benefit, too, as they remain employed by going concerns.”
Without the prospect of an acquisition, “some innovations simply will not happen.” Iain Murray, Vice President for Strategy and Senior Fellow at the Competitive Enterprise Institute writes, “buyouts by large tech firms offer a way for innovators to realize a return on their initial investment that is often part of their business plan.” Knowing that M&A is a possibility gives entrepreneurs and startups flexibility and incentive to innovate, he continues: “Without the potential of a lucrative buyout, entrepreneurs will find it harder to attract venture capital; some innovations simply will not happen.”
M&A helps ensure workers can keep their jobs, offering a positive alternative to layoffs. As explained by Carl Szabo, vice president of NetChoice: “In hard economic times, often the only way to save a business and the jobs it provides is to seek investment from larger market players.” FTC Commissioner Noah Phillips goes further: “Workers benefit [from M&A], too, as they remain employed by going concerns. It serves no good, including for competition, to let companies that might live, die.”
Companies look to mergers and acquisitions as a viable and desirable option to grow their business.
Antitrust economist Carl Shapiro notes that acquisitions are “an important exit strategy for tech startups.” “One common fact pattern that can involve a loss of future competition occurs when a large incumbent firm acquires a highly capable firm operating in an adjacent space. This happens frequently in the technology sector…. Smaller acquisitions happen on a regular basis, and indeed are an important exit strategy for tech startups.”
Many small, new firms welcome and rely on M&A, on balance.
— Doug Cogen, co-chair of the M&A team at law firm Fenwick & West, points out that many small companies rely on larger companies to “scale” their products.
— “Startups often have great ideas but lack the technical and marketing resources to bring a product to a wider audience. Large companies, on the other hand, have the resources and consumer base for a new product but often lack innovative ideas,” writes Will Rinehart, Senior Research Fellow at the Center for Growth and Opportunity.
— A Silicon Valley Bank report on startups finds 58% of U.S. startups have a long-term goal of acquisition as an exit strategy.
Makan Delrahim, AAG for Antitrust at the DOJ, finds acquisitions by leading tech companies help startups win. Makan Delrahim, the Justice Department’s antitrust chief, acknowledges that “great efficiencies” come from incumbent technology companies’ acquisitions of newer entrants. “You wonder would YouTube be as useful and as a competing force to music or in video had it not been enhanced and improved through the tech resources that Google had?”
The Bloomberg Opinion editorial board points out the various business opportunities from mergers that ultimately result in benefits for consumers. “Mergers on balance offer companies an opportunity to boost growth, create synergies, leverage economies of scale, increase productivity and otherwise become more competitive.”
The current antitrust framework is capable of regulating M&A activity and ensuring transactions are pro-competitive.
Recognizing the importance of M&A, the FTC and Department of Justice issued guidelines to allow businesses to effectively and pro-competitively merge. “[The guidelines] should enable businesses to evaluate proposed transactions with greater understanding of possible antitrust implications, thus encouraging procompetitive collaborations, deterring collaborations likely to harm competition and consumers, and facilitating the Agencies’ investigations of collaborations.”
Antitrust agencies are equipped to fully and reasonably enforce antitrust laws around M&A activity, as reinforced by the U.S. Department of Justice. “The antitrust laws allow businesses to create joint ventures and other collaborative arrangements through which they are likely to produce net procompetitive benefits for consumers. Such arrangements frequently serve as an efficient method for firms to combine skills or resources to supply products or services at a lower cost or that would not otherwise be available. Consumers benefit from competitor collaborations in a variety of ways.”
Herbert Hovenkamp, antitrust law expert, emphasizes that mergers place pressure on rivals to innovate and that protecting rivals should not be the purpose of antitrust laws. “Any time a merger or other practice reduces a firm’s costs or improves its products or services, it boosts competition by putting pressure on obsolete or less efficient rivals. But protecting these rivals should not be the purpose of the antitrust laws. Rather, the focus of antitrust laws should be on maximizing output, which benefits both consumers and workers.”