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FTC reexamines Big Tech's blockbuster M&A past as antitrust scrutiny grows

The Federal Trade Commission's recent re-examination of past Big Tech deals focuses on a period when more tech deals got bigger, and many targeted fast-growing startups.

While most tech deals tend to be smaller-value transactions that fall under the radar of routine FTC review, about a decade ago, Facebook Inc. and Google LLC went on an M&A buying spree with several deals large enough to trigger antitrust scrutiny — some of which are now under new fire from regulators.

Legal and antitrust experts say the retrospective M&A reviews underscore the difficulty of judging the impact on competition in real time from new and novel tech business models. It also signals a policy shift under the FTC's new leadership, with Chair Lina Khan focused on restraining Big Tech's market power.

"There's an antitrust spotlight on Big Tech right now," said Alex Petros, policy counsel for Public Knowledge, a Washington, D.C.-based nonprofit public interest group.

Petros expects the FTC to more heavily scrutinize deals going forward, including potentially opening more reviews of closed transactions, like the agency's recent lawsuit challenging Facebook's purchases of photo-sharing site Instagram LLC and mobile messaging app WhatsApp Inc., which closed in 2012 and 2014, respectively.

An FTC spokesperson said the agency does not comment on active or potential investigations.

Deal history

Facebook in 2012 announced the cash-and-stock Instagram deal, then valued at $1 billion, as the larger social media company was pursuing its initial public offering. Instagram was two years old when the sale closed. In 2014, Facebook spent more heavily to acquire WhatsApp in a deal that valued the then five-year-old messaging company at about $22 billion.

All told, the so-called FAAMG companies — Facebook, Amazon.com Inc., Apple Inc., Microsoft Corp. and Google — announced 40 deals large enough to trigger FTC review between 2011 and 2015, according to S&P Global Market Intelligence data. Over the next five years, the same group announced less than half as many deals large enough for automatic antitrust review, and none of those involved Facebook.

In a recently refiled lawsuit, the FTC is arguing that Facebook's Instagram and WhatsApp deals were anticompetitive and should be unwound.

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Google drove most of Big Tech's larger deal volume between 2011 and 2015, with a total of 15 transactions large enough to require FTC review. That included Google's 2013 acquisition of Waze, a startup founded just a few years earlier. Given the agency's recent actions, Public Knowledge's Petros said the Waze deal could also be ripe for a new review today, since Waze competed with Google's mapping product.

Google and Facebook did not comment for this article, but Facebook in an Aug. 19 Twitter post called the FTC's claims against its past deals an "effort to rewrite antitrust laws and upend settled expectations of merger review, declaring to the business community that no sale is ever final."

Legal challenges

Antitrust attorneys noted that it is much easier for the FTC to point to harms caused by past deals than to predict whether a pending merger will harm competition in a given market in the future.

"It's actual direct evidence versus evidence that is somewhat speculative," said Zarema Jaramillo, partner in the antitrust group of Lowenstein Sandler LLP. "If that evidence is there, it's easier to point to it and say, 'We had no idea this would happen. At the time, we thought it might happen but now we know for sure the harm has been done and this is how consumers are impacted.'"

The FTC likely viewed the Facebook purchases of Instagram and WhatsApp as complementary businesses to Facebook's portfolio when the deals were first reviewed, said Andre Barlow, partner with Doyle Barlow and Mazard PLLC and a former trial attorney with the U.S. Justice Department's antitrust division. Barlow added that the agency likely did not have evidence at the time to indicate that the deals were anticompetitive.

But building a case with the benefit of hindsight does not mean it will be easy for the FTC to win in court. To do so in the pending lawsuit, the FTC needs to prove that Facebook is a monopolist and that it engaged in behavior to illegally maintain its monopoly power, Barlow said.

Looking ahead

Going forward, Big Tech companies are expected to be more judicious about the deals they pursue.

"Facebook would be crazy to engage in the same type of acquisitions as Instagram and WhatsApp right now," said Lowenstein Sandler's Jaramillo. "They know it's going to be a huge fight."

Microsoft has been particularly thoughtful about the mergers it pursues following a major antitrust lawsuit from the Justice Department during the late 1990s, Jaramillo noted. But the company's planned $19.70 billion purchase of artificial intelligence-powered speech technology firm Nuance Communications Inc. is likely still on the FTC's radar, the attorney said. Nuance in a June regulatory filing said the federal antitrust review period for the deal had expired, satisfying one of the conditions for closing.

"The agencies may want to wait and see what Microsoft does with Nuance and how that really impacts consumer welfare," Jaramillo said.

Microsoft declined to comment on the Nuance deal review.