President Joe Biden is cracking down on monopolies. And that has some on Wall Street worried.
Goldman Sachs is warning clients that Biden’s July 9 executive order calling for antitrust agencies to closely inspect mergers could slow what the investment bank described as a “blockbuster” year for mergers and acquisitions.
“It will be more onerous to complete deals as regulators scrutinize transactions,” Goldman Sachs analysts wrote in a note to clients.
For now, dealmaking is alive and well on Wall Street. US-based companies have announced a staggering $1.9 trillion in acquisitions so far this year, according to Goldman Sachs. That’s the fastest pace of M&A activity since at least 2000, according to the bank.
In one prominent example, popular video-conferencing company Zoom announced a $14.7 billion deal Sunday to buy cloud-based software company Five9. It marks Zoom’s largest purchase in company history.
But such deals could come under more scrutiny because of Biden’s sweeping executive order aimed at promoting competition in the economy. The order encourages the Justice Department and Federal Trade Commission to “enforce the antitrust laws vigorously.” It also highlights that current law allows antitrust regulators to challenge “prior bad mergers,” according to a White House fact sheet.
The order additionally establishes a White House Competition Council to “coordinate the federal government’s response to the rising power of large corporations in the economy,” the fact sheet said.
Biden touted the executive order on Monday as a way to fight inflation.
“New businesses will get in the game, competing against the giant corporations who have been free to ramp up prices because they haven’t had any real competition,” Biden said in remarks from the White House.
Goldman Sachs, which makes money in part by advising companies on mergers and other deals, warned that a “key risk” to the M&A outlook is “increased regulatory scrutiny due to antitrust concerns.”
Buyout targets are slumping
Indeed, some deals have collapsed recently.
Just three days after the Biden order was signed, Warren Buffett’s Berkshire Hathaway announced it was walking away from a $1.7 billion deal to buy a large natural gas pipeline. Berkshire cited “ongoing uncertainty” linked to getting the green light from the FTC.
Billionaire Bill Ackman announced Monday that his blank-check company has abandoned a plan to buy 10% of Vivendi’s Universal Music Group. Ackman cited discussions with the Securities and Exchange Commission.
Goldman Sachs said the more muscular oversight could indirectly hurt the shares of potential M&A targets. The bank said a basket of stocks it created that have at least a 15% chance of being acquired has lagged behind the broader market since March and trades at a deep discount when compared with the S&P 500.
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