On Wednesday, Britain’s antitrust regulator blocked Microsoft’s $69 billion bid to acquire gaming giant Activision Blizzard, threatening to scrap the deal outright. The ruling raises a broader question: How often do deals fall apart after they are signed?
So far this year, only 33 of 3,347 bids to buy US companies have been withdrawn. Some deals may have been signed in the last few years, as was the case with the Activision acquisition announced last year. billion and 142 were withdrawn.
Deals can fall apart for a variety of reasons, but when regulators step in to stop a merger, it’s usually because they’re concerned that the deal will harm consumers or the country at large. Regulators are getting more and more assertive. Last year’s number of canceled deals was his highest in 20 years, but 2021’s record number of deals may also be to blame.
One result of increased regulatory scrutiny is a cooling in dealmaking, according to dealmakers. The value of deals announced in 2022 fell nearly 60% year-on-year, but activity in 2021 was particularly high.
Dealmakers say it is becoming increasingly difficult to predict when authorities will block or approve deals. This uncertainty is especially high for companies looking to buy emerging technologies such as cloud gaming, as is the case with Microsoft and Activision.
In the United States, there have been many high-profile deals that regulators have successfully blocked under President Biden. Those include Penguin Random House’s planned acquisition of Simon & Schuster and the merger of insurance giants Aon and Willis Towers Watson last year.
Global regulators are intervening in deals involving companies headquartered abroad, as the UK has done with Microsoft and Activision. European Union competition regulators moved last year to block the biotech firm Illumina’s acquisition of Grail, but Illumina has said Grail does not operate in Europe.
The deal could also fall apart due to national security concerns. Broadcom’s takeover of rival chip maker Qualcomm fell apart after a U.S. government panel argued the deal would give Chinese companies like Huawei an edge.
Some companies seem willing to bet on deals that pass rigorous screening. The Justice Department has filed a lawsuit to block JetBlue’s acquisition of Spirit Airlines. This was a widely anticipated move given the already consolidating aviation industry. The two airlines plan to defend the merger, seeking a similar outcome to UnitedHealth Groups’ acquisition of Change Healthcare.
Companies seeking a merger know that there is a risk that this deal will not materialize. As such, many contracts include some protection, such as a fee that one party pays to the other if the regulator splits. Firms are also building longer timelines to close deals to deal with potential backlash from regulators.
But the UK move to block Microsoft’s acquisition of Activision comes as big tech companies are overheated and the economic backdrop is making it more difficult to raise funding. This could point to an even tougher year ahead for the already slowing trading market.
