A merger is a major business transaction that combines two organizations into a single cohesive business entity. Mergers often require a substantial amount of planning, as they create a risk of operational redundancy and lawsuits.
However, even before the merger occurs, complications can arise. Proposed mergers require careful review internally and also by regulatory officials. State and federal authorities can intervene and prevent a merger from occurring if the transaction appears to violate federal antitrust regulations.
When could a merger potentially lead to allegations of unfair market domination and antitrust violations?
When the companies already have a strong presence
Mergers take two companies that may have previously competed or worked with one another and turn them into a single business entity. In theory, the resulting combined entity is bigger and has more of an influence on the market than either of the companies might on their own.
The greater the market share of each company prior to the merger and the fewer competitors of similar scale currently in operation, the greater the chance that the merger might run afoul of antitrust laws. When two of the only players in a particular industry or market combine forces, there may not be any company capable of competing against the resulting combined organization.
When the merger is in a highly concentrated market
Some mergers require more scrutiny than others. The number of competitors in a particular industry can be an important consideration when proposing a merger.
For years, online marketplaces and technology companies did not receive much attention from regulatory authorities. As such, several companies have come to dominate the tech world and the e-commerce landscape.
After a few dubious mergers, regulators have since adopted stricter rules that specifically apply to highly concentrated industries. E-commerce and technology companies may face more scrutiny than traditional retail businesses or manufacturers when proposing a merger. After all, fewer businesses are operating in those sectors of the economy, and some of them are already quite large and powerful.
Those proposing a merger need to be ready to respond to concerns from regulatory officials regarding the scope and power of the resulting combined company. Tracking changes to antitrust rules and other laws that apply to mergers can be beneficial for those who hold an ownership interest or leadership role in successful organizations.