Forewarned is Forearmed - Gaining a Strategic Edge in Complex Merger Filings
We live in an age when the widespread use of data has already become ubiquitous, and the tools and knowledge to effectively harness information already exist. When it comes to merger filings, data-driven approaches have also become the cornerstone. Any firm engaging in a complex merger or acquisition can expect to not only to deliver a significant amount of data to a competition authority, but also to produce a substantial economic assessment of their own. Being properly prepared for a competition authority’s information requests will reduce the level of uncertainty for the notifying party and this underscores the need for involving economists early on in the merger filing procedure.
More Data, More Detail
The notifying party will notice the more technical approach to merger filing procedures by the authority’s – at times – substantial requests for information. More and more, authorities do not seek aggregated, high-level data, but instead want data that is as granulated as possible. While an extensive data gathering process implies more work for the merging parties, it also allows both the notifying party and the authority to test more thoroughly a variety of hypotheses.
The hypotheses of interest in such instances will be whether the notified merger will result in a significant impediment to effective competition and consequently reduce consumer welfare. As this process is the reality facing merging firms, the importance of having conducted a thorough economic analysis of your own before beginning merger filings cannot be overstated.
Work Up Front Makes Life Easier Down the Line
A common worry among the notifying parties is that the information requests can at times seem excessively burdensome (and there are many instances when acquiring the relevant data may even be impossible). After all, it is far easier to request detailed data than it is to acquire it, placing many times an undue burden on the involved firms. We should nevertheless keep in mind that what the use of data and economic models add to the merger filing procedures (when used appropriately of course) is a level of transparency and reliability that would be difficult to achieve otherwise. The effects predicted by an economic model can be replicated and the source of the result traced to its root causes.
While the data gathering process can be intensive, there is still a silver lining in that when analytical methods and data is correctly and appropriately used, then it becomes easier to predict and plan for the discussions that will take place with the competition authority.
Economic Analysis as a Foundation for Realistic Bids
In addition to ensuring that the parties are well prepared for merger filing proceedings with a competition authority, an appropriately conducted economic analysis of the relevant competition effects may also give a strategic edge at an even earlier stage. Prior to notifying a competition authority, firms are in many instances involved in a bidding process. At the stage when firms are considering valuations and bidding strategies for a potential target, sidestepping merger regulation issues may be costly if offers are made that have not taken into account the potential merger risk. Moreover, a thorough economic assessment will inform the potential buyer of the commercial feasibility of any potential remedies, allowing the buyer to effectively negotiate with the seller how divestitures may affect the transaction valuation.
In a similar vein, a thorough competition assessment will ensure sufficient deal security from the seller’s perspective. Finding this balance between the buyer’s and seller’s perspectives often hinges on the parties having the same realistic view of the possible competition concerns and the necessary remedies needed to alleviate any concerns. This makes an early-stage competition assessment not only a necessity but also a strategic tool to make better business decisions.
Don’t Make Decisions in the Dark
When choices are made without the support of relevant data and theories, the results can often be arbitrary and biased. On the other hand, the use of data and economics aid decision makers to make decisions on well-founded and robust grounds. This holds true for both a competition authority when evaluating a merger as well as a when a buyer presents a bid. If the increased use of data can help hold a competition authority to account and aid firms in making well-informed and unbiased decisions, then it is perhaps something we should all encourage.