Facebook-Giphy sale shows how fear of regulators is slowing M&A market

In 2020, a top Yuan The executive explained that the company paid $315 million for Giphy “because it’s a premium service that needs a home.” Instagram head Adam Mosseri touted Giphy’s “amazing team” and “expressive” user base, saying Emphasize that Giphy’s user data “is not the driving force”.

Earlier this week, Meta sold Giphy to Shutterstock $53 million, a coveted 83% markdown. The sale was enforced by Britain’s antitrust regulator, which ruled that Meta’s takeover posed risks to the social media and advertising markets.

Experts told CNBC that for most tech companies, the amount of money is paltry, but the possibility of regulators refusing to approve a deal or canceling it after it happens helps cool an already chilly trading environment.

“Compared to six or 12 months ago, you’re seeing deals done at 20 cents, 30 cents,” Sultan Meghji, an advisor to Frontier Fund of America and former FDIC chief innovation officer, told CNBC.

Regulators in Europe and the U.S. have been eyeing large deals such as MicrosoftProposed acquisition for $69 billion Activisionand smaller ones, such as Amazon’s $1.7 billion acquisition of vacuum-maker i am a robot.

Jonathan Kanter, head of the Justice Department’s antitrust division, and Lina Khan, chair of the Federal Trade Commission, have been granted broad latitude by President Joe Biden to pursue Potential Anti-Competitive Behavior. The federal government has filed lawsuits or opened investigations against Amazon, Google, JetBlue AirwaysYuan and Microsoft.

Before his time at the Justice Department, Kanter worked in private practice advising directors and executives on potential deals and the regulatory pitfalls that would follow. Khan is best known for a widely cited journal article on Amazon’s anticompetitive effects.

Brandon L. Van Grack, co-chairman of global risk and crisis management at Morrison Foerster, told CNBC that the Biden administration has “increased scrutiny of transactions and stepped up enforcement.”

Regulatory scrutiny had been intensifying in the years leading up to the administration, said Van Glack, the former head of the Justice Department’s Foreign Agents Registration Law Division.

Still, boards are now paying more attention to regulatory issues, senior advisers say. High-profile actions have played a role in this, as has the complexity and number of regulatory regimes.

From the FTC’s perspective, this level of thinking is welcome. “Thousands of deals still happen every year. But if a merger doesn’t get off the board because of an antitrust violation, that means we’re doing our job,” FTC spokesman Douglas Farrar told CNBC.

It’s not just the FTC or the DOJ’s concerns that are slowing deals. Discretionary scrutiny according to CFIUS public disclosures has increased by 50% since 2020 Research From PwC.

The figure does not include outreach by CFIUS lawyers warning companies to stop trading, or non-public CFIUS review letters. The committee usually operates in high secrecy, rarely appearing in public view except for a public and lengthy review of TikTok parent company ByteDance.

That’s because CFIUS is responsible for reviewing corporate takeovers that may have implications for national security. Even the suggestion of a CFIUS investigation can kill a deal entirely or drive a favored bidder away from the competition.

For example, cryptocurrency exchange Binance reached an agreement to acquire bankrupt cryptocurrency lender Voyager Digital in late 2022. Binance’s bid was accepted after Voyager’s first agreement with allegedly fraudulent cryptocurrency exchange FTX fell through as the latter filed for bankruptcy in November 2022.

Shortly after the Binance-Voyager deal was announced, CFIUS filed a letter informing Voyager that it would review the deal.

Van Grack told CNBC that CFIUS is a powerful “tool” in the U.S. government’s arsenal. Through CFIUS, the Justice Department is able to “play an increasing role in reviewing and reviewing these transactions,” Van Grack said.

The international scope of most deals further complicates matters. It is not just one regulator that can weigh in on a takeover or merger. The first question now has to be “how many jurisdictions do we engage,” Van Grack said.

From there, mollifying regulatory concerns, whether for anticompetitive or national security reasons, could mean divestitures or mitigations. It could also mean that, like the CMA in the Activision-Microsoft deal, regulators will act to block the entire deal.

As boards and executives weigh the size of deals, advisers are being forced to confront competing regulatory interests around the world, Van Grack said. “It’s just a more complex web: ‘Will we get approval? How long will it take? Will there be mitigations, and what will the mitigations look like?'”

“These questions are getting harder to answer,” he said.