Agreement between competitors – Are the companies in this transaction acting together to limit competition and set prices?.Mergers – How would this transaction affect the consumer and the opportunity for competition?.The antitrust agencies and enforcers look for these factors in each type of transaction¹³ : It is prudent to note that state attorneys also play as “quasi-sovereign enforcers in parallel with the agencies,” but do not influence the outcome of mergers as much as the federal agencies.¹² Both FTC and DOJ have jurisdiction over A&D mergers, and both can issue filings to block a deal from happening. The FTC and DOJ are the primary enforcers of antitrust laws, with departments like the DoD supporting analysis and collating findings for their consideration. The number of court proceedings against challenged transactions has risen from 6% between 20 to 18% between 20.⁹ Transactions of more than US$1 billion and those from industries under the DOJ's jurisdiction are considered more likely to receive enforcement actions, with 51% of all transactions from 2017–2020 over this threshold receiving a second request investigation. While recently blocked deals have made headlines, the scrutiny of M&A activity has increased for some time. Companies need to re-evaluate their approach to dealmaking and take steps to protect their transaction as it approaches the finish line. However, abandoning M&A is not an option, mainly due to the growth benefits it can provide for a company. The possibility that a company could invest vast resources in negotiating a deal and then have it rejected has given A&D leaders pause. As a result, these sectors are at risk for further consolidation that could lead to anti-competitive behavior.⁸Ĭhief strategy officers (CSOs) spend considerable time and effort evaluating M&A targets that could support their strategic objectives. Insufficient competition may exist because many products result in low margins, have low or unpredictable demand and there is little incentive to add new capabilities inside the facilities. Castings and forgings, missiles and munitions, energy storage and batteries, strategic and critical materials, and microelectronics are sectors that the DoD has identified as having insufficient competition. The DoD's broader approach to analyzing deal activity is to consider a transaction's impact on competition - in particular if the reduction in competition compromises national security, the country's industrial base, or innovation. While innovation is critical to driving growth in A&D, the DoD thinks IP protection could be limiting the ability of companies to build on new ideas and take innovation even further.⁶ A shortfall of skilled workers in defense manufacturing and a federal-wide push to use commercial items are also hindering market competitiveness for traditional defense players.⁷ Department of Defense (DoD) shares this concern, with supply chain resiliency, data rights and intellectual property (IP) driving its growing involvement in the defense industrial base.⁵ From a business standpoint, IP protection establishes a form of limited monopoly to commercialize new technology and protect investments in R&D. However, given that antitrust agencies can reopen an investigation and that the FTC is issuing "Pre-Consummation Warning Letters" to prolong the merger review waiting period, A&D companies continue to face regulatory risks that potentially burden their ability to engage in M&A activities.³Īntitrust agencies, however, are concerned about a defense sector that has become too consolidated.⁴ The U.S. These companies have typically viewed mergers and acquisitions (M&A) as an effective tool in this effort. Two main contributors are the war in Ukraine and ongoing tensions between the US and China.² In efforts to support the US National Defense Strategy (NDS) and the National Security Strategy (NSS), A&D companies seek investments in technology and talent to maintain their competitiveness in a rapidly evolving market. Sector leaders see a world where geopolitical conflict is on the rise. In response, A&D companies seeking large acquisitions or operating in a constrained industrial supply base must understand that their efforts to acquire companies may raise scrutiny during the merger review process. The block by the FTC is a prime example that antitrust agencies view the aerospace and defense (A&D) industry as highly consolidated - as from 1980 to 2015, the A&D industry has consolidated from approximately 85 companies to just 5 major players (Boeing, Lockheed Martin, Northrop Grumman, Raytheon and General Dynamics).¹ These major players have rapidly consolidated high-demand and primary subsystems that are now causing anti-competitive concerns for the antitrust agencies. Federal Trade Commission (FTC) blocked Lockheed Martin’s US$4.4 billion acquisition of Aerojet Rocketdyne, causing a termination of the deal by Lockheed Martin.
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