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

In 2020, a peak Meta The executive explained that the company spent $315 million to acquire Giphy “because it’s a great service that needed a home.” Instagram chief Adam Mosseri praised Giphy’s “amazing team” and “expressive” user base, and pointed out that Giphy’s user data was “not the motivation”.

Earlier this week, Meta sold Giphy to Shutterstock for $53 million, a tempting markdown of 83%. The sale was forced by the UK antitrust regulator, which ruled that the acquisition of Meta posed a risk to the social media and advertising markets.

That’s a pittance of money for most tech companies, but the potential for regulators to refuse to approve deals or unwind them after they happen has helped chill an already frosty trading environment. experts told CNBC.

“You’re seeing deals done for 20, 30 cents on the dollar compared to where they would have been six or 12 months ago,” the US Frontier Fund adviser and former chief innovation officer of the FDIC, Sultan Meghji.

Regulators in Europe and the United States are considering mammoth deals, such as Microsoft $69 billion proposed acquisition of Activisionand the little ones, like from Amazon Acquisition of a vacuum cleaner for 1.7 billion dollars i robot.

Jonathan Kanter, who heads the Justice Department’s antitrust unit, and Lina Khan, chairwoman of the Federal Trade Commission, have been given wide latitude by President Joe Biden to prosecute potentially anticompetitive behavior. The federal government has sued or opened investigations into Amazon, Google, Jetblue airlinesMeta and Microsoft.

Prior to his DOJ assignment, Kanter worked in private practice, advising directors and executives on potential deals and the regulatory pitfalls that come with them. Khan made a name for himself with a widely cited newspaper article about Amazon’s anti-competitive effects.

The Biden administration “has strengthened review of agreements and strengthened enforcement,” Brandon L. Van Grack, Morrison Foerster’s co-chair of global risk and crisis management, told CNBC.

Van Grack, the former head of the DOJ’s Foreign Agent Registration Law Unit, noted that regulatory scrutiny had been increasing for years before the current administration.

Yet top advisers say boardrooms are now giving increased weight to regulatory concerns. High profile actions have contributed to this, as has the increasing complexity and number of regulatory regimes.

From the FTC’s perspective, the increased reflection is welcome. “Thousands of deals still happen every year. But if mergers don’t get out of the board because they would violate antitrust laws, that means we’re doing our job,” the spokesperson told CNBC. from the FTC, Douglas Farrar.

It’s not just FTC or DOJ concerns that are slowing transactions. Opinions issued by the all-powerful Committee on Foreign Investment in the United States have increased by 50% since 2020, according to research of PwC.

This number does not take into account outreach from CFIUS lawyers warning companies to make deals, or non-public review letters from CFIUS. The committee generally operates in a highly secretive manner and, aside from prolonged public scrutiny of ByteDance, TikTok’s parent, is rarely in the public eye.

Indeed, CFIUS is responsible for reviewing corporate acquisitions that, among other things, could have an effect on national security. Even the suggestion of a CFIUS probe can completely neutralize a deal or knock a favored bidder out of the running.

Cryptocurrency exchange Binance, for example, struck a deal to acquire bankrupt crypto lender Voyager Digital in late 2022. Binance’s offer was accepted after Voyager’s first deal with the exchange fell through. allegedly fraudulent cryptocurrency FTX due to the latter filing for bankruptcy in November 2022.

Shortly after the announcement of the Binance-Voyager deal, CFIUS filed a letter notifying Voyager that it would review the deal.

CFIUS is a powerful “tool” in the US government’s arsenal, Van Grack told CNBC. Through CFIUS, the DOJ has been able to play an “increasing role in scrutinizing and scrutinizing these transactions,” Van Grack said.

The international scope of most transactions further complicated matters. It’s not just a regulator that can weigh in on an acquisition or merger. The first question must now be “how many jurisdictions are we touching,” Van Grack said.

From there, allaying regulatory concerns, whether based on anticompetitive or national security grounds, can mean surrender or mitigation. It can also mean, as with the CMA in the Activision-Microsoft deal, that regulators decide to block a deal in its entirety.

As boards and executives assess deals large and small, advisers are forced to contend with a global panoply of competing regulatory interests, Van Grack said. “It’s just [a] more complex network: “Are we going to get approval? How long will it take? Will there be mitigation and what would that mitigation look like? »

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