After Facebook parent company Meta bought Giphy for $315 million in 2020, a bit of creative accounting let the deal fly under the radar of antitrust regulators in the United States. But the British government intervened, taking the rare step of nixing a deal between two US-based companies. The Competition and Markets Authority (CMA), the UK government’s antitrust authority, said the deal would stifle competition in the social media landscape and the digital advertising industry, ultimately harming the British public. Meta said it will appeal the decision, but the UK seems intent on unraveling the deal.
Until recently, deals like Meta’s acquisition of Giphy evaded serious antitrust scrutiny despite the flurry of acquisitions by major tech firms. The British government’s decision to block the deal signals that US tech companies may face challenges both at home and abroad when trying to buy up companies in the years ahead. If the UK unwinds the Giphy deal, it foreshadows a tougher regulatory environment for Big Tech, where the largest firms cannot rely on the same acquisition strategies that once fueled their growth.
Blocked mergers are back in style
In their heyday, US government regulators routinely blocked mergers of large companies. The Sherman Antitrust Act, passed by the US Congress in 1890, ushered in decades of so-called trust-busting, and Supreme Court cases that affirmed the government’s power to break up illegal monopolies in the name of promoting competition.
But between 2010 and 2018, while merger filings nearly doubled from about 1,100 to 2,000, US federal enforcement actions stayed stagnant at about 40 per year, according to research by the Washington Center for Equitable Growth. As the tech giants in Silcon Valley gobbled up an ever larger share of the economy, buying up hundreds of firms as they went, regulators gave them a pass.
Alphabet, Amazon, Apple, Meta, and Microsoft acquired more than 1,000 firms in the past 20 years. None of those transactions were blocked, and 97% were not even assessed by regulators, said Tommaso Valletti, the former chief competition economist at the European Commission said in an interview with the Balanced Economy Project: “These are extreme, ridiculous numbers.”
But there has been a reckoning with Meta and the largest global technology firms, particularly concerning their size, market dominance, and influence in society. Renewed scrutiny over Facebook’s acquisitions of Instagram and WhatsApp, particularly, have been retroactively scrutinized. The US Federal Trade Commission (FTC) and 48 state attorneys general have sued Facebook for allegedly buying companies to suppress competition in the social media market.
The US House antitrust subcommittee issued a 451-page report alleging that Alphabet, Amazon, Apple, and Meta each abused their dominant market power. Around the world, Apple has come under fire for its App Store policies, Amazon has been criticized for competing against its own sellers, and Alphabet has been slammed for mobile operating system policies that allegedly gave its search engines and ad networks market advantages.
The turning point for the US may have been the appointment of prominent tech critic Lina Khan to chair the FTC signaling Washington’s desire to take on Big Tech. In September 2021, three months into Khan’s tenure, the FTC released a study that, Khan said, “captures the extent to which [Alphabet, Amazon, Apple, Meta, and Microsoft] have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists—and how they were able to do so largely outside of [the FTC’s] purview.” In 85% of the 600-plus cases reviewed, the companies’ acquisitions fell under the financial threshold whereby they would be required to report the deal to the FTC. In a few deals, the buyer assumed debt or other liabilities to keep the deal’s value under the reporting threshold.
That was the case for Giphy. The company, a database and search engine for animated GIFs, reportedly paid a dividend to investors ahead of its deal with Meta to lower the value of its assets, thus ducking under the federal threshold. In September, presumably in response to the Giphy scenario, Khan’s FTC withdrew its 18-year-old guidance that allowed companies to use dividends to avoid reporting. The Commission pledged to use a “more holistic” approach to merger review in the future. By that time, however, British regulators had already released their preliminary findings of the Meta-Giphy deal, indicating they were likely to order it undone.
Antitrust scrutiny is ramping up
The Meta-Giphy case suggests a new set of standards is emerging in global antitrust regulation. Diana Moss, the president of the American Antitrust Institute, called the CMA decision cutting-edge. “Strategic acquisitions to reinforce the dominance of any platform through the acquisition of smaller, disruptive and innovative rivals should be a red flag for competition enforcers,” she said.
Global anti-trust regulators are also flexing their muscles far from companies’ headquarters. Benjamin Sirota, a former Justice Department antitrust prosecutor and an attorney at the law firm Kobre & Kim, said the CMA showed it has a “low threshold for investigating and ultimately trying to block deals that have some sliver of a connection to the UK.”
In 2020, the US Justice Department tried and failed to block the merger of two US software companies, Sabre and Farelogix, but the CMA blocked the merger just two days later. “You have this two parallel tracks for a deal that was really a US deal,” Sirota said.
Even though foreign countries have the power to block US acquisitions, it’s exceedingly rare. In 2001, General Electric’s $21 billion acquisition of Honeywell was okayed by the US Justice Department, which shares antitrust oversight with the FTC. But the deal was blocked by the European Commission on grounds that it would stifle competition in the aerospace industry as GE manufactured airplane engines and Honeywell produced cockpit controls. “That decision set off a concerted campaign by the US to get the EU to adopt a more merger-friendly, ‘economic’ approach to merger review,” said Michelle Meagher, a co-founder of the antimonopoly-focused Balanced Economy Project, who has worked for both UK and US antitrust regulators. “That campaign worked and its legacy is a track record of hardly any mergers blocked in the last two decades.”
But with Biden’s appointment of Khan to the FTC and Jonathan Kanter at the DOJ’s antitrust division, Meagher expects far less pushback on the Meta-Giphy deal than the GE-Honeywell squabble two decades ago. “The CMA might reasonably expect cooperation from the US government on this,” she said. “It is certainly a litmus test for the new Biden enforcement regime.” The FTC declined to comment and the DOJ did not immediately respond to a request for comment about the CMA’s decision and whether they were asked to cooperate in any way.
The path forward for Big Tech
Lina Khan has signaled a new ambitious path for antitrust during her early tenure at the FTC. Her first big case began on Dec. 2 when the FTC sued to prevent the US-based Nvidia from acquiring the UK-based Arm, a merger of two of the largest semiconductor companies valued at $40 billion.
The push is only beginning to reach the heart of Silicon Valley. Alphabet, Amazon, Apple, and Meta are still striking numerous deals. In 2021, Alphabet bought wearable fitness company Fitbit for $2.1 billion while Amazon bought MGM for $8.5 billion, autonomous vehicle company Zoox for $1.2 billion, and the podcast company Wondery for an undisclosed sum. And Meta bought three virtual reality companies each for undisclosed amounts. For now, the FTC is only suing Meta over past acquisitions, namely Instagram and WhatsApp, and reportedly investigating Amazon’s purchase of the movie studio MGM for $8.5 billion.
The next battleground will be for the metaverse, an immersive next-generation internet powered by virtual reality. Facebook, which recently changed its name to Meta, is aggressively expanding in the new medium. But the Giphy controversy signals Meta’s attempts to dominate the metaverse by acquiring its leading players will be much harder than the strategy that allowed it to own the leading photo sharing and messaging apps.
Facebook’s largest metaverse-related acquisition, Oculus, a VR platform it bought for $2 billion in 2014, has given it a head start in the race to own the new medium. And Meta’s recent VR acquisitions, likely far smaller in nature, have evaded much public or regulatory scrutiny.
But as antitrust pressure mounts, Meta may soon need to stop buying and start building.