Although the Justice Department makes mergers and acquisitions difficult for both large and small players alike, it opens up new opportunities for creative dealmaking.
In an era of increasing schism in the U.S., our divided politics have united on at least one thing — an ever-closer focus on Big Tech’s sheer scale, together with its frequently unbridled and unfiltered algorithmically-driven dollar motivations. Those forces — which studies show both drive teen depression and foment social stress and unrest — first placed Meta/Facebook’s Mark Zuckerberg at the top of DOJ’s “Most Wanted” list.
And now, according to investment banker Erik Hodge of The Raine Group (a guest on my recent M&A panel at ’s TheGrill event), “Almost every deal you see [Meta] try to do gets stuck with review. It’s pretty remarkable how much scrutiny that they have on them.” Case in point: Just last week, Meta was essentially forced to sell Giphy by U.K. regulators, demonstrating that antitrust scrutiny doesn’t end at U.S. borders. Actually, the acquisition of $400 million was previously approved by U.S. authorities.
But make no mistake, it’s not just Meta/Facebook and its increasingly confined-and-isolated-in-the-metaverse leader Mark Zuckerberg that face the DOJ’s music. Any deal made by Big Tech is subject to the specter antitrust. And it doesn’t stop there. This specter is real for any player in the media or entertainment ecosystem with any size and scale. Antitrust is a threat “is very real,” according to Moelis & Co. banker Carlos Jimenez (another guest on my panel). “When CAA did buy ICM, they went through the ringer in terms of just the antitrust review process,”He stated. Jimenez said that this, in turn, fuels a fundamental question within all boardrooms of today: “Buyers and sellers are thinking, do we want to go fight the Department of Justice to go get a smaller transaction done?”
Andy Howard of private equity firm Shamrock Capital, a major player in M&E M&A, bemoaned that he “failed twice”When two of his deals came under scrutiny for antitrust violations. Howard was referring to the scrapped deal to merge FanDuel/DraftKings sports betting firms and his earlier ScreenVision/National CineMedia deal. “It’s awful,”Howard shared his story with us at TheGrill. “It’s a massive disruption to your business… so I do think it’s in the mindset of operators and strategics right now thinking about how far I press [M&A]. Is it really worthwhile?”
Antitrust’s chilling effect freezes both buyers and sellers. “If you’re the one who’s getting acquired,”Howard stated, “it’s a big leap that you’re going to have to make because you will be under scrutiny for a period of time. And that timeline is unknown.” In other words, it’s the kind of Hollywood spotlight no seller wants. Dead-end deals that cause major disruptions to the company’s operations and business dynamics.
Antitrust’s “chill” impacts all sectors of M&E. Emily Wang, a games specialist at investment banking firm LionTree, pointed out that the Microsoft’s pending $70 billion mega-acquisition of Activision now finds itself directly in the DOJ’s cross hairs and may not survive. “Activision is trading at a discounted acquisition price, which indicates that the market is not sure that the deal will go through,“ she told me at TheGrill. Microsoft’s nearly $2 trillion dollar market cap is pretty scary and menacing stuff, after all. Among other things, “Regulators are discerning how much data is too much data for Microsoft to have,” Wang said. And while Amazon’s $8.5 billion acquisition of storied Hollywood studio MGM ultimately passed the Feds’ antitrust test, industry insiders like Raine’s Hodge were surprised by the high level of scrutiny the deal received at the time.
Many of us understandably cheer the Feds’ heightened antitrust focus on Big Tech players who have been left unsupervised for too long (and have seen their valuations skyrocket to multiple trillions at least in part because of it). And it’s quite incredible, really, that politicians from both blue states and red states have climbed on board the antitrust train with such fervor — a fervor that many, including Shamrock’s Howard, believe will not dissipate no matter which party controls Congress after the upcoming midterm elections. Less clear, however, is whether the DOJ’s increasing vigilance will succeed.
But is it really antitrust? “win”Does it really matter? The Feds (not only smaller competitors but also consumers often) “win”Big Tech will think twice if there is more scrutiny. It is the mere uncertainty that drives behavioral change. And financial markets — and the mega-players in it — loathe uncertainty.
This could be an opportunity for non-Big Tech buyers, who may be able to buy obvious valuable content and major studio franchise targets like Paramount and Warner Bros. If Comcast decides to sell this lower-margin segment of its business, it could also divest Discovery and possibly NBCUniversal. Perhaps Comcast decides to merge with Netflix and double down on media (both have similar market caps). This would allow Netflix to acquire the franchise content it desperately needs. It also creates a formidable non-Big Tech player that is significantly better rounded. In any event, the list of potential non-Big Tech M&A dance partners is longer than you think. Let’s not forget that non-obvious buyer Vivendi — still largely a water-first conglomerate at the time — acquired Universal Studios from liquor-laced Seagram in 2001 (and later sold it to even more unfocused conglomerate, General Electric, after concluding that one part water and one part major Hollywood studio didn’t mix well).
In these highly scrutinized times, there is only one certainty: Tim Cook, Satya Nella, Sundar Paichai and Jeff Bezos. “good old” Mark Zuckerberg aren’t particularly happy about any of it. Neither are investors of companies that otherwise would be ripe for the picking but are now left standing in the cold of M&A’s big chill.
But that doesn’t mean that Big Tech won’t give it the old college try. Apple, Microsoft, Amazon, and Google all have billions of dollars in their pockets to test the waters. Apple could buy Disney and its magical kingdom of evergreen content franchises (Pixar, Marvel) in a highly logical but not unreasonable mega media deal. “Star Wars,”Apple TV+ will go hyper-fast with the help of our favorite Disney princesses and the Avengers. Apple and Disney share the same DNA, after all; Steve Jobs birthed Pixar and later served on Disney’s board.
While many of you may think that’s an antitrust bridge too far, just think about it. Even if the Feds claim otherwise, “victory” by forcing Apple to divest Mickey’s invaluable ESPN piece of cheese, just as Disney divested Fox’s 22 regional sports networks when it acquired Rupert’s world of entertainment assets in 2019. Disney’s The Avengers indeed — franchise gifts that keep on giving.
For those of you interested in learning more, visit Peter’s firm Creative Media at creativemedia.biz and follow him on Twitter @pcsathy.
