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New merger rules may lead to increased company scrutiny

On Behalf of | May 23, 2024 | Business Law

Companies may decide to combine operations with another business for a variety of reasons. Perhaps a competitor or a company in an adjacent industry has valuable intellectual property. Employees, facilities and brand reputation can also be driving forces behind a merger.

Mergers are major business transactions that can cost millions of dollars to complete. They also typically require months of careful preparation. A merger takes two existing business entities and combines their operations. Both businesses may benefit from a merger, but there is a great deal of risk involved. Challenges that arise during the process could potentially leave the combined company insolvent and at risk of dissolution.

Therefore, business executives and investors contemplating mergers need to very carefully and pragmatically prepare for a potential merger. Mergers can fail due to a clash of company cultures or issues with drastically increased operating expenses. They could also fall apart due to regulatory intervention. The risk of state or federal authorities preventing a merger may be higher now than it was in years past.

There’s a new rule for mergers and acquisitions

Large business transactions can change the outlook for an entire industry and can affect consumers across the United States. Antitrust rules help ensure that a few companies don’t end up dominating a particular industry or the domestic economy. Lawmakers and regulatory agencies have to frequently revisit existing antitrust rules as the economy constantly evolves.

With the rise of major technology companies and online retail powerhouses has increased concern about a few companies dominating certain highly-concentrated industries or markets. Regulatory officials may now pay particularly close attention to proposed mergers in niche sectors of the economy, including online retail and technology.

If a merger potentially gives a newly merged company too much control over a particular industry, then there could be opposition to the business transaction. A merger that falls apart at the last minute could cost a company millions of dollars in wasted effort and legal fees. Therefore, those preparing for a merger often need to evaluate the law and any particular relevant transaction very carefully. Having the right support during business transactions can reduce the likelihood of a merger failing due to regulator interventions or other challenges.