DealLawyers.com Blog

I know everyone is licking their wounds over the recent changes to the HSR form, so please don’t shoot the messenger on this one! Anyway, a recent paper by business school profs at Stanford & Chicago claims that GAAP is allowing buyers to avoid HSR scrutiny on a large number of potentially anticompetitive deals. Here’s an excerpt from this CFODive.com article on the paper:

Federal antitrust enforcers have stepped up their deal scrutiny in recent years, particularly in the technology and healthcare industries, and yet they’re letting hundreds of mergers a year pass without review because of the way asset values are measured, Stanford and University of Chicago researchers say.

The threshold criteria the agencies use for determining deals that get reviewed are based on valuations measured by generally accepted accounting principles, but the lion’s share of companies’ value today, especially in the most dynamic parts of the economy, are the intangible assets that GAAP mostly misses, say the researchers in a paper called Competition Enforcement and Accounting for Intangible Capital.

The paper’s authors determined the value of the intangible assets in a particular transaction by looking at the purchase price allocations in buyer’s post-closing financial statements.  They contend that if the value of those intangibles had been taken into account for purposes of determining whether an HSR filing should have been made, the number of deals subject to antitrust scrutiny would’ve increased by more than 250 per year, and the number of Second Requests would increase by approximately 10% per year.

In support of their argument that the exclusion of intangibles from the size of the transaction analysis provides anticompetitive benefits, the authors note that unreported deals have premiums approximately 12% higher than reported ones, and are associated with 5.6% higher equity values for acquirers around the announcement date.

– John Jenkins