Antitrust authorities are increasingly concerned with so-called “killer acquisitions” and multiple commentators including the recent Furman Review in the UK have argued that greater scrutiny of purchase prices and deal valuations could improve the assessment of potential competition issues in mergers.
In this competition memo Oliver Latham, Simon Chisholm and Sam Lynch build on their experience in advising the merging parties in PayPal’s recently cleared acquisition of iZettle to provide an overview of the economic analysis that can be performed on a firm’s valuation: what sorts of issues will competition authorities be alert to; when might aspects of valuation raise competition concerns and when might alternative explanations better fit the facts; how should evidence based on valuation analysis be weighed alongside more traditional tools of merger analysis; and understanding the economic context for the valuation.
Ultimately, analysis of firm valuation is likely to be a key economic tool for merger assessment going forward most definitely in the tech/digital space, but likely much more broadly. As such, the analysis and conclusions in PayPal/iZettle are likely to serve as an important blueprint for future cases.
Assessing umbrella pricing incentives
When collusive agreements involve a subset of firms in an industry, they may create the incentive and ability for firms that are not participants in the cartel...