M&A boom is under threat in D.C. as Aon-WTW deal dissolves

The Aon-WTW deal was the first $10 billion-plus proposal to die for regulatory reasons from Biden's tougher stance on consolidation.

Collapsed deals in Q3 2021. (Bloomberg)

(Bloomberg) — With a new appetite for stepped-up antitrust enforcement sweeping Washington, big deals are already getting harder to do.

Aon’s decision on Monday, July 26, to abandon a $30 billion takeover of insurance brokerage Willis Towers Watson after Justice Department pushback is the latest signal that transactions that consolidate industries could run into trouble.

The Justice Department said that the deal would have consolidated the insurance brokering industry from three big competitors to two.

“This is a victory for competition and for American businesses, and ultimately, for their customers, employees and retirees across the country,” Attorney General Merrick B. Garland said in a statement.

The news could represent a major threat to a boom in mergers and acquisitions that had started in the second half of last year after a rebound following the height of the COVID-19 pandemic.

President Joe Biden has vowed to take on the U.S. economy’s most dominant companies with an executive order this month that puts the federal government’s weight behind a sweeping effort that will target everything from airline baggage fees to soaring prescription drug prices.

In June 2021, the House Judiciary Committee approved an antitrust bill that would force large technology companies like Amazon.com Inc. to exit certain businesses, a signature proposal within a package of measures aimed at reining in the companies and spurring competition in digital markets.

Biden has also named advocates of tougher antitrust enforcement to key positions in his administration.

According to Bloomberg Intelligence antitrust analyst Jennifer Rie, the new leaders of the Justice Department’s antitrust division and the Federal Trade Commission, which share a mandate to enforce antitrust laws, are bringing progressive views to these agencies.

“These are all people who have expressed concerns that antitrust enforcement has been too lax and it needs to be tightened up,” Rie said. “One of the first places to shore things up without new legislation is to scrutinize deals.”

The new regime has companies changing how they think about deals, experts say.

“Clients are approaching deals more cautiously and recognizing that it might be more difficult to get through review,” Alan Zoccolillo, a partner at law firm Baker & McKenzie LLP and chair of its North American transactional practices, said in an interview. “They’re budgeting from an expense and timing perspective that these deals may take longer and be more expensive to get done.”

He expects regulatory agencies to request more information when reviewing deals.

Berkshire Hathaway Inc. terminated its acquisition of some pipeline assets from Dominion Energy Inc. this month after failing to win approval from the FTC. Another deal that hangs in the balance is Illumina Inc.’s $7 billion acquisition of Grail Inc., which the FTC sued to block in March.

Lockheed Martin Corp.’s proposed takeover of Aerojet Rocketdyne Holdings Inc. is also being closely watched. Last week, Senator Elizabeth Warren, a Massachusetts Democrat, sent a letter to the FTC noting that Aerojet is “the last remaining independent domestic propulsion supplier” and urging the agency to prevent monopolies in the defense industry.

Lockheed Chief Executive Officer Jim Taiclet said on an earnings call Monday that the company is still answering questions from the FTC about the deal

Aon-Willis was the first deal with a value greater than $10 billion that has died for regulatory reasons since Biden announced the tougher stance on consolidation.

Dead deals are piling up, including global transactions that collapsed for other reasons — like not getting enough shareholder support — as in the case of Germany’s Vonovia SE’s roughly 19 billion-euro ($22.3 billion) offer for rival Deutsche Wohnen SE.

There have been a total of $149 billion worth of deals terminated to date this quarter, a third of the $446 billion in global deals that have died so far this year, according to data compiled by Bloomberg.

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