With Microsoft-Activision Blizzard deal in the balance, what are the knock-on effects on tech M&A?

(Clockwise from top left): Kate Scott-Dawkins, Jonathan Anastas, Travis Lusk and Jordan Fox
(Clockwise from top left): Kate Scott-Dawkins, Jonathan Anastas, Travis Lusk and Jordan Fox

Question of the week: FTC suit to block the gaming acquisition, the latest in a string of aggressive regulatory rulings, expected to ice out big M&A deals in 2023.

The Federal Trade Commission (FTC) on Thursday sued to block Microsoft’s proposed $69 billion takeover of Activision Blizzard, a sign that the agency is cracking down on Big Tech’s market dominance.

The suit claims that the deal would enable Microsoft to suppress competitors in the gaming space by making popular Activision franchises, such as Call of Duty, exclusive to Microsoft-owned consoles. In turn, this would bolster Microsoft’s growing subscription and cloud gaming businesses and enable its dominance in a growing market.

The suit comes just one week after the U.K.’s competition watchdog ordered Facebook to sell Giphy, indicating waning tolerance for Big Tech’s dominance across the globe and more aggressive regulatory action.

It also comes just days after Microsoft signed an exclusive 10-year agreement to make Call of Duty available on Nintendo consoles in an effort to play nice with the marketplace.

A challenge to one of the largest tech acquisitions in history indicates that the FTC, led by chair Lina Khan, is serious about reigning in Big Tech. A potential reshaping of the landscape has major implications for advertisers, which rely on these tech platforms to reach their audiences.

We asked industry experts: 

What does the FTC's suit to block Microsoft's acquisition of Activision Blizzard mean for mergers and acquisitions (M&A) in the tech category? 

Read their responses below.

Kate Scott-Dawkins, global president of business intelligence, GroupM

We have seen a greater willingness by the FTC in the U.S. (and the Competition and Markets Authority in the U.K.) to oppose M&A proposals from tech giants recently. It could complicate strategies from content players looking to increase the stickiness of and time spent on their platforms — rewarding a 'build' or 'partner' method rather than a 'buy' option. It also calls into question the ability of companies outside of China to pursue super app strategies, given regulator scrutiny of a company having control over content or services that wouldn't be available via competitor platforms. 

Travis Lusk, group director of digital and tech advisory, North America, Ebiquity

A failed acquisition would deal a blow to Microsoft's triumphant return to the top of the ad monetization ecosystem. Providing the backend monetization technology to Netflix's ad-supported membership tier — plus the added monetizable scale of Activision Blizzard — would have made Microsoft an attractive, leading source of highly engaged audiences. This action, combined with Penguin Random House's failed acquisition of Simon & Schuster, will undoubtedly cool the media M&A market in 2023.

Jordan Fox, head of Laundry Service

We've long expected this, based upon both the overall tone set by Lina Khan since she became FTC chair last year, and specifically given the continued swirl of news since the FTC's investigation of this transaction launched in February. 

The curious thing here is that while the FTC's objections are framed mainly around hypothetical exclusivity decisions Microsoft may make post-acquisition, the considerable concessions Microsoft has already made (including agreeing to a 10-year window for Call of Duty on Nintendo platforms earlier this week, for example) didn't stop the FTC from issuing its complaint today.

Maybe in the FTC's view, the concessions to date just haven't been sufficient, and further concessions will get the deal back on track. Another possibility is that the FTC's zeal in seeking to block this transaction is rooted in a more categorical aversion to tech M&A, which would obviously have broader implications. We'll have to wait and see. 

Jonathan Anastas, executive chairman, Alpha Metaverse Technologies (former VP at Activision)

The Biden administration’s broader activist stance on antitrust will bring even greater uncertainty to an already rattled tech category, further eroding company valuations and reducing venture or private equity investments. 

Ironically, this will harm start-ups and early-stage companies more than Big Tech, as M&A is the most common exit for founders and investors, taking place at a nearly 10X the rate of IPOs. The losers will be tech employees, who tend to be younger than the workforce at large and founders who reflect new, more diverse tiers of wealth creation vs. legacy Fortune 500 leadership. Without mergers as an exit, venture and private equity investments will move to sectors or regions with lower regulatory oversight. Together, this will harm the U.S. economy at a key moment where higher interest rates and inflation have increased the risk of recession, or worse. It’s anti-capitalist, anti-business and punitive.

In this case specifically, the consumer is not harmed by the merger. Many core gaming IP are already held by console manufacturers — this is not new ground — and Microsoft holds no major market share advantages over Sony, Nintendo or Apple, with or without Activision Blizzard in their portfolio. Early-stage competitors are not undermined in any way if the deal closes. They are only hurt in the future by the reduction in M&A as an end goal.

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