Senator Amy Klobuchar (D-Minn.) has introduced “The Competition and Antitrust Law Enforcement Reform Act,” sweeping legislation that rewrites U.S. antitrust law and overturns decades of enforcement precedent. The bill makes it vastly more difficult for mergers and acquisitions to occur, which will stifle innovation and entrepreneurship. 

The Klobuchar bill rewrites Section 7 of the Clayton Act, which currently prohibits mergers and acquisitions that “substantially lessen competition.” S. 225 would change this to prohibit mergers of certain companies that would “create an appreciable risk of materially lessening competition,” making it vastly easier for antitrust enforcers to win in court.

Under current law, enforcers must prove that a merger or acquisition would harm competition. S. 225 would flip this burden of proof on its head by requiring that companies involved in certain mergers or acquisitions prove that their transaction would not hurt competition. This would broadly stack the deck against companies engaging in mergers and acquisitions and make it vastly easier for antitrust regulators to win in court.  

Acquisitions by “extremely large” companies acquiring $50 million or more of the securities or assets of any company would be automatically be presumed to be anticompetitive. However, calling any firm above a $50 million market cap “large” would be a major overstatement.  

Any company below $50 million is considered “nano-cap” level of funding, the smallest public funding category in the public trading atmosphere and are commonly known as “penny stocks.” This would mean any company looking to acquire anything more than a penny stock firm would be presumed to be acting anticompetitively. 

In terms of US publicly traded capital, $50 million market capitalization is almost insignificant, with the average capitalization in the Russell 2000, an index based on small cap firms, being $3.8 billion. 

Small capital firms are more likely to be acquired in comparison to large capital firms, so making acquisitions of firms with a $50 million market cap presumptively illegal would clearly discourage these acquisitions and harm innovation.  

Discouraging mergers and acquisitions would likely lead to fewer innovative start-ups, half of which say their long term goal is to be acquired by a larger firm.  According to a report published by UC Hastings, M+A were the main exist strategy for startups, where “13.74% of exits are IPOs, [and] mergers constituted 76.61% of exits.”

As our economy attempts to recover from the pandemic-induced downturn, job creation and productivity are exactly what we need, not more barriers to M&A created by misguided rewrites of antitrust law.