The FTC reportedly will sue to stop Adobe from acquiring Figma. Similar questions have surrounded Microsoft’s acquisition of Blizzard; The US Department of Justice seeks to unwind the Google/DoubleClick merger; British regulatory bodies forced Facebook to reverse its Giphy acquisition. Visa abandoned plans to buy Plaid after facing a suit.

We’re entering a period wherein governments regulate large technology businesses more actively. Startups evaluating M&A have additional factors to consider.

I served on the boards of two companies that plodded through regulatory review. Looker & Kustomer each spent roughly a year waiting for approval.

The period between a startup signing a merger agreement & the transaction close (when money & stock changes hands) might last a few weeks for a small acquisition or drag for more than a year for higher-profile buys.

The longer the period, the greater the challenges facing the business.

First, the company’s emotional high of negotiating the deals is doused with the surprise of regulatory uncertainty. As processes drag on, employee attrition can spike.

Second, unexpected legal bills measured in the millions arise. Depositions, document collection, strategy meetings flood executive calendars - not for one government but for the US, the EU, the UK, & Australia - all core markets for software businesses - each of which can block the merger. So can Austria - a pickled red herring [1].

Third, the business must navigate through the thick fog of uncertainty. Customer ask, is the startup standalone or part of a larger company?

Tricky questions also cloud recruitment conversations : who is hiring the new employee? Who is granting options? At what strike price? What happens to vesting if the process drags, concludes, or falls through?

Fourth, the longer the investigation, the greater the business fundamentals differ from the initial agreement. A rapidly-growing business may double its revenue during investigations & could command a material premium to the initial acquisition price (or the reverse!).

Those are some of the higher-level concerns.

When considering accepting an offer from an acquirer, an important question arises. How great is the regulatory risk of the transaction falling through?

Some buyers face more scrutiny & risk of reversal. Break-up fees, relatively uncommon today, may become more prevalent in startup M&A as a result.

Also, the universe of active buyers will shift meaningfully. The biggest technology companies may slow or pause their M&A programs because the odds of success in certain categories may mar their ability to consummate mergers.

Less competition in auctions may drive multiples down.

As regulators wield their power, the M&A landscape will shift. One thing is certain : there are more questions than answers & more risks for startups & boards to evaluate.

[1] Heringsschmaus is a famous Viennese pickled-herring dish