In this disastrous economic landscape, companies and their workers need all the help they can get. Forgivable loans from the taxpayer-financed Paycheck Protection Program will likely run out again soon, after having already exhausted more than $600 billion. Equity investors and large businesses are doing their best to fill in the investment gap, offering critical cash infusions in return for a stake in management. But that may all change soon if some members of Congress get their way. Proposed on April 28 by Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.), the “Pandemic Anti-Monopoly Act” would bar companies such as hedge funds and private equity firms (or any business with $100 million of revenues or $100 million in market capitalization) from mergers and acquisitions until the end of the coronavirus crisis. This misguided measure would dry up a critical funding source for businesses of all sizes at a time of great uncertainty. If passed, this legislation would insert government bureaucrats in the middle of private business decisions, which are already regulated under U.S. antitrust merger review laws. Sen. Warren and Rep. Ocasio-Cortez should work with, not against, businesses struggling to keep their heads above water.
Even as businesses large and small suffer from the pandemic, politicians continue to use scary sounding corporate-speak to play on the fears of Americans and push problematic policies. Sen. Warren and Rep. Ocasio-Cortez eagerly portray large investors such as hedge funds and private equity firms as hungry wolverines eager to shred small businesses to smithereens. This sort of thinking is emblematic of the flawed “zero sum” philosophy that pervades Democratic socialist circles. Any gain for institutional investors must necessarily be a loss for the little guy and small, upstart companies. Most Americans staying at home and relying on services such as Instacart and Zoom realize intuitively that this philosophy just doesn’t add up. Investors in these large companies are gaining a fortune from business models appealing to ordinary people. Of course, these middle-class households are also gaining a great deal from these companies even as Instacart’s and Zoom’s share prices keep on climbing. Call it mutually beneficial exchange, or, just a win-win.
Acquisitions similarly offer positive outcomes by giving start-ups the resources and expertise they need to keep humming along and innovating. Consider that, even as businesses across the country frantically cut back research and development, large investment arms are doubling down on cutting-edge analytics platforms. The promising start-up Hypersonix, which offers AI-driven analytics software to analyze sales patterns, just sold a minority stake to Intel’s venture capital arm. Command Alkon, which produces software that helps construction companies procure concrete and other building necessities, was recently acquired by private equity firm Thoma Bravo. These sorts of investments allow small, upstart companies to pay their workers and keep doing research into digital applications, instead of hosting Zoom meetings from their mothers’ basements. Command Alkon, for instance, says the acquisition will help the company focus on wider supply chains and invest in next-generation, vertical-cloud capabilities.
These sorts of deals are a natural extension of business. Despite what conventional wisdom suggests, mergers and acquisitions within industries do not create an inherently anti-competitive environment that is harmful to consumers. In fact, as recent telecom mergers have demonstrated, mergers often benefit millions of consumers by expanding access to high-speed broadband and streaming video services. Growth and innovation in the economy depends on continued technological developments throughout all industries. Mergers and acquisitions often provide the manpower, ingenuity, and capital necessary to foster this increased growth and innovation.
To supporters of politicians like Sen. Warren and Rep. Ocasio-Cortez, words like “mergers” and “acquisitions” may sound scary and threatening. But in fact, cutting off the flow of equity into the economy is the most dangerous thing that Congress can do right now. Businesses need a hand up, not a laundry list of new restrictions from Washington, D.C. bureaucrats.