Merger uncertainty looms for market under tougher Biden stance

After a sustained period in which the re/insurance market has witnessed a series of high-value transactions, including the $5.6 billion Marsh-JLT tie-up and the $15.4 billion AXA swoop for XL, it would now appear that a cooling-off period is due.

The reason for a cooling-off period: a change in the mood music at the White House, which is taking a much tougher approach to the regulatory oversight of mega-mergers, as evidenced by the collapse of the proposed $30 billion Aon- Willis Towers Watson (WTW) deal this week under the pressure of legal action by the US Department of Justice.

Aon- WTW was the first deal with a value greater than $10 billion that has fallen through for regulatory reasons since US President Joe Biden announced a tougher stance on consolidation.

On July 9, 2021, President Biden signed a sweeping executive order to promote more competition in the US economy, urging agencies to crack down on anti-competitive practices in a raft of sectors.

The initiative represents a considerable threat to the boom in mergers and acquisitions activity that started in the second half of 2020, following a rebound after the height of the COVID-19 pandemic.

The executive order directs the Department of Justice and Federal Trade Commission to carefully review mergers, and to challenge prior deals that have closed.

“No more tolerance of abusive actions by monopolies. No more bad mergers that lead to massive lay-offs, higher prices and fewer options for workers and consumers alike,” Biden said at the White House signing ceremony.

The president noted areas where advocates feel that prices are too high, wages are tamped down or new businesses excluded from competition. “Let me be very clear, capitalism without competition isn’t capitalism, it’s exploitation,” he said.

The executive order is almost certainly a red card to any large-value transaction for the time being, with the White House noting that the rate of new business formation has fallen by almost 50 percent since the 1970s as large businesses make it harder for Americans with good ideas to break into markets.

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