New Regulatory Scrutiny for Acquihires?

Written By bill haines

We last wrote about the acquihire[1] phenomenon in September. There have been several significant developments since then, so it seemed like an opportune moment to revisit the topic.

Recent Transactions

Since our September paper, the drumbeat of acquihires has continued unabated:

As with the transactions we previously reviewed, the primary motivation for these deals appears to be some combination of:

  • Move quickly

  • Avoid Hart-Scott-Rodino (“HSR”) filings

  • Talent/IP is more valuable than SG&A or installed base

The Changing Regulatory Environment

A primary focus of our earlier paper was what the acquihire phenomenon reveals about the power imbalance between VCs and the hyperscalers. But of course that imbalance flows directly from the monopsonistic nature of the market for exit liquidity:  In a world where the IPO window seems to be chronically shut, VCs need to play nice with their primary source of exits.

This same monopsony – and the corresponding monopoly on the user-facing side – should (at least theoretically) make the hyperscalers subject to heightened antitrust scrutiny, and regulators are beginning to wake up to the issue of acquihires. Acquihires are a particularly obvious target for antitrust scrutiny, given that these deals often feature baroque legal structures designed specifically to avoid triggering HSR filings (and potential follow-on FTC review).

The FTC and DOJ have already opened investigations into several of the most prominent acquihire deals from the initial 2024 wave of transactions, including:

While these probes would likely not have been launched under the current administration, once under way an investigation can take on a life of its own. None has yet reached any conclusion, but the very fact that they remain open is potentially significant.

During an interview with Bloomberg less than a month ago, Andrew Ferguson, the current chair of the FTC, made some notable observations, including:

  • Acquihires have “become a big deal”, and the FTC will be taking a closer look at the issue in the coming months.

  • The FTC is concerned that buyers may be employing the acquihire structure specifically to evade HSR reporting.

  • It is difficult to articulate a one-size-fits-all rule for which acquihires are reportable under HSR.

  • The FTC may promulgate additional guidance in this area in the coming months.

Just last week, several prominent senators joined the fray. On February 4th, Senators Warren, Wyden, and Blumenthal sent a letter to both the FTC and the DOJ, noting the growing trend towards using the acquihire structure to consummate large, anticompetitive mergers, and urging the regulators to take action:

“Deals like those between Meta and Scale AI, between Google and Windsurf, and between NVIDIA and Groq function as de facto mergers, allowing the companies to consolidate talent, information, and resources, all while apparently attempting to bypass the scrutiny typically applied to mergers and acquisitions.”

The senators noted that Section 801.90 of the existing HSR regulations already mandates that regulators disregard the form of a transaction, when it is being used to obfuscate the substance of the transaction:

“Any transaction(s) or other device(s) entered into or employed for the purpose of avoiding the obligation to comply with the requirements of the [HSR Act] shall be disregarded, and the obligation to comply shall be determined by applying the Act and these rules to the substance of the transaction.”

The letter also cited several previous attempts to prod the FTC to take a closer look at acquihires. The clear implication of the letter was that the regulators have been asleep at the switch.

Of course, all of these straws in the wind need to be evaluated within the larger context of the current politics of the AI industry. President Trump’s Executive Order 14179 (reversing most of the Biden administration’s agenda on AI regulation) signals a clear intent to remove regulatory roadblocks to the development of a domestic AI industry. As such, antitrust enforcement against any of the major AI players will likely be subdued, at best, for the next several years. But if a non-AI player (or even an AI lab that has fallen out of favor with the Trump administration) attempts an acquihire during this same period, it should expect heightened antitrust scrutiny.

Implications for the Future

For the last two years, the acquihire structure has functioned as a bit of a cheat code, allowing the big, monopolistic tech incumbents to consummate ten-figure acquisitions of nascent competitors while evading regulatory review. But it appears that the tide may be turning. While the biggest AI players may continue to enjoy antitrust impunity for the next several years, the rest of the tech industry should be prepared for regulators to look past form to substance when reviewing future acquisitions.

By Jonathan Bain, Partner

[1] Technically, the form of transaction discussed in both this and our prior article is a “reverse acquihire”.  In a vanilla acquihire, the buyer acquires a startup largely for the purpose of acquiring talent; in a “reverse” acquihire, the buyer omits the step of formally acquiring the target (typically to avoid triggering antitrust review), and simply acquires key personnel, while leaving the shell of the target behind as a more-or-less going concern.  For ease of expression, however, most industry participants refer to these neutron-bomb transactions by the simple shorthand of “acquihire”, and we will follow that convention herein.

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