VogelHood’s approach to assessing antitrust risk is based on the principle that current research offerings on transactions are not efficient and that an empirical, data-centric approach to determining outcomes would provide long-term advantages for investors.
VogelHood’s MERGERANX™ model examines correlations between policy engagement and transaction approval history to predict regulatory approval outcomes. The model is built on a discrete choice analysis that is composed of data points gathered from public resources including, but not limited to, the Federal Trade Commission, the Department of Justice, the Federal Election Commission, the Office of the Secretary of the United States Senate and the Clerk of the United States House of Representatives.
MERGERANX™ covers 10 years of publicly announced transactions that require approval from regulatory bodies. The model is comprised of three metrics: Federal Engagement, State Engagement, and Lobbying Engagement. These engagement metrics are then individually compared to benchmarks of prior approved mergers in order to determine the deal outcome. In addition, qualitative considerations are taken to appropriately weight company, industry and market dynamics that might determine relative success at gaining regulatory approval.
Based on VogelHood’s database and the DoJ’s “Horizontal Merger Guideline (2010),” transactions can fall into any of the three antitrust levels: Limited Antitrust Scrutiny (Level 1), Moderate Antitrust Scrutiny (Level 2), and Intense Antitrust Scrutiny (Level 3).
- Level 1 (1-171 HHI Change): Transactions either result in an unconcentrated market or they have a limited HHI change in the moderately concentrated market. In order to receive approval, combined enterprises require a MERGERANX™ score of 0.35 or above.
- Level 2 (171-500 HHI Change): Transactions are likely to be in markets that are either facing consolidation or in overlapping businesses where the government has yet to define competition. Therefore, these transactions are subject to moderate antitrust scrutiny. In order to receive approval, combined enterprises require a MERGERANX™ score of 0.75 or above.
- Level 3 (500+ HHI Change): Transactions are very likely to face antitrust scrutiny due to their anticompetitive power over the related market. In order to receive approval, combined enterprises require a 0.90 MERGERANX™ score. However, in some monopolistic circumstances, i.e. ‘The Comcast Corner,’ no matter how strong political engagement metrics are, regulatory approval is statistically unlikely.
Deal approval is not solely dependent on the combined enterprise being at par with political engagement benchmarks set against the perceived scrutiny level. Anything below or above the benchmark only translates into a deviation from the implied probability of the deal receiving approval.
VogelHood’s proprietary MERGERANX™ model sets political engagement benchmarks to determine whether or not a transaction will gain regulatory approval. Statistical benchmarks are generated for the entire industry universe, as well as individual sectors, namely (1) Healthcare; (2) Technology, Media, Telecommunications; (3) Consumer Good and Services; and (4) Energy and Industrials.
Every year, the model gets stronger and more accurate at predicting approvals in public mergers. The DoJ and FTC have brought thousands of merger enforcement challenges, including transactions which were abandoned or restructured as a result of antitrust concerns raised during the investigation; and some in which the Commission initiated administrative litigation. The algorithms can also be adjusted to a number of parameters outside of just sectors, for instance, market cap, annual revenue and competitive landscape, in order to achieve a better fit with clients needs. Based on VogelHood’s database and the DoJ’s “Horizontal Merger Guideline (2010),” deals can fall into any of the three antitrust levels: Limited Antitrust Scrutiny (Level 1), Moderate Antitrust Scrutiny (Level 2), and Intense Antitrust Scrutiny (Level 3). VogelHood has run all mergers and acquisitions (with a completion date of January 1, 2010 to current) that meet the following requirements;
- Above $1 billion dollars in transaction size;
- The target or acquirer is a U.S. based public company; and,
- Deal status is either withdrawn, terminated, blocked or completed.
In our dataset, there are 615 transactions backtested or pending transactions. Some have been terminated or withdrawn for reasons outside of government expected approval. Out of the 465 deals where a determination of accuracy can be made, VogelHood hit 449 of them, yielding a 96.6% hit rate. For a complete list of our backtest, do not hesitate to reach out.