The Federal Trade Commission is reviewing hundreds of previous mergers and acquisitions by big technology companies such as Google, according to people familiar with the matter. At the time, the deals were small and did not raise the FTC’s concerns. But now it seems likely that these deals may be “cat-tired”.
Back in early 2010, something unusual happened to Invite Media, a Philadelphia-based advertising technology start-up. Normally, the company would collect money from the marketer and use it to buy digital advertising. But for just two days in the spring of that year, Invite Media suddenly used its own money to start paying for a wave of advertising, rather than waiting for a marketer’s check to arrive. In addition, the company reimbursed all outstanding bills regardless of whether they were due. The unusual series of moves has caused the balance of its bank accounts to plummet.
Often, it is irrational for a company to burn money unnecessarily. But now we know that, in the circumstances, burning money is the point. Because the invite Media co-founder struck a deal to sell the company to Google, reducing Invite Media’s assets was a key part of their preparations.
By using its bank accounts, Invite Media can reduce its total assets to a sufficiently low level, allowing the two companies to avoid scrutiny, according to three people familiar with Invite Media’s financial position.
“What we did was collect as many receivables as possible and immediately pay all we could,” Michael Provenzano, one of invite Media co-founders, recalls in an interview. As a result, there is not enough money on the books to trigger the FTC’s review. Mr. Provinzano also said he went to a bank and said, “We hope you can agree to reduce the deposit in our account to $1.” “
Clearly, this strategy has worked. In 2010, Google bought Invite Media for about $80 million. Under the Hart-Scott-Rodino Act, the deal is not large enough to require pre-approval from the FTC.
Now, as google and other big tech companies become more powerful in the market, they are under new scrutiny. People familiar with the matter said the FTC was reviewing hundreds of transactions that, like Invite Media, had not sparked interest in the FTC’s review in the first place. FTC officials now believe they may have missed some of the deals in the first place. Because of the small size of the deals, they avoided scrutiny under the Hart-Scott-Rodino Act at the time of the transaction.
FTC officials began reviewing the deals as early as last fall, according to a person familiar with the matter who spoke on condition of anonymity. At the time, they also interviewed representatives of a start-up acquired by a large technology company, a deal that was not censored at the time but could now be censored.
In response, Mark Rosenberg, an antitrust researcher at Yale University, argues that Under the current environment, Invite Media should definitely be the target of scrutiny under the government’s new special order. He also mentioned Google’s acquisition of The Exture, Amazon’s acquisition of Blink, and Facebook’s acquisition of Beluga and Gowalla.