Regulatory Challenges May Lower M&A Event Risk for US Corporates

Fitch Ratings-New York/Chicago reports that rising interest rates and heightened antitrust regulatory scrutiny may discourage strategic acquisitions for US non-financial corporates, which could lower M&A event risk through the next cycle.

We have found that large acquisitions by corporate debt issuers often precipitate a rating downgrade of the acquirer, after reviewing selected transactions within our rated portfolio.

However, an M&A slowdown may not hamper leveraging transactions. Companies deterred from pursuing acquisitions may instead prioritize returning capital to shareholders through debt-funded dividends and stock buybacks. Conversely, companies that move forward with acquisitions may embark on a lengthy and costly regulatory process,” Fitch Ratings says.

Recent changes by the US Federal Trade Commission and the Department of Justice are designed to increase the number of acquisitions that face antitrust scrutiny in order to, among other things, protect consumers by reducing the prevalence of anticompetitive practices.