Stealth Acquisitions and Product Market Competition

We examine whether and how firms structure their merger and acquisition (M&A) deals to avoid scrutiny from antitrust regulators. There are approximately 40% more M&As than expected bunching just below thresholds that trigger antitrust review. These “stealth acquisitions” tend to involve acquisitions of private targets with terms in financial and governance contracts that afford greater scope for negotiating and assigning lower deal values such as contingent payments, additional compensation for target managers (e.g., post-acquisition employment) and extending target director and officer insurance. Consistent with stealth acquisitions reducing product market competition, we show that the equity values, gross margins, and common product prices of acquiring firms and their competitors increase following such acquisitions, but no such evidence following similar acquisitions that do undergo antitrust review. Our results suggest that acquirers successfully manipulate M&A deals to avoid antitrust scrutiny, thereby benefiting their own shareholders but potentially harming consumers due to anticompetitive behavior.