Contact: Brenon Daly
Despite President Trump often positioning himself as ‘dealmaker in chief,’ his administration just cast a chill over M&A. The Federal Trade Commission has said that it plans to block the proposed combination of DraftKings and FanDuel, the two largest websites for betting on fantasy sports. The deal was announced last November, just two weeks after the election of Trump supposedly signaled a more business-friendly climate in Washington DC.
That expectation has helped drive Wall Street to record highs, with the broad-market US indexes all surging about 20% since the vote. The confidence in the stock market was initially expected to extend to the M&A market, which has historically been closely correlated with Wall Street. In April, for instance, a plurality of respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster said Trump’s economic policies have stimulated dealmaking. The 41% who reported a ‘Trump bump’ to M&A was almost twice the level that said the president’s policies have slowed acquisition activity.
And yet, regulators are moving to spike a combination of two startups that just might represent the only way for either of them to survive. It sounds a bit dramatic, but then, the landscape is littered with startups that have spent their way out of business. Even raising $1bn in venture backing — as DraftKings and FanDuel combined to do — doesn’t guarantee survival. Not when startups with low-margin transactional business models spend money hand over fist on advertising against each other in what is a barely differentiated service.
While the two companies decide whether to fight the FTC ruling, some startup executives and their backers may need to reconsider their potential exits. For the most part, regulators during the Obama administration didn’t trouble themselves with the rare bits of consolidation in Silicon Valley. (The two largest VC-backed sites for freelance work — oDesk and Elance — got together in 2013 without any review from Washington.) Based on the DraftKings-FanDuel decision, however, dealmakers might need to plan on more trust-busting in the Trump era. For instance, the far-fetched talk about a pairing between Uber and Lyft should now be considered dead before it ever gets born.
