Amazon, Microsoft and Alphabet went on a buying spree in 2021 despite D.C.’s vow to take on Big Tech

In the seven months since Lina Khan took over as chair of the Federal Trade Commission, there’s been a cold war brewing between several of the largest technology companies and regulators. The question for 2022 is if it turns hot.

Microsoft, Amazon and Alphabet announced more deals in 2021 than any other year in the past decade, according to data compiled by Dealogic. That pace of deals signals they’re trying to get in front of an upcoming antitrust crackdown — or they don’t believe Khan and other regulators will be able to make a strong enough court case that acquisitions should be blocked.

Khan, who assumed the top job at the FTC last June, hasn’t been shy about suggesting her agency aggressively enforce antitrust policy. She’s already filed an amended complaint against Facebook claiming its acquisitions of Instagram and WhatsApp contributed to its current status as a social networking monopoly. Meanwhile, she’s drawn criticism from both Facebook and Amazon that her prior writings and statements about Amazon’s abuses of market power and her work as a House staffer make her unfit to fairly judge issues of consequence relating to that company.

Microsoft’s $69 billion deal for video game maker Activision Blizzard this week is the latest example of a large technology company potentially challenging regulators to act. It follows several large deals from 2021, including Microsoft’s $19 billion purchase of Nuance Communications and Amazon’s $8.5 billion deal for MGM Studios.

Google parent Alphabet’s 22 deals, Microsoft’s 56 deals and Amazon’s 29 deals in 2021 were all 10-year highs, according to Dealogic. While Dealogic data only accounts for publicly disclosed deal values, based on those records, Alphabet and Microsoft’s aggregate deal volumes were also at 10-year highs, at $22 billion and $25.7 billion, respectively. Amazon’s total deal volume, at $15.7 billion, just missed a 10-year high, trailing only 2017, when it agreed to buy Whole Foods for $13.7 billion.

Big Tech is “paying a lot of attention and would like to get deals done before the administration succeeds in getting new precedent,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “Once a precedent is set in one courtroom by one judge it’s easier for other judges to follow that precedent.”

So far, the FTC under Khan is relying on a strategy of deterrence to keep company acquisitions in check as it struggles to keep up with a historic surge in merger filings across industries. What’s yet to be seen is just how far the agency is willing to go to make good on its threats of action on the antitrust front.

With a budget that hasn’t kept up with the pace of work at the antitrust agencies and that pales in comparison to that of the companies it takes on, the FTC has instead fired messages as warning shots to indicate its seriousness.

One such action was the agency’s announcement that it would send letters to some companies seeking to merge, letting them know the FTC would continue investigating their deals even if the statutory waiting period had passed. The letter essentially warned that businesses could merge at their own risk, but the FTC may later file a lawsuit for them to undo their transaction.

While such letters don’t actually set new policy — it’s always the case that enforcers can seek to block or undo mergers even after they’ve reviewed them — the change in tone marked a sharp pivot from the past.

But that may not work to actually change company behavior, said Gordon. Until courts decide on regulators’ interpretation of antitrust law, large businesses will likely keep up the torrid pace of deals, hoping to close as many as possible, he said.

“Once you’ve cracked the eggs and made the omelet, it’s hard to get the eggs back into the shells,” said Gordon. “You’re going to be more likely to crack the shells, scramble that omelet up and put the government in a position where they go into court and say this deal has to be undone, and the judge looks at them and says how are you going to do that?”

Khan, in her first on-camera sit-down interview since taking the job, told CNBC’s Andrew Ross Sorkin and Kara Swisher, host of The New York Times’ “Sway” podcast, the agency is trying to be thoughtful about sending broad messages while acknowledging its own resource limitations.

“What are instances in which certain types of actions could have a market-wide impact?” Khan said, giving an example of the type of question she would consider. “If we are able to obtain a particular settlement or consent decree or get a good outcome in court, what are instances in which that could really change the dynamic in the entire market rather than just, you know, here or there?”

Bill Kovacic, a former FTC commissioner and current law professor at George Washington University, said it’s only a matter of time until the antitrust enforcers act on their threats.

“The players are in place largely, the commitments have been made, they have the president of the United States in his executive order from July saying ‘go get ’em,’ ” said Kovacic, referring to Biden’s order directing various government agencies to consider new ways they can address issues of monopoly concentration and competition in the economy. “If you don’t do it right now in the coming twelve months, you will never get this opportunity again. And I think not only do they realize they have to deliver, they want to deliver.”

In her CNBC interview, Khan said that fighting Big Tech “takes courage,” though she stopped short of suggesting her agency would block any existing deal.

“These are enormously well-resourced companies,” Khan said in the interview. “They are not shy about deploying those resources. We’re really showing these companies, but also showing the country that enforcers are not going to back down because of these companies flexing some muscle or kind of trying to intimidate us.”

Big technology companies often pay dozens of lawyers, both in-house and outside counsel, to give advice about the chances of deal approval. Microsoft, Amazon, Facebook parent Meta, Alphabet and Apple may be the five most scrutinized companies in terms of the type of market power they wield over society and rivals given their collective market valuations, which total close to $9.5 trillion.

On the surface, Amazon buying a movie studio (MGM) or Microsoft acquiring a gaming company (Activision) or a health-care artificial intelligence software (Nuance) company don’t ring traditional antitrust alarm bells. These aren’t deals where there’s a limited competitor base arguing to get even smaller, such as the wireless or broadband industries.

This puts Khan in a “prove it” position, where she’ll likely have to make the case that antitrust law interpretation should adjust to current capitalist dynamics.

Meanwhile, Congress is working on new laws that could ease enforcers’ jobs of proving to a court that certain behavior by online platforms is illegal. On Thursday, the Senate Judiciary Committee advanced a major bill that would bar dominant online platforms from discriminating against rivals’ products on their platforms. While that bill is focused on company conduct, lawmakers in the House have also considered a bill that would shift the burden of proof in merger transactions onto dominant firms.

“Deciding when moving forward and taking action is still worth it even when it’s not a slam dunk case,” Khan said in her CNBC interview. “Even if there’s a risk you still may lose, there can be enormous benefits from taking that risk. You might win. You lose all the shots you don’t take. But what we can see is that inaction after inaction after inaction can have severe costs. That’s what we’re really trying to reverse.”

In President Joe Biden’s first year in office, his chosen antitrust regulators have picked two significant media and technology deals to block. The Department of Justice sued to block Penguin Random House’s acquisition of rival publisher Simon & Schuster in November, and Khan’s FTC sued to block Nvidia’s $40 billion acquisition of U.K. chip design provider Arm in December.

Both of those deals carry unusual importance because they’re two of the first big cases out of the gate, said Kovacic. “It’s an enormous advantage to win your first cases,” he said. “To show you can do it. To show it’s not just talk.”

The relatively short amount of time enforcers have to take action during their terms also puts a “fierce sense of urgency” into the FTC, which understands that it must build on precedent to change the way companies think about mergers and acquisition, Khan said.

WATCH: Lina Khan answers questions on antitrust regulation