Meta Platforms Inc.'s deal activity is falling as the company faces growing regulatory pressures and shifts its focus to the metaverse.
At its most acquisitive in 2012, Meta pursued 16 acquisitions, including the $1 billion purchase of Instagram LLC. The Instagram deal and Meta's 2014 acquisition of messaging company WhatsApp Inc. are now the subject of an ongoing Federal Trade Commission lawsuit related to market dominance concerns.
This year, Meta has announced just one deal to date, and five total during full year 2021. One of the 2021 acquisitions is the subject of a new lawsuit by the FTC that alleges Meta's $400 million purchase of virtual reality fitness company Within Unlimited Inc. would lessen competition in the VR market. Meta responded to the suit by saying the claims were not credible and had no legal merit.
The changing regulatory landscape and shifting business priorities are undoubtedly having an impact on tech deal volumes, analysts say.
"Companies in general are paying more attention to the approach that the FTC and the [Department of Justice] are bringing to the consequences of their mergers and acquisitions and strategies in the market," said Karina Montoya, a researcher at the Open Markets Institute, a think tank advocating for market competition and monopoly prevention.
Meta did not respond to requests for comment about its deal activity.
Meta pursued a number of deals throughout the 2010s, acquiring companies to improve its social sharing analytics and advertising tools, as well as experiential services to enhance users' time spent on its platforms.
Now, as the company pivots toward building the metaverse, its deal targets are also changing. Meta recently acquired ImagineOptix Corp., which develops crystal lens polymers for VR equipment. In April, it bought Munich-based presize GmbH, which creates body-scanning software.
While regulators in the past were hesitant to block deals in newer developing markets like VR or the metaverse, that is not necessarily still the case, said Charlotte Slaiman, competition director at digital consumer advocacy group Public Knowledge.
"Barriers to entry are actually much higher than we thought throughout the economy," Slaiman said in an interview. "The cost of inaction is much higher than I think economists had previously thought."
The direction of Meta's future M&A activity will be greatly shaped by the regulatory environment where it operates, as both the U.S. and EU consider antitrust concerns, policy sources say.
The EU's Digital Markets Act, or DMA, a sweeping set of antitrust and competition laws aiming to open up tech companies' systems to outside market participants, is set to go into effect later in the year.
The DMA contains a provision requiring platforms to notify the European Commission of any pending M&A transactions. In the U.S., only certain transactions, depending on their purchase size, require a premerger review under the Hart-Scott-Rodino Act.
That planned transactions directive in the DMA would have "tremendous effect" on the M&A activity of Meta, as well as that of other tech giants including Apple Inc. and Amazon.com Inc., said Aurelien Portuese, competition policy director at the Information Technology and Innovation Foundation, a free-market think tank. That in turn would affect companies' ability to acquire assets that allow them to innovate, Portuese said.
Public Knowledge's Slaiman said the DMA is a helpful law for reigning in Big Tech, but she believes new U.S. laws are still needed.
In the meantime, Meta is working to innovate organically as it contends with greater competition from TikTok Inc. and near-term inflationary pressures squeezing advertiser budgets.
Meta's revenue fell 1% year over year in the second quarter, the first such decline in the company's history. Meta also reported a drop of about 2 million monthly active users between the first and second quarters.
Meta's stock was down 49.8% for the year-to-date as of Aug. 4, versus a 12.8% drop in the S&P 500 over the same period.
451 Research is part of S&P Global Market Intelligence.