Why is regulatory approval crucial in mergers?

Regulatory approval is crucial in mergers primarily to comply with antitrust laws and other regulations. This compliance ensures that the merger does not create or enhance market power that could harm competition. Regulatory bodies, such as the Federal Trade Commission in the United States or the European Commission in Europe, assess mergers to determine if they would lead to anti-competitive practices, such as creating monopolies or significantly reducing competition in a market.

The review process helps protect consumers and the economy by ensuring that the merger does not lead to higher prices, reduced innovation, or fewer choices in the marketplace. Therefore, obtaining regulatory approval is a critical step in the merger process, as it legitimizes the deal and allows the merged entity to operate within the legal framework set by governing authorities.