Two prominent Democratic politicians have introduced an act that could pause some potential mergers and acquisitions across industries, including the promotional products market, as a top U.S. antitrust official called the proposed legislation “misguided.”

Senator Elizabeth Warren of Massachusetts and Rep. Alexandria Ocasio-Cortez of New York recently put forward “The Pandemic Anti-Monopoly Act.” The legislation aims to “stop large corporations from exploiting the coronavirus pandemic to engage in harmful mergers.”

[At left] Sen. Elizabeth Warren; [At right] Rep. Alexandria Ocasio-Cortez

If enacted, the legislation would impose a moratorium on what the congresswomen described as “risky mergers” until the Federal Trade Commission determines that “small businesses, workers and consumers are no longer under severe financial distress.”

The merger moratorium would apply to companies with more than $100 million in revenue or financial institutions with more than $100 million in market capitalization.

Warren and Ocasio-Cortez would also look to have the merger moratorium imposed on private equity companies, hedge funds, or companies that are majority-owned by a private equity company or hedge fund. The proposed act would also include pausing all waiting periods and deadlines imposed on antitrust agencies during the moratorium.

On Wednesday, May 13, Warren and other Democratic members of congress escalated their fight against large mergers by sending a letter that calls on the Federal Reserve and Treasury Department to halt all mergers between large companies that received so-called “bailout” money from Congress’ coronavirus relief packages.

The same day, Makan Delrahim, the top antitrust official in the U.S. Department of Justice, said that the type of blanket moratoriums that Warren, Ocasio-Cortez and other Democrats are advocating for doesn’t appear to be the right approach.

Makan Delrahim, Antitrust Division, U.S. Department of Justice

“We haven’t seen the legislative language, so we can’t have any official position on it,” Delrahim said in an interview with CNBC about the Pandemic Anti-Monopoly Act. “However, I think it would be misguided to just block all attempts for transactions.”

Delrahim continued: “For every complex problem, there’s a very simple solution – and it’s wrong.” He noted that some transactions might be “very necessary” now to ensure that companies have liquidity and to keep workers employed.

According to Counselor’s most recent list of the Top 40 distributors and suppliers in the promotional products industry, 19 distributors and 16 suppliers have revenue in excess of $100 million. Meanwhile, private equity firms have, in recent years, shown an increasing interest in the promotional products industry, with a growing number of PE outfits buying majority stakes in promo companies.

Some promo industry leaders believe that merger and acquisition activity in the promo products space is poised to increase.

“It seems inevitable that the pandemic will drive more mergers and acquisitions in our industry,” said Marc Simon, CEO of Sterling, IL-based HALO Branded Solutions (asi/356000).

HALO, which had 2018 North American promo revenue of $605 million, has been actively making acquisitions in recent years, including acquiring former Top 40 distributors like Sunrise Identity and Axis Promotions.

Simon, a perennial member of Counselor’s Power 50, elaborated on why he believes M&A will rise because of COVID-19 fallout.

“The dramatic decline in traditional promotional product revenue will be problematic for businesses that cannot reduce operating expenses fast enough and deep enough to be proportionate to the revenue decline and still provide basic services their customers require,” he said. “Further, many of our industry participants do not possess the liquidity that can see them through a prolonged downturn of this magnitude if they do not quickly right-size to these new revenue realities. The highly fragmented nature of our industry and the presence of so many smaller companies makes our industry particularly vulnerable.”

While it remains unclear how Democrats’ merger moratorium proposals will play out, congressional Republicans have criticized calls for the clampdown on M&A.

In a letter to Delrahim, Republicans wrote: “Unfortunately, these ideas are part and parcel of the latent socialism embraced by many modern Democrats, which represents an existential threat to America’s economic superiority.”