They won't avoid it to get some minor edge.
They will avoid it because every company formation and financial advisor will point out that it's commercial suicide to start your own company in that environment, and that instead you should take your idea to an existing company which specialises in opening "nearly autonomous departments", for an instant 30% or so increases in post-tax income, or 30% edge over competition on prices, or 30% edge on salaries you can pay, for exactly the same kind of business. (30% representative of some countries not others... adjust for your locale).
The few real companies specialising in that would love your M&A and tax regulations, as they could take a few % of every small business' profits, and have some levers of control, effectively government mandated.
After that, the millions of small companies which already existed, who cannot consolidate due to your M&A restrictions, will gradually either go out of business due to competition, or find a way, though contracts, deeds etc, to transfer their activity into these "autonomous department" companies without actually merging. It's not uncommon to transfer some of a company's activity this way already, so that would just be scaling it up.
You can try restricting all of that, but it will be very difficult as you would have to do it restrict what sorts of things people can agree to in contracts in a very significant way, and in doing so, restrict what are currently effective business arrangements for some companies to make them less effective. That would be an enormous change to business culture, and I suspect even if you did restrict what can be agreed in private contract terms, alternative ways to transfer what gets done where would be found very quickly and easily.
In short the market/regulatory environment should support disaggregated business as a first class citizen, mergers and vertical integration as a very second-class construct. To the tune of if you merge, you must maintain 3 sets of accounts. The original accounts separately, and a combined set. You must gain more capability or utility to create value for the public as the combined company than by being separate. The capacity to measure the utility amplification being facilitated through the extra set of books. As more companies are bought and merged, the audit workloads would increase very quickly. Failure to make a good case for why you should continue to run as a merged company kicks in an orderly spin-off of the previous acquisition to get operated by someone else. M&A's should not be one and done. This greatly complicates hostile takeovers, makes the business model by which large entrenched entities buy out and kill up and coming competitors, at best, a stalling tactic, but more often a worthless waste of time to the perpetrating company as much as it is to the public.
If you let M&A's have their cake (the capital assets of another company) while giving them the option to cut fat without insisting that they "compensate" the public for the decrease in competition, only one side will ever benefit, and it won't be the public.