In a bold and transformative move that echoes throughout the corporate corridors of power, the US antitrust regulators are initiating a comprehensive redesign of their merger notification program, a shift poised to impose heightened demands on corporations and their legal advisors. This overhaul, unveiled on October 10 and scheduled to come into effect in January, represents a significant facet of the Biden administration’s ambition to intensify scrutiny over the landscape of mergers and acquisitions that shape the economic fabric.
Under the auspices of the Hart-Scott-Rodino (HSR) Act, businesses eyeing acquisitions exceeding $119.5 million will now be compelled to provide a more exhaustive array of information to the Federal Trade Commission (FTC) or the Justice Department. The existing procedural framework, critics argue, has inadequately addressed the growing complexity of transactions, particularly in an era where corporate machinations are increasingly sophisticated. As prospective deal-makers navigate this new terrain, they must now uncover details about overlapping businesses and intricate supply chains—an endeavor certain to inflate both time commitments and compliance costs.
FTC Chair Lina Khan has heralded this initiative as a “generational upgrade,” one that promises not just more rigorous oversight but also a stronger defense against anti-competitive practices poised to undermine market dynamics or pave the way for monopolistic powers.
The Cost of Compliance
While the enthusiasm for deals is unlikely to dwindle in the boardrooms, industry experts like Bruce McCulloch, an antitrust partner at Freshfields Bruckhaus Deringer LLP, caution that this regulatory evolution will impose a “greater tax on doing a deal.” Historically, the completion of HSR forms resembled the rapidity of basic tax filings, typically taking law firms less than a week. However, the new requirements are expected to extend the timeline substantially, demanding an average of 68 additional hours to finalize forms, with the time investment varying significantly based on the nuances of the deal.
The burdens will be borne largely by legal teams, yet in-house counsel and compliance departments will encounter their share of financial strains as well. The FTC estimates that additional costs could range from $5,830 to a staggering $70,500, with the actual figure fluctuating according to the scale and complexity of the transactions involved.
Complications multiply for acquiring firms dealing with overlap in products or supply chains. As McCulloch points out, “run-of-the-mill simple filings” could see a threefold increase in workload, while intricate scenarios could amplify this by five to seven times.
Document Demands and Overlaps
Beyond expense, internal counsel will be inundated with extensive new requirements for document collection. These include “ordinary-course-of-business” documents, such as plans and reports typically shared with upper management. The implications are profound; a single deal could necessitate combing through a year’s worth of documentation, effectively doubling the burden of record-keeping.
Despite a slight scale-back from previous proposals—specifically the exclusion of labor force details—the final demands maintain an expansive scope, targeting high-level business plans relevant to competition and intricate ownership structures. This last requirement poses unique challenges to private equity firms, where multiple stakeholders may intertwine within a transaction.
The new HSR form reaches far beyond the “data and document heavy” paradigm of its predecessor, demanding insightful descriptions of the merge rationale and the nuances of overlapping product lines and supply chain connections. Mike Keeley, at the helm of Axinn, Veltrop & Harkrider LLP’s antitrust practice, warns that merely jotting down information will no longer suffice; a careful interpretation of the data will be crucial as companies navigate potential regulatory scrutiny.
New Transactional Standards
Another pivotal shift within the updated requirements is the tightening of regulations surrounding preliminary stage transactions. Merging entities will now be asked to solidify agreements on transaction structure, employee retention strategies, and scope before approaching the regulators, nudging companies to opt for later filings rather than those based on vague preliminary agreements.
As Johnson notes, the new regulations demand clarity on essential transaction terms, inherently complicating early engagement with regulators.
In sum, as corporations brace for this imminent transformation, the landscape of mergers and acquisitions is set to witness a paradigm shift—one where navigating regulatory mazes promises to demand more than just strategic acumen; it necessitates an astute awareness of the growing complexities and responsibilities dictated by antitrust scrutiny. The time for corporations to prepare is now, as the era of greater accountability dawns on the horizon.
