U.S. Authorities Set to Implement Stricter M&A Filing Requirements
The Federal Trade Commission (FTC) is introducing significant changes to U.S. antitrust regulations governing mergers and acquisitions (M&A). These updates to the Hart-Scott-Rodino (HSR) Act represent the most substantial overhaul to U.S. antitrust laws in over 40 years, adding several administrative layers to the M&A process.
The FTC, with support from the Department of Justice (DoJ), has unanimously approved a comprehensive revision of the HSR Act rules. Since 1978, the HSR Act has required companies planning certain mergers or acquisitions to notify federal regulators and await approval. The new rules will introduce additional reporting obligations, and they are expected to take effect in January 2025—although businesses may challenge these regulations in court, potentially delaying the implementation.
Impact on the M&A Process
The revised HSR regulations will increase the time, effort, and costs associated with M&A filings. The FTC estimates that companies will need an additional 68 hours on average to prepare the required documentation—nearly double the current time. More complex transactions could require as much as 121 extra hours.
Why the HSR Filing Reforms Were Introduced
The initiative to reform the HSR filing process stems from concerns expressed by FTC Chair Lina Khan. Khan has argued that the existing framework does not provide enough information for the FTC or DoJ to effectively assess potential antitrust risks, leading to delays and inefficiencies.
Fifteen months before the final rules were announced, the FTC issued a Notice of Proposed Rulemaking (NPRM) outlining the proposed changes. Despite pushback from stakeholders claiming that the reforms would impose excessive burdens, the FTC moved forward with the revisions. Even when no immediate antitrust concerns exist, companies will face increased reporting obligations under the new rules.
Key Changes in the HSR Filing Requirements
The new HSR regulations introduce several enhanced obligations for companies involved in mergers and acquisitions:
- Comprehensive Transaction Explanation: Filers must now provide a detailed rationale for the transaction, outlining the primary products and services of each party and identifying any overlaps.
- Sales Data Disclosure: For each overlap, companies must provide relevant sales data, anticipated revenue, or user growth metrics. They must also disclose their top ten customers for these products.
- Supply Chain Information: Filers must reveal any supply relationships between the merging entities or between one entity and the other’s competitors, particularly for products generating over $10 million in annual sales.
- Foreign Subsidies Disclosure: Companies will be required to report any subsidies received from foreign governments or entities of concern, such as those from China, Russia, North Korea, and Iran.
- Government Contracts Disclosure: Firms with sensitive contracts involving U.S. government agencies, such as the Department of Defense, must disclose these agreements, especially if they pertain to competitive overlaps between the merging parties.
Additionally, filers must submit not only the main transaction agreement but also any ancillary agreements, exhibits, non-compete clauses, and schedules. If a letter of intent or term sheet is used instead of a definitive agreement, detailed information regarding the transaction must be provided.
Challenges Ahead for Merging Entities
Although the FTC has scaled back some of the more contentious elements of its original proposal from June 2023, the final regulations still represent significant changes. The new rules are expected to extend the timeline for M&A approvals and increase costs for businesses.
Despite unanimous approval from the FTC’s five commissioners, statements from Republican commissioners Melissa Holyoak and Andrew Ferguson suggest that their support was likely conditional. Their backing may have hinged on negotiations that moderated the scope of the changes or linked to the reinstatement of the early termination of the HSR waiting period, which had been suspended early in President Biden’s administration. Early termination allows for expedited approval of straightforward transactions that don’t raise antitrust concerns.
Engage Legal Counsel Early
For companies considering mergers or acquisitions, it is essential to involve antitrust legal counsel early in the process. Businesses should prepare for extended timelines and increased costs when compiling HSR filings. Internal teams responsible for strategic evaluations must also be aware of their new obligations.
The recent changes to HSR filing requirements by the Federal Trade Commission mark a transformative shift in the U.S. antitrust landscape. Companies engaged in M&A activities will face significantly heightened reporting responsibilities, emphasizing the need for proactive, comprehensive planning to navigate these new regulations successfully.
