On June 27, 2023, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) jointly released a Notice of Proposed Rulemaking (NPRM) suggesting significant changes to the existing premerger filing requirements under the Hart-Scott-Rodino (HSR) Act, which applies to all potential mergers valued at $111.4 million or more. These proposed rule changes follow the FTC’s first comprehensive review of the HSR filing form in over 45 years, driven by concerns that current filing requirements fail to request the crucial data and information needed to effectively evaluate a transaction’s potential impact on various corporate stakeholders and the public at large.
If implemented, these changes would drastically increase the amount of data, documents, and information required for HSR filings, resulting in higher costs and preparation time, even for transactions without competition issues. The proposed rules were open for public comment until September 27, 2023, however, the final scope and timing of these changes remain uncertain. However, it’s clear that the agencies intend to revamp the HSR filing process in some way. Companies considering transactions in the coming years should proactively organize the data identified in the NPRM, in an effort to lessen the burdens the revised HSR requirements will naturally create.
Key changes in the proposed rules include:
Information About the Transaction and Parties: Expanded requirements for identifying board members, majority and minority shareholders, parent companies, creditors and any other entities involved in the transaction, including any individuals or entities connected to the acquiring entity that could exert even minor influence over the business.
Documents Related to the Transaction and Overlaps: A new requirement to submit all draft transaction documents and/or term sheets prepared by the parties and a wider range of existing company agreements, including existing non-compete and non-solicitation agreements, and additional documents related to overlapping products or services.
Information About Competitive Overlaps and Vertical Relationships: A new requirement to provide more detailed information on acquisitions involving overlapping NAICS codes, product and service categories, employee data, and geographical information.
National Security and Document Retention: New requirements concerning document retention and disclosure of deal funding partners, particularly those from foreign entities or countries that aim to provide goods/services to U.S. defense or intelligence customers.
The proposed changes represent a substantial shift in the HSR filing process, increasing the burden and cost for all parties, irrespective of a company’s size or position in the market. The Agencies seem to aim for stronger enforcement in various areas, such as competitive interlocks and labor data. These proposals align with recent executive branch efforts to oversee large strategic M&A transactions, discourage deals promoting market monopolization, and address concerns regarding document preservation and private equity roll-ups.
Should these changes be finalized, parties involved in transactions should anticipate adjusting their transaction timelines and cost analysis, in preparation for 2024 and beyond. While it is still unclear how exactly the NPRM will shape out, competent legal counsel can provide valuable assistance in understanding, addressing, and overcoming the new HSR filing requirements, including data capture, document management and production, database creation, and FTC communications.
If you or your company are considering a merger transaction in the coming years, please reach out to Berenzweig Leonard LLP’s Corporate Transactional practice. We would be happy to assist you in all of your transactional needs, including navigating the ever-evolving regulatory landscape.