The Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) established the federal premerger notification program, which provides the Federal Trade Commission (FTC) and the Department of Justice (DOJ) with information about large mergers and acquisitions (M&A) before they occur. The parties to certain proposed transactions must submit premerger notification to the FTC and DOJ about the proposed transaction and information about each company’s business. The parties may not close their deal until the waiting period outlined in the HSR Act has passed, or the government has granted early termination of the waiting period.
On June 27, the FTC and DOJ proposed new merger-filing rules that would require firms to provide more information about their large M&A transactions . The new FTC proposal expands on some existing requirements and imposes several new reporting requirements for transactions over a certain size. The potential updates to the HSR filing process will impact transactions valued at over $111.4 million, as this is the filing threshold for 2023. An HSR filing will also need to be made if either the seller or buyer in the transaction has $222.7 million or more in total assets, or annual net sales, and the other party has $22.3 million or more in total assets or annual net sales.
Larry Summers, former U.S. Treasury Secretary and Economist, stated that the new rules on M&A by the U.S. government “seems like a war on business.”1
How will the updated HSR filing rules impact M&A deals?
Expanding the requirements for an HSR filing could delay deals because firms will need to spend much more time on the more demanding process. Here’s why:
- It will take more time to prepare HSR filings. The FTC estimates that the new rules may quadruple the time needed to complete the filings, to an average of 144 hours, up from the current 37 hours. However, according to Bloomberg, companies may need to spend potentially more time – possibly adding months to the current seven to ten days needed to prepare their filings.2 Firms will also need to produce lengthy narratives, which current HSR forms don’t require, about the strategic rationale for the transaction, the competitive landscape, and workforce and labor markets.
- Companies will need to collect a larger set of financial data, business information and documents. This includes certain documents that are unrelated to the transaction, such as quarterly plans about competition and market data that were shared with senior executives. Other information that will need to be presented includes information on a company’s officers, directors, and data on the firms’ employees. Furthermore, disclosures of subsidies by some foreign governments will need to be disclosed.
- There will be new disclosure requirements related to the seller’s and buyer’s prior acquisitions. Although the HSR filing process only applies to deals valued at over $111.4 million, the buyer and seller will need to list all previous acquisitions (of any size) for the prior ten years in any business with a potential overlap. The FTC commented that this rule helps with the FTC’s potential competitive concerns around roll-up strategies.
How can insurance brokers prepare for the new filing rules?
- Build in more time. This may seem obvious, but extending the agreed upon timetable allows for the necessary preparation and resources for delivering the HSR filing. Additionally, having systems in place that facilitate the collection of information and documents may help cut down on the extra time needed to complete the filings.
- Develop improved strategic internal systems to handle documents. Take a close look at your current processes for handling, tracking and recording strategic documents – and identify methods to improve them, in order to more efficiently handle the new HSR requirements. It will be important for companies to have strong document retention and creation processes in place. Having a process in place may cut down on the time and resources needed for future M&A filing processes.
- Work with an experienced advisor. Working with an advisor with expertise in the industry and extensive transaction experience may help a firm navigate the more extensive HSR filing requirements. Advisors can also assist with strategies to manage potential antitrust risks posed by non-reportable transactions that need to be reported with an HSR-reportable transaction involving a similar line of business.
Unlike the recent FTC proposal to ban non-compete agreements, the number of submitted comments opposing the HSR filing modifications hasn’t been as strong. Legal analysts anticipate the new filing rules to be adopted within 4-6 months and possibly take effect in Q4 2023 or Q1 2024, leading to a new process for the completion of M&A deals that will require greater costs and time. Companies should be proactive and prepare their internal systems to manage those costs and minimalize delays.
If you have questions about Today’s ViewPoint or would like learn more about how MarshBerry can help your firm determine its path forward, please email or call Brian Ambrosia, Director, at 440.220.5430.
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