April 29, 2024

By Matt Wiederrecht, Capstone M&A Analyst

The Biden administration is seeking to transform the mergers & acquisitions (M&A) landscape with a potentially paradigm-shifting tool for companies: a lot more paperwork.

The Biden administration has taken a whole of government approach to promoting industry competition with the goal of fostering lower prices, greater innovation, wage growth, and increased economic activity. While policy outcomes, such as promoting lower prices while simultaneously pushing workers’ wages higher appear to be at odds with one another, the Biden administration believes they are not, at least in the context of its competition policy. Central to the administration’s approach is the view that consolidation hurts workers and consumers across numerous industries, and policies promoting competition and preventing consolidation can help address these inequities.

To reach these goals, the Federal Trade Commission (FTC) last year filed a notice of proposed rulemaking (NPRM) that would amend the existing premerger notification rules. The new rulemaking would increase the quantity of documentation companies would have to submit to the FTC and the Department of Justice (DOJ) in connection with any deal large enough to require a Hart-Scott-Rodino filing under the 1976 antitrust law that goes by that same name.

The administration’s preferred solution requires that companies undergo a merger review process that is far more rigorous than the existing one, a process that could stretch the merger timeline for months as regulatory scrutiny of corporate combinations becomes more exacting.

The goal of this NPRM is to help regulators, particularly the FTC and Department of Justice (DOJ), better identify anticompetitive transactions that hurt workers or consumers. The administration’s preferred solution requires that companies undergo a merger review process that is far more rigorous than the existing one, a process that could stretch the merger timeline for months as regulatory scrutiny of corporate combinations becomes more exacting.

The current review process requires all companies over a certain size involved in a merger or acquisition to submit a very sparse Hart-Scott-Rodino (HSR) filing to the DOJ and the FTC, detailing basic information about the transaction and the companies involved.  However, the Biden administration believes that these filings do not give regulators enough information to determine whether a transaction may pose a threat to competition in the marketplace. To make matters worse from the administration’s perspective, once merging parties submit their HSR filings, the regulators have only 30 days to review the material before deciding if they should allow the deal to close. Proposed transactions that regulators believe might be anti-competitive typically get a second request for information within those 30 days, triggering a delay in closing the deal, pending a more exhaustive investigation.

In a typical year, roughly 2,000-3,000 transactions are large enough to require the companies to submit HSR filings. Still, given the resources available to the FTC and DOJ, fewer than 70 of these transactions resulted in second requests. Under the proposed rule, the DOJ and the FTC are seeking to make substantial changes to the HSR review process and require every one of the thousands of transactions reported to the agencies each year to submit at least some of the information that, under current rules, is typically provided only in a second request. This would allow regulators to get vast amounts of data on all pending deals, data they could use to apply greater scrutiny to transactions, with the goal of making their decisions about which deals to investigate and potentially even block more likely to sustain competition in the marketplace. The flip side is it would also substantially lengthen the merger review process as it could take several weeks or more to compile all the required information, as opposed to the several days it currently takes to compile an HSR filing.

According to the Office of Management and Budget’s Unified Agenda from the fall of 2023, the FTC’s final rule requiring these changes was expected to be released in February. Though the FTC missed this deadline, we believe the goal remains getting a final rule completed in 2024, before a potential change in administration. For the Biden administration, it would be ideal for the rule to be in place within the next few months so that it cannot be easily repealed by a resolution from Congress should Republicans win the presidency and both chambers of Congress in the November elections.

Much of the information regulators would gather under the new regime, such as data on Department of Labor enforcement actions, foreign tax subsidies the companies benefit from, classifying their employees by occupation groups and geography, and loans taken out at foreign subsidiaries, is not remotely related to what regulators typically examine when looking for violations of antitrust law. However, some of the information that might be gathered under the new rules, while pertinent to crucial aspects of a given deal may also be highly confidential. Such data could include business plans, all studies, and reports related to a transaction prepared by the company or its consultants, analysis of synergies and efficiencies, and data on customers, suppliers, and competitors.

This new approach promises a potentially transformative impact on mergers and acquisitions—developments companies and investors should be closely monitoring.

These new rules would have a big impact on the M&A process:

• HSR reviews would take far longer to complete because of the additional time needed to compile information for regulators in the expanded HSR filings.
• Companies will probably have to pull and refile their HSR filings more frequently because regulators lack the staff to handle the influx of information they will receive with these new, more expansive HSR filings.
• Second requests for information will likely be far more common as the more expansive HSR filings will give regulators insights into why specific transactions are being pursued. These insights could lead regulators to question whether a transaction might be anti-competitive.

This new approach promises a potentially transformative impact on mergers and acquisitions—developments companies and investors should be closely monitoring. We’ll certainly be helping clients work through this conundrum. We expect conversations around the potential of longer processes, increased regulatory demands, and a fundamental reevaluation of what information is deemed crucial in assessing antitrust concerns to grow both in boardrooms and investment committees.

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