If you’re thinking of making a M&A deal within the next year or so, be prepared for it to take a lot longer than usual.
That’s because the FTC and DOJ have plans to overhaul the documentation companies must submit to comply with the Hart-Scott-Rodino (HSR) Act. Enacted in 1976, that antitrust legislation stipulates that, before making a merger or acquisition over a certain threshold ($119.5+ million in 2024), companies must file paperwork with the FTC and DOJ. In June 2023, the agencies proposed sweeping changes to the HSR filing process that would require companies to report much more information on topics such as ownership structures, business operations, investment vehicles, previous acquisitions, and the potential effect a deal could have on competition, supply chain relationships, and labor markets.
“The burden of collecting all those documents is onerous,” Ed Schwartz, a partner in the antitrust and competition group at global law firm Reed Smith, told CFO Brew. The information the agencies are requesting is extremely granular, he said: They’d want to see “narrative descriptions of all business lines,” for example, and locations of business units—down to the longitude and latitude coordinates. Plus, they’d require information about noncontrolling entities and minority stakeholders, which would “have to be collected from third parties,” he said.
The upshot, Schwartz said, is that HSR filings are very likely to take a lot longer—and become a lot more costly. The FTC estimates that the revisions could quadruple the time needed for a company to complete the HSR documents—and Schwartz said many observers think that’s an underestimate. Under the current rules, his firm “can put an HSR [filing] together in a week if we have to,” he said. “Now, we’re talking a month’s worth [of work], maybe longer.”
News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
Start prepping now: It’s not clear when the revisions will be finalized, but Schwartz said he expects it to happen before the end of President Biden’s current term. He’s advising clients to start gathering the information they’d need for a revised HSR filing now, even if they don’t currently have a deal on the horizon. For instance, they could compile a list of transactions made over the past 10 years—which is something the revised rule would require—or employee information organized under the Standard Occupational Classification system.
Get all your docs in a row: The HSR revisions would also require companies to file more documents than they’ve done in the past—including draft versions of documents pertaining to the merger or acquisition, Schwartz said. He recommends that companies “ratchet up the amount of care that officers, directors, and supervisory deal leads take in preparing those documents,” he said, noting that they may need training to avoid putting any language in writing that “could come back to bite them if the deal goes forward.”
Higher filing costs ahead: CFOs, Schwartz said, should be especially mindful of how the revisions could increase the cost of filing. Transactions are currently being subjected to longer investigations in general, he said, which has made it more costly to get clearance. “Once it becomes public that your company’s being sold,” he said, “you’re kind of on the clock, and the longer the path to clearance takes, the more it’s going to cost you.”