The Federal Trade Commission (FTC) has recently enacted significant changes to the merger review process under the Hart-Scott-Rodino (HSR) Act, which are set to take effect in January 2025. These revisions mark the most substantial overhaul of the premerger notification requirements in decades, presenting new challenges for private equity firms. The goal of these updates is to enhance transparency and help regulators identify potentially anticompetitive transactions, particularly in industries where complex ownership structures have allowed deals to escape scrutiny in the past.
The new regulations aim to streamline the process by collecting more detailed information about mergers and acquisitions. According to Lina Khan, Chair of the FTC, the changes represent “a generational upgrade” designed to strengthen the agency’s ability to prevent mergers that could “substantially lessen competition or tend to create a monopoly” (Cumming 2024). These new rules will demand more time and effort from companies, particularly private equity firms, which typically manage a web of investors and affiliates. The updated HSR form now requires firms to disclose detailed information about deal structures, overlapping business relationships, and even supply chain connections. The added layer of reporting is intended to “shed light on complex and opaque entities,” Khan added (Cumming 2024).
One of the key areas the new rules target is private equity rollups, where firms acquire and combine smaller companies to form larger entities. Previously, these transactions often bypassed regulatory review because they fell below the minimum filing threshold, currently set at just under $120 million. Under the revised regulations, companies must now report rollups more thoroughly, providing a clearer picture of their impact on competition in the market. Despite the additional reporting burden, antitrust attorneys note that these new requirements may not necessarily lead to more deals being blocked. As John Ingrassia, a partner at Proskauer Rose, said, “They have all the tools to block a deal already… the new requirements will add time, cost, extra disclosures, and they will make firms unhappy. But ultimately, I don’t think this results in more deals being blocked” (Cumming 2024).
The FTC’s original proposals were even more demanding, including requirements for detailed labor market information, prior acquisitions dating back ten years, and comprehensive narrative competitive analyses. However, after receiving substantial criticism, the final rule was scaled back. As a result, firms now face a five-year look-back period and less extensive reporting on minority investments, which many in the private equity industry view as a slight relief. Commissioner Melissa Holyoak, one of two Republican commissioners, noted that several aspects of the proposed rule were rejected as they “would have exceeded the Commission’s legal authority” (Thomas 2024).
However, even the softened rules will require firms to devote significantly more time and resources to pre-merger filings. The FTC estimates that preparing HSR filings will now take an average of 105 hours, nearly tripling the current time requirement of 37 hours. To navigate these new complexities, businesses will need to establish better processes for gathering data and ensure they comply with the new requirements. This will include submitting regularly prepared strategic business documents that discuss market shares, competitors, or overlapping products, as well as providing detailed organizational charts showing ownership structures.
While private equity firms are among those most affected by the changes, other sectors will also feel the impact. Any merger involving companies with overlapping products, services, or supply relationships will face greater scrutiny. The new rules will require disclosing revenue data for the most recent fiscal year, identifying the top ten customers by sales, and detailing any defense or intelligence contracts that generate significant revenue (Thomas 2024).
Business lobbyists, including the American Investment Council (AIC), have expressed concern that these new rules will stifle innovation and discourage investment. AIC Chief Executive Drew Maloney said his group is “reviewing the new requirements to ensure they do not stifle innovation, discourage investment, and push an ideological agenda that undermines economic growth” (Cumming 2024). Although business groups may challenge the rules in court, antitrust experts believe that a legal battle may not be as successful as previous ones, such as the challenge to the FTC’s noncompete agreement ban. Given that the new rules were unanimously approved by all five FTC commissioners, including the two Republican members, the agency is seen as having strong legal ground to defend the changes.
The FTC’s revised merger rules under the HSR Act represent a significant shift in how mergers and acquisitions are regulated, particularly for private equity firms. While the rules have been softened from their initial proposal, they still impose additional time, cost, and paperwork burdens on merging parties. As these changes take effect in early 2025, firms will need to adjust quickly, adopting new protocols and working closely with legal experts to ensure compliance with the enhanced reporting requirements. Although the new rules are designed to increase transparency and protect competition, they also introduce uncertainty and potential delays for businesses looking to finalize deals.
Sources
Cumming, Chris. “New U.S. Merger Rules Would Weigh Heavily on Private Equity.” MSN, 16 Oct. 2024, www.msn.com/en-us/money/companies/new-us-merger-rules-would-weigh-heavily-on-private-equity/ar-AA1smsIt?ocid=BingNewsSerp.
Thomas, Jeane. “US - FTC Significantly Curtails Long-Awaited Changes to HSR Premerger Notification Rules and Procedures.” Conventus Law, 16 Oct. 2024, conventuslaw.com/report/us-ftc-significantly-curtails-long-awaited-changes-to-hsr-premerger-notification-rules-and-procedures/.
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